Tomorrow, May 6, 2012, will be a big day for both France and Greece. The French people are set to vote for their next president. Meanwhile, parliamentary elections will take place in Athens.
For sure, hardcore market junkies will be on their toes for updates from both countries. Let me tell you why.
The French will choose between their current leader Nicolas Sarkozy and Francois Hollande as their next president. They had their first round of Presidential elections on April 22. However, because neither of the two candidates secured a majority, a second round will be conducted tomorrow.
Analysts are worried about the French elections for one very obvious reason.
Just like Mario who has Luigi and Batman who has Robin, German Chancellor Merkel had always found an ally in Nicolas Sarkozy in pushing debt-ridden countries to implement tough austerity measures. However, some are saying that the infamous Franco-German tandem might dissolve if the polls are right and Hollande is elected as the next French president.
You see, Francois Hollande has made it clear that he is a bigger fan of growth than austerity. In his campaign speeches, he has expressed his plans to renegotiate deficit and debt limit mandates to emphasize economic growth.
There is widespread skepticism about how the euro zone could maintain its commitment to putting its balance sheets in order if France stops backing up Germany in demanding for austerity measures.
But wait! Before you start biting all your nails off for France, you may want to spare some for Greece as a few economic gurus argue that it is the bigger political risk.
If you remember, Greece has been led by a caretaker government headed by Lucas Papademos after Prime Minister George Papandreou stepped down in November 2011.
A little background information that you have to know is that there are two main parties in the country: the conservative New Democrats and the Socialist Pasok. The trouble is that both have grown unpopular among the public with their agreements to budget cuts while other smaller parties have gained support.
The ideal outcome for tomorrow’s election would be for one party to emerge on top. However, political analysts say that that scenario is as unlikely as Justin Bieber becoming the next U.S. president. Ha! Silly, right?
Instead, the best that everyone could hope for is for the two parties to get enough combined votes and work side-by-side in a coalition government. But that in itself is a tall order to fill. Polls show that both parties will only garner about 38% of votes.
If New Democrats and Pasok don’t secure the majority, new elections will have to be conducted. This is bad news because this would imply political instability. Other smaller parties in Greece are strongly against austerity measures and the government will have a harder time implementing budget cuts demanded by Greece’s creditors. Heck, naysayers even think that it could eventually lead to a Greek exit if it ends up asking for a third bailout. Yikes!
In this old man’s opinion, I think that Greece’s elections will have a more significant impact in the short-run. It seems to me that markets have had more time to price in a win by Hollande than talks of political instability in Greece.
With that in mind, I’d have to say that I won’t be surprised to see a repeat of what happened on the charts when the political debacle in the Netherlands hit headlines last week and caused EUR pairs to gap down. But that’s just me. What do you think?