Goodbye Euro?

News that France has voted for socialist president Francois Hollande and Greece has voted out their mainstream political parties in retaliation over austerity measures is likely to accelerate the eventual demise of the euro.

This is potentially very bad news for Europe and in particular for the future of the euro.

Hollande wants a greater focus on growth, casting doubt on the austerity plans already agreed for Europe which are necessary to deal with the euro sovereign debt crisis.

Commentators expect to see weeks or months of political instability in Greece now, as no single party received enough votes to govern alone.

The euro has already fallen sharply in value, dropping to a three year low against pound sterling.

With the FTSE 100 index of leading UK company shares closed today for the Bank Holiday, other European markets have been falling in value. Germany’s DAX index fell by 1.2% this morning.

Unsurprisingly, Greek shares are down by over 8% in trade this morning.

What will happen next in Europe will depend on the willingness of the new French leadership to negotiate acceptable terms with other nations, particularly Germany.

The likelihood that Greece will depart from the eurozone appears to have dramatically increased in the last 24 hours.

The people of Greece clearly do not want austerity. Without a clear mandate for cuts, it is difficult to see how Greece will now comply with the debt reduction measures required for them to access further bailout funds and avoid a catastrophic default.

Relatively speaking, the situation in France as a result of Hollande winning the presidential election yesterday is less severe.

His policies, which include lowering the state retirement age from 62 to 60, will be watched carefully by the coalition government here in the UK, as for some they will be considered a ‘test drive’ of the sort of measures a Labour government might introduce should they win at the next general election.

As we have previously said in these blogs, the eurozone sovereign debt crisis is far from over.

Photo credit: Flickr/liako