Eurointelligence Daily Briefing, 7 de Maio de 2012. Enviado por Domenico Mario Nuti


  • The eurozone’s  anti-crisis strategy is in shambles this morning, as the two pro-austerity parties in Greece fail to achieve a majority among them;
  • New Democracy is the largest party with 18.9% and Pasok comes in third with 13.2%;
  • Syriza, a left-wing party that opposes the bailout comes in second with 16.8%;
  • even the rule that gives the largest party 50 additional seats fails to secure a majority;
  • political analysts say the most likely outcome are new elections (though not clear why the result should be any different);
  • Syriza’s leader says the vote means the defeat of austerity;
  • in France, Francois Hollande wins the presidential elections with 51.67% of the votes;
  • the outcome is unsurprising, but closer than what was predicted by the last polls;
  • Hollande hails his victory as an end to austerity;
  • the German reaction is outwardly polite, but nervous;
  • German commentators argue that Hollande will soon fall in line with Angela Merkel;
  • in Germany, the CDU is likely to lose power in Schleswig-Holstein, following yesterday’s state elections;
  • the big news there is the surprisingly strong performance of the FDP, which is now openly discussing a coalition with the SPD and the Greens in Berlin;
  • Wolfgang Schäuble says there is no problem with higher wages in the engineering industry;
  • Wolfgang Münchau argues that crisis resolution will ultimately occur through a default into the ESM, something that will naturally give rise to eurobonds;
  • Paul Krugman, meanwhile, says the eurozone faces a choice between breakup or inflation. 

Of the two elections, the Greek turned out to be the more important. What happened in France is what the polls had been predicting for more than a year now. Francois Hollande is going to be the next president of France. But the Greek elections were the real  shocker – not predicted by the polls. The combination of New Democracy and Pasok have failed to obtain a majority – and this despite the fact that the largest party gains an extra 50 seats. No matter how you do the maths, it is impossible to achieve both a stable government, while maintaining a broad-based coalition in support of the programme.



The Greek vote will be interpreted as a popular vote against austerity. The election of Francois Hollande is part of an anti-incumbent trend, and a rejection of the centre-right crisis narrative. All eyes are now on the September elections in the Netherlands – which promises to be quite possibly the single most important election during the entire eurozone crisis. The outcome of the Greek elections, with populist parties of the left and the right making huge gains at the expense of central parties, will no doubt encourage the Dutch Socialists and the Freedom Party of Geert Wilders. What we saw last night may have been the beginning of a broad-based insurrection. As one of the consequences of these elections, we would expected to see an effort by the European Union to scale back austerity, but probably not enough to reverse the trend.


The overnight market reaction was strongly negative. The euro dropped to below $1.2983. Spreads were up, and Asian stock markets took a hit.


The Greek insurrection



With 98.6% votes counted it becomes clear that the two pro-bailout parties have lost their parliamentary majority in the election. The two large parties lost out dramatically, New Democracy is leading with 18.9% (33.5% in 2009), while PASOK came in only third with 13.2% of the votes (43.9% in 2009), according to Reuters. Together they only have 149 out of 300 seats in parliament.  Syriza, the coalition of the radical left opposing the bailout programme, came in second with 16.8%. The Independent Greeks party, founded by ousted ND MP Panos Kammenos, who believes that Greece was the victim of an international conspiracy, received 10.6% of the votes and the neo-fascist party Chrysi Avgi (Golden Dawn) enters parliament for the first time with 7%. The Communist KKE, the only party to openly favour a Greek exit from the eurozone, received 8.5% of the votes and the pro-euro but anti bailout Democratic Left received 6.1%…



Analysts say the unprecedented fragmentation of the vote will bring weeks of instability and force another election. Under the constitution, Greek President Karolos Papoulias will give the biggest party three days to form a government. If it fails, the next largest group gets a chance and so on down the line. If they all fail, new polls would be called about three weeks later.



In order to renew their uneasy partnership, New Democracy and PASOK would have to woo other reluctant parties. Any coalition is expected to be short-lived, writes Reuters. The small parties that gained in the election are all against the bailout, but they are too divided to form an alternative coalition.  Syriza’s Left Coalition leader Alexis Tsipras, at 37 Greece’s youngest political leader, hailed a peaceful revolution and said German Chancellor Angela Merkel should understand that austerity policies had been defeated. 



Germany has warned there would be “consequences” to an anti-bailout vote and the EU and IMF insist whoever wins the election must stick to austerity if they want to receive the aid that keeps Greece afloat. But many voters bitterly dismissed such threats.  “I don’t think that voting for a small party will make us go bankrupt. We already are,” Reuters quotes 53-year-old Panagiotis, a craftsman, after voting for the conservative Independent Greeks. 


The French insurrection


The final outcome is: Francois Hollande 51.67%, Nicolas Sarkozy: 48.33%. The margin is narrower than in any of the pre-election polls though Friday’s Ipsos poll came close with a 52/48 prognosis. For details on the results go to or Nicolas Sarkozy acknowledged his defeat and hinted at leaving the political scene by saying the he was going “to become a French among the French”. The main political emphasis is now on the forthcoming parliamentary elections.



Speaking to thousands of supporters on Place de la Bastille in Paris at almost one in the morning Francois Hollande said: “In all the capitals there are people who thanks to us hope and want to end austerity. This is my message: You are a movement that is rising everywhere in the world”, reports. Speaking earlier his political base in Tulle in the Corrère department the president elect also said that among his priorities was to reduce France’s deficit. Angela Merkel congratulated Hollande in a phone call and invited him to come to Berlin as early as possible after taking over office, Spiegel Online reports. Andreas Schockenhoff, the deputy chief whip of the CDU/CSU in Bundestag said everybody wanted sustainable growth but not at the expense of stability and budgetary discipline. “Otherwise a new phase of market nervousness is ahead of us”, he warnd. “Hollande now has to clarify quickly and without ambiguity that the fiscal pact will not be changed.” However SPD chairman Sigmar Gabriel and European Parliament president Martin Schulz, also a German social democrat, wrote to Hollande that “France will decisively contribute that next to the necessary consolidation measures for the national budgets there will also be strong steps for growth and jobs in Europe”.


Hollande will pick prime minister and appeals for majority in parliament



Francois Hollande appealed to the French “to give him a majority at the French assembly” in the parliamentary elections on June 10 and 17. After taking office Hollande will choose a prime minister who will run an interim government until the elections. According to, the two politicians most likely to get the job are Jean-Marc Ayrault, a moderate socialist until now the parliamentary group’s chief whip and Martine Aubry, the former employment minister who is considered more left leaning.


The German response: Hollande will disappoint


Commenting in Handelsblatt, Thomas Hanke criticized that Hollande had acted during the campaign as if France could take a leave from globalization. “Whoever listened to Hollande was able to forget that France is among the worrying countries in the eurozone and that it is in danger of catching the interest rate virus: No other country has lost many market shares and has seen its current account deficit deteriorate as quickly”, Hanke writes.



Commenting in Spiegel Online under the headline “The president who will have to disappoint his voters” Mathieu von Rohr argued: “Hollande will probably not be a socialist crazy about expenditure. He will have to bitterly disappoint his voters. Hollande is becoming the president of a country that is economically sick. The debt level is at 90% of GDP, it has not had a balanced budget since 1974 and the public expenditure level is 57%, one of the highest in the eurozone. Unemployment is at 10% and there is a whole generation of immigrant’s children who are growing up in ghetto-like suburbs without ever coming into contact with the labour market.”


Merkel’s Christian Democrats likely to lose control of Schleswig-Holstein



On a normal Sunday, this would have been big news. At the state elections of Schlewsig-Holstein, the Christian Democrats remained the strongest party with 30.8% (-0,4%), according to But the SPD came in a close second with 30.4% (+4.9%). The SPD candidate Torsten Albig last night announced that he will want to lead a coalition with the Greens (13.2%) and the Danish minority’s party SSW (4.6%). Representing a national minority, the Danes are exempt from the 5% threshold that other parties have to surpass in order to make into the regional parliament. The biggest surprise, however, was that the liberal FDP got in with 8.2% of the votes thanks to its strong regional chairman Wolfgang Kubicki. The Pirates confirmed that they were a lasting presence in Germany by scoring also 8.2%.


Schäuble pleads for higher salaries in Germany



In an interview with Focus, Wolfgang Schäuble pleaded for higher salaries for Germany’s 3.6m metal industry workers. “It is ok if salaries rise more quickly here than they do in other EU countries”, the finance minister said. According to Schäuble, Germany had done its homework and was able to afford higher pay rises than its neighbours. “But we have to pay attention not to exaggerate”, he cautioned. IG Metall currently insists on a rise by 6.5%.


Wolfgang Münchau on the mechanism of a eurozone crisis resolution



In his FT column, Wolfgang Münchau writes that the mechanism of the crisis resolution in the eurozone will have to work through existing institutions. In the absence of an ECB bailout, this can only mean a default into the ESM – by Greece, Portugal, Spanish banks –  that will ultimately give rise to eurobonds. Munchau makes the assumption that governments will prefer to issue new eurobonds to settling ESM losses through direct transfers. This is also the best way to create a bank resolution fund. Let the Spanish banks default into the ESM, and then separate the ESM into two – a resolution fund backed by eurobonds, and into a classic anti-crisis mechanism.


Paul Krugman on macroeconomic adjustment



Paul Krugman says the eurozone is facing a choice between break-up or adjustment. The Germans misunderstand the nature of their own adjustment of the last decade. If others emulate Germany, it would mean higher inflation everywhere.

“[The]  German success story was based on a (modestly) inflationary boom in much of the rest of Europe. Give the peripheral countries a comparably favorable external environment — or actually a more favorable one, since they’re much deeper in the hole — and maybe there is a way to make this work. Let Spain regain competitiveness by inflating more slowly than Germany, rather than by deflating, and this whole thing might, might, become feasible.

But this means, yes, overall inflation in the euro area significantly higher than the less than 2 % target. It certainly means a lot higher than the 1.5% the market currently expects.

Don’t like that? OK, so no euro. It’s that stark.”


10-Y Spreads, Forex, ZC Swaps and Euribor-Ois



Interesting to see the improvement in French spreads, but a deterioration of Italian spreads;

euro at $1.2983.











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Source: Reuters




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