Politics and markets have always been intrinsically linked, but seemingly never more so than at present. The events in France and Greece over the weekend have cast into doubt the Eurozone restructure package brokered by Germany, and send Equities markets lower as investors once again ran for safety.
Francois Hollande's momentous victory, and the words "austerity is not the only option", will certainly ruffle Germanic feathers, though I would suspect Hollande would not want to derail the marked improvement seen in the borrowing terms of a number of Eurozone countries during the early part of 2012. Hollande is quite correct when he says that austerity isn't the only option. However, the other option, which may well feed into higher inflation and a greater crisis, is not a palatable one. We will need to wait and see how much of Hollande's rhetoric converts into actions.
The Greek election results may pose more of a problem to the Eurozone than the French verdict. The fact that a large swing in the Greek polls to anti-austerity measures shows the depth of feeling and despite Merkel's initial assertions that the Greeks must stick to the terms of the bailout package, I feel this is now in doubt.
What does this mean for investors? I suspect an increase in volatility, and possibly a retreat in Equities with monies flowing into the usual safe havens of UK Gilts, US T-Bonds, German Bunds and Gold. It is too early to suggest that part deux of the Euro crisis is upon us, but it is clear that much needs to be done to keep the Euro treaty, and the whole Eurozone project, on track.
