Uncertainty seen after French, Greek elections
Updated: Mon May. 07 2012 12:01:47Key elections in France and Greece sparked more worries about Europe's ability to handle the burgeoning debt crisis, leaving investors concerned about the stability of the European economy.
The main stock exchange in Athens closed down 6.7 per cent alone on Monday, after falling 8 per cent -- its biggest drop since October 2008 -- earlier in the day.
Meanwhile, Eurozone shares recovered from year lows following a knee-jerk reaction to the election results. Still the German stock exchange was lower while the French stock exchange tip-toed into positive territory. The London Stock Exchange was closed on Monday.
The Athens exchange tumbled after Greece's two main political parties failed to win a combined majority as voters backed anti-austerity parties.
The country, which has already received much financial aid and bailouts from other countries, faces another election within two months if it cannot form a majority government.
Greece is in the fifth year of recession and has more than half its youth out of work following big spending cuts and tax increases in return for crucial international bailout funds.
Colin Cieszynski, a market analyst at CMC Markets in Toronto, said the Greek vote adds another layer of uncertainty to an already volatile situation.
"There is nobody in charge so who do you negotiate with and what are the policies going to be going forward?" he told CTV News Channel.
"What we are really looking at in terms of uncertainty going forward is what will the next round be like? Will the next round of austerity measures go through or will they have to come up with some sort of balance between growth and austerity?"
Markets were also roiled after French socialist candidate Francois Hollande defeated President Nicolas Sarkozy in a narrow vote Sunday. Hollande campaigned on the need for more growth-generating economic policies and less reliance on austerity.
"Austerity can no longer be inevitable!" Hollande declared in his victory speech.
Pundits, noting that Hollande also campaigned on a platform for change, suggested that change is exactly what France and the rest of Europe could experience.
Matthias Matthijs, a professor at American University, said Hollande's election could be considered a "very important vote" given that leaders in Spain and Italy want more emphasis on growth and structural reform as well.
"I think we might have more orienting of the European story towards more growth and less aggressive cutting," he told CTV News. "I think in that sense it is a very important vote."
Despite the election setbacks, world leaders vowed to work with the new French government.
The White House said President Barack Obama called Hollande after the results were announced.
"President Obama indicated that he looks forward to working closely with Mr. Hollande and his government on a range of shared economic and security challenges," the U.S. said in a statement.
"President Obama noted that he will welcome President-elect Hollande to Camp David for the G-8 Summit and to Chicago for the NATO Summit later this month, and proposed that they meet beforehand at the White House."
Meanwhile, Germany vowed to continue its co-operation with France to maintain European Union policies. Chancellor Angela Merkel spoke with Hollande for the first time on Monday.
"We said we will work well and intensively together," she told reporters. Merkel has invited Hollande to come to Germany after his inauguration.
However, Merkel cautioned against hopes that the austerity measures already agreed by European leaders could now be renegotiated.
"We in Germany, and I personally, believe the fiscal pact is not up for negotiation," she said.
Canadian Minister Stephen Harper also called Hollande Sunday to express his desire to work closely with France.
With files from the Associated Press