It has been a weekend of major change in the European political landscape with elections in France, Greece, the UK, Germany and Italy.
In France left-wing Francois Hollande has swept to power beating Nicolas Sarkozy in a win that was far more narrow than the polls had suggested. As he replaces the Conservative Nicolas Sarkozy at the Elysee Palace, Hollande will be watched closely by investors given he is now the second most important elected official in the euro zone.
Investors have worried that Hollande’s relationship with Angela Merkel could be tense at best and worry that differences of opinion on how to solve the debt crisis could lead to political and market uncertainty.
Others are not so worried, saying Hollande’s true colors are not yet known.
“As I have argued for some time, I don’t think you need to be overly concerned about the exit of Sarkozy and entry of Hollande, but we won’t get to know the true colors of Hollande’s policies until after the parliamentary elections are decided on 17 June,” said Unicredit Chief Economist Erik F. Nielsen said in a research note on Sunday.
In Greece the ruling coalition saw its support fall sharply and head to hard left and hard right parties who oppose the conditions imposed upon the country by its recent EU/IMF bailout. The conservative New Democracy and Socialist PASOK, who have dominated Greek politics for decades, won less than 40 percent of the total vote combined according to exit polls. This would mean they cannot form another coalition and it will be very difficult for either party to do business with the two big winners of the election.
The Left coalition, which could claim second place in the poll and beat the socialist PASOK party into third place, was the big winner of the vote and will be unwilling to form a government that does not attempt to renegotiate the terms of Greece’s bailout with the EU and IMF.
Ahead of the vote its leader Alexis Tsipras told the Observer Newspaper in the UK that "Merkel should worry and Europe should hope in us."
“If the politics of austerity continue, Europe is in big danger of breaking up. These policies are causing unhappiness, unemployment and poverty, as in the 1930s. Europe needs social solidarity and not to work according to market laws."
The big parties will also find it difficult to deal with the far right Golden Dawn Party which won between 6-8 percent of the vote and will now enter the Greek parliament, the first time such a party has sat in the building since the fall of Greece’s military dictatorship in 1974.
If a majority coalition cannot be agreed upon, then Greeks are likely to have to go back to polls before the summer is out, adding huge uncertainty to the euro zone at a time when Spain’s debt problems already has the market on edge.
It is not all about France and Greece this weekend. In the UK late last week, local elections made life very difficult for David Cameron’s coalition government and offered hope to Ed Miliband’s left wing opposition Labour Party. Cameron’s Conservatives won 31 percent of votes at a national level and his coalition Liberal Democrats won just 16 percent. Divisions are appearing among lawmakers who are now very worried of losing their seats in a general election.
As one right wing member of Cameron’s team called for someone to challenge his leadership before the year is out, the UK Chancellor, George Osborne, used an interview on the BBC and an op-ed in the Mail on Sunday to get back on message following weeks of bad press on everything from Rupert Murdoch to the National Health Service.
“We take it on the chin and we have got to learn from what you are saying... what people are saying is focus on the things which really matter like the economy, welfare, education, crime and healthcare... and not get distracted by too many other issues," Osborne told the BBC.
Labour’s shadow Chancellor Ed Balls used another interview to question Osborne’s judgment and claim his plan on austerity had failed and could not be blamed on the Euro Zone.
Over in Germany, in another signal that incumbent leaders are not the flavor of the month, Angela Merkel’s Conservatives had their worst showing in the state of Schleswig-Holstein since the 1950’s. This election will not get the biggest headlines this weekend but could be very important given opposition to German taxes being used to shore up the increasingly unpopular euro and its highly indebted members. Merkel’s CDU conservatives are now neck and neck with opposition socialist party in the state that borders Denmark in the north of the country.
In Italy, Mario Monti was not on any ballots as voters began two days of voting for 942 City councils. The results when clear will give us a good indication about how Italian voters feel about his policies and the parties that are backing his national unity government, Berlusconi’s People Freedom Party and the centre-left Democratic Party.
It will take time for all the excitement of the weekend to calm down, but before the month is out the Irish will be voting in a referendum on the recent EU Treaty making it difficult for anyone to ignore European voters for long.