European elections – more uncertainty to come

It is a public holiday today in the UK and Ireland, but not in most other countries. (The weather forecast is rain, in case you’re jealous). However, in France, Greece and Germany (to a lesser extent) the population is waking up to a new political landscape. Meanwhile the UK has had a few days to consider the gains for Labour in the local elections, and whether Boris Johnson – Mayor of London – is now a more powerful Tory than the Prime Minister.

So after an important week of politics and elections around Europe, is the route ahead any clearer for a continent that is struggling with political, economic and social challenges? No.

What was the most significant event? The Greek people had a major revolt against the austerity measures and the fact that their country is now basically run from Frankfurt. But perhaps not enough to change the direction of matters there.  (At what point, you wonder, do the people rise up and say “enough is enough”? Is it when youth unemployment hits 50%? No, because that’s where it is in Greece and Spain alreay. 60%? 70%)?

In Germany, Mrs Merkel's governing coalition suffered problems of its own after it lost its ruling majority in the state of Schleswig-Holstein, although their vote didn't collapse in a Greek type manner.

Now in France, even the lovely Ms Bruni couldn’t save M. Sarkozy. Francois Hollande may be perceived as dull, but Sarkozy managed to alienate people with aspects of his own character, and by getting too close to Merkel for the liking of the French people. Hollande is only the second socialist President, and it’s  only the second time an incumbent president has failed to win re-election since the start of France's Fifth Republic in 1958.  So this is pretty momentous stuff.

While Hollande talks of growth measures, it ain’t as simple as that (or it would have been tried already). Any additional spend may be accompanied by interest rate increases if the markets take fright, or France may even struggle to roll over its debt. Don’t therefore expect anything too dramatic, given his room to manoeuvre is limited. So there’s a high probability that within months the French population will be angry that the socialists haven’t been able to wave a magic wand and cure all the problems. Particularly as other measures which could have an effect, without costing a fortune  - for instance, liberalising employment markets and regulations – won’t be on Hollande’s list.

He wants to raise the minimum wage, hire 60,000 more teachers and lower the retirement age from 62 to 60 for some workers. And if Hollande really does raise personal tax to 75% for the rich, that will be a fascinating experiment in terms of tax revenue elasticity in these days of globalisation. Will the rich people just all leave? We’ll see. And he now must get something tangible out of Merkel in terms of more stimulus and focus on jobs. But how can that be done without scaring the markets? That’s the test.

The situation in Greece is far from clear, but the two ruling coalition parties scraped only 33% of the vote between them, while the big winners were the socialist / communist Syriza party, leaping to 17% of the vote and the neo-nazis Golden Dawn party with 7%. (Of all the countries in Europe, and of all the possible causes of the Greek problems, blaming Asian immigrants seems “creative” to say the least. But let’s not forget how other Fascist movements started on an apparently flimsy premise).

Syriza got just 4.6% of the vote three years ago – a sign of how attractive a message of growth rather than austerity might be, as Hollande found to his advantage also.

There may well be another election shortly in Greece as its hard to see how a stable coalition can be formed from this bunch of ferrets in a sack. Look, Greece – I have every sympathy for your predicament but it feels like the Greek people need to come to some clear consensus. Either go with austerity, bite your lips and accept it – or rebel properly and leave the Euro. There is no middle route, whereby you can somehow stay in the Euro but without real pain.

Anyway, we’ll be back tomorrow with some more in depth thoughts about what – if anything – all this means to procurement people and our organisations.

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