Belfast Telegraph

Markets fall as voters turn backs on austerity

By David Elliott & AP

News of a new socialist president in France and an inconclusive election in Greece has sent stock markets around the world tumbling and made life more difficult for Northern Ireland's exporters.

The Greek stock market slumped nearly 7% yesterday while both the German and French markets were also around 1% lower, and the euro had fallen to a three-and-a-half year low against sterling. The weaker euro means our exporters have to lower their prices to compete on European markets.

Investors took the election news in both regions as a sign harsh austerity measures, implemented by the governments of both France and Greece in an effort to pay off mounting sovereign debt, are unlikely to last after coming up against voter discord.

If that happens the recovery plans of both regions and those of other European countries are expected to be viewed with increasing caution by international borrowers and interest rates for European government bonds will soar.

Investors have been particularly spooked by the election in Greece yesterday, which has resulted in a split parliament where no party looks like it will be able to form a government.

The two parties that governed as a coalition for the past six months were pummelled to the benefit of more extreme parties of the right and left. The socialist Pasok party suffered the biggest retreat. Its share of the vote collapsed from around 43% in the last election in 2009 to a little over 13%.

A period of uncertainty looms for the bailed-out country, which is in its fifth year of recession and has over half its youth out of work following big spending cuts and tax increases in return for crucial international bailout funds.

If no government can be formed that can command a majority in parliament, another general election within the next two months seems possible.

"As for the Greek elections, they resulted in complete uncertainty with the possibility of another election taking place in the near future in order to try and put in place a government that can actually have some modicum of control," said Gary Jenkins, managing director of Swordfish Research.

Further weighing on sentiment is the defeat of French President Nicolas Sarkozy to his socialist rival Francois Hollande, who has campaigned on the need for more growth-generating economic policies and less reliance on austerity. Final results from the presidential election showed Hollande narrowly defeating incumbent Sarkozy with 51.62 % of the vote.

Even German Chancellor Angela Merkel suffered a setback yesterday in a regional election in the northern state of Schleswig-Holstein. Merkel and her government have borne the brunt of the criticism over Europe's austerity drive.

"Election defeats for President Sarkozy, and for the main coalition parties in Greece and for Angela Merkel's party in Schleswig Holstein highlight voter backlash against austerity, economic contraction and unemployment," said Neil MacKinnon, global macro strategist at VTB Capital.