Euro zone stock markets plunged on Monday on signs that
painfully crafted political plans to nurse euro zone member
states back to fiscal health were being undone by a political
backlash against the attendant austerity.
These included Sundays defeat for the incumbent in the
first round of the French presidential election and
Saturdays collapse of the Dutch government.
Equity markets were battered further by a disappointing
survey of the euro zone economy. This added to recent evidence
that the fragile recovery, which had appeared to follow the
incomplete political and economic resolution of the euro zone
crisis at the end of last year may have been illusory.
The provisional monthly Purchasing Managers' Index (PMI)
survey by Markit Economics suggested that euro zone output
declined in April at its fastest pace in five
months prompting companies to cut their
workforces with the greatest severity in two years.
Responding to the political news, Jim Reid, head of global
fundamental credit strategy at Deutsche Bank in London, said:
All year weve been of the opinion that problems
with austerity would be the reason this sovereign crisis would
reignite as we approached the second half. The French and Dutch
are now political headaches for Europe.
Chris Williamson, chief economist at Markit, said, The
flash PMI signaled a faster rate of economic contraction in the
euro zone during April, extending what appears to be a
double-dip recession into a third consecutive
Official euro zone data shows a fall in output in the final
quarter of last year, and both official numbers and Markit PMI
surveys suggest output may have declined again in the first
quarter of this year.
In France the first round of the presidential election
showed the Socialist candidate François Hollande in the
lead with 28.6 percent of the votes 1.5
percentage points above his nearest rival, Nicolas Sarkozy, the
center-right current president. This suggests that
Hollande is likely to win the second and final round of the
election a run-off with
Sarkozy on May 6. Sarkozy has suffered the
fate of many other European incumbents: His popularity has been
damaged by government parsimonies meted out because of parlous
Fears that Hollande will place little priority on reducing
Frances fiscal deficit are overdone, according to some
analysts. He has pledged to bring it down from 5.2 percent of
gross domestic product (GDP) last year to zero by 2017.