France, Greece Elections Will Likely Cause Markets To Stumble

CP  |  By Posted: 05/06/2012 7:06 pm Updated: 05/09/2012 5:25 pm

WASHINGTON - Financial markets will likely stumble this week after elections in Greece and France cast a pall of uncertainty over Europe's efforts to solve its debt crisis.

Greek voters on Sunday voted mostly for two parties that want to change the nation's international bailout terms or even overturn the rescue deal, according to early projections of the election results. Greece won't have a government until parties with divergent worldviews can form a governing coalition.

Greek voters are reacting against spending cuts imposed on the recession-weary nation by the international lenders whose bailouts are keeping it afloat.

French President Nicolas Sarkozy lost in a runoff election to Socialist candidate Francois Hollande. Hollande has criticized France's austerity program and wants to encourage growth by boosting government spending.

Sunday's votes raise serious doubts about whether voters will swallow the current plan of international bailouts coupled with severe cost-cutting, economists said.

Many experts believe the austerity program is necessary to keep bond investors from panicking about the possibility that more European nations will default or require bailouts.

But a growing number say the cuts have been too much, too fast. They say the region's economy can't return to growth unless governments stop tightening the fiscal noose and start spending again to create demand.

Much depends on the reaction of investors in debt issued by European nations, said Dimitri Papadimitriou, president of the Levy Economics Institute at Bard College. If they fear that the crisis response is losing momentum, they will likely demand higher interest rates — not just from Greece, but from other nations seen as carrying too much debt.

The result would be rising borrowing costs for Greece as well as countries that haven't received bailouts, like Italy and Spain. Rising borrowing costs sent global stock markets diving last year. Uncertainty about the path forward in Europe may mean a return to extreme market volatility after several months of relative calm.

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Daniel Wagner can be reached at www.twitter.com/wagnerreports.

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  • Supporters of Socialist Party candidate for the presidential election Francois Hollande react after the first results of the second round of French presidential elections outside Socialist Party campaign headquarters in Paris, France, Sunday, May 6, 2012. First results show that Hollande had won the election. (AP Photo/Francois Mori)

  • A supporter of outgoing French President Nicolas Sarkozy's Union for a Popular Movement (UMP) cries as the preliminary results of the second round of the presidential elections were announced at UMP headquarters in Paris Sunday May 6, 2012. (AP Photo/Michel Euler)

  • Union for a Popular Movement (UMP) supporters wave the French flag as they wait for preliminary results of the second round of the presidential elections at UMP headquarters in Paris Sunday May 6, 2012. France voted in a presidential run-off election Sunday expected to see Socialist challenger Francois Hollande defeat incumbent Nicolas Sarkozy by capitalizing on public anger over spending cuts and a Europe-wide push for austerity. (AP Photo/Jacques Brinon)

  • Socialist Party candidate for the presidential election Francois Hollande poses with residents after visiting a polling station near Tulle, central France, Sunday, May 6, 2012. (AP Photo/Lionel Cironneau)

  • A disabled person is seen inside a pollong booth prior to casting a vote for the second round of the presidential election in Paris Sunday, May 6, 2012. (AP Photo/Francois Mori)

  • Socialist Party candidate for the presidential election Francois Hollande waves as he tours through villages near Tulle, central France, after voting in the second round of the presidential elections, Sunday, May 6, 2012. (AP Photo/Bob Edme)

  • French President and UMP candidate Nicolas Sarkozy waves to wellwishers as he and his wife Carla Bruni-Sarkozy, center right, leave after casting their votes for the second round of the presidential elections in Paris, Sunday, May 6, 2012. (AP Photo/Michel Euler, Pool)

  • French President and UMP candidate Nicolas Sarkozy, center, and his wife Carlas Bruni-Sarkozy, right, leave after casting their votes for the second round of the presidential elections in Paris, Sunday, May 6, 2012. (AP Photo/Michel Euler, Pool)

  • French President and UMP candidate Nicolas Sarkozy, center left, casts his vote for the second round of the presidential elections as his wife Carla Bruni-Sarkozy, left, looks on in Paris, Sunday, May 6, 2012. (AP Photo/Michel Euler, Pool)

  • Supporters of Socialist Party candidate for the presidential election Francois Hollande react after the first results of the second round of French presidential elections outside Socialist Party campaign headquarters in Paris, France, Sunday, May 6, 2012. First results show that Hollande had won the election. (AP Photo/Remy de la Mauviniere)

  • Supporters of Socialist Party candidate for the presidential election Francois Hollande react after the first results of the second round of French presidential elections outside Socialist Party campaign headquarters in Paris, France, Sunday, May 6, 2012. First results show that Hollande had won the election. (AP Photo/Francois Mori)



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