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Voter backlash revives Europe debt fears

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Greece votes and markets tremble

As France and Greece hit the polls, shockwaves hit markets globally fearing further economic instability in Europe.

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Here we go again.

Expected it may have been, but the splintering political situation in Europe has raised fresh concerns about the viability of the single currency and the continent's resolve to extract itself from the economic mire.

Francois Hollande vows fiscal austerity won't be the only response to the region's crisis.

Francois Hollande vows fiscal austerity won't be the only response to the region's crisis. Photo: AFP

Elections in France and Greece over the weekend delivered a protest vote against austerity that was far more severe than anticipated as voters abandoned the centre and fled to the fringes, with the resulting political turmoil once again creating the spectre of economic upheaval.

Coupled with a poor employment showing in the US, which sent Wall Street sharply lower on Friday, the brief respite on global markets following the most recent Greek bail-out appears to have evaporated.

The Australian dollar this morning has dropped sharply, below $US1.02, as clouds once again have gathered over the global economic outlook while the stockmarket is bracing for heavy selling following heavy falls on Friday night.

With counting still underway in Greece, the ruling coalition which has dominated the country for decades is struggling as voters have swung sharply to the extreme left and right, both of which are staunchly opposed to the harsh austerity measures imposed as conditions for the Greek rescue.

In France, newly elected president Francois Hollande declared that austerity doesn't have to be Europe's only fate, throwing down the gauntlet to Germany's doctrine of fiscal restraint and its dominant position over the European Union.

Inevitable backlash

Given the extent of protests on the street in Athens during the torturous recent bail-out negotiations, a backlash was inevitable.

But the decimation of the ruling parties could see Greece reject the key conditions of the rescue package, thereby paving the way for a messy default and an exit from the European Union.

Should that occur, a domino effect could tumble across Europe's biggest economies and into the heart of the eurozone.

Italy and Spain are expected to come under renewed pressure on bond markets given their massive debt positions would be too large for a bail-out from the European Central Bank and the International Monetary Fund.

European economies already are on shaky ground. A double-dip recession is looming across the EU while Britain recently slipped back into technical recession. Unemployment is estimated at 20 per cent in Greece with similar levels in troubled nations such as Portugal and even higher in Spain.

The potential for social upheaval, which is being played through the political arena right now, has reinforced the arguments from some economists that harsh austerity - while a good long-term goal for the EU - would exacerbate the problem in the immediate future.

Europe's economic malaise has been caused by excessive debt which can only be solved by growth and while the profligacy of some member nations clearly needs to addressed, the sudden cuts in government spending have created a social and political crisis that has placed the economic reforms in jeopardy.

45 comments

  • "profligacy" - going to have to look that up.
    Is it not a caes of these governements finally working out that their Over-Spending is unsustainable. Are these cuts actually Austerity measures or are they winding back ridiculous spending that should never have happened.

    Commenter
    Hans Brix
    Location
    Macquarie Street
    Date and time
    May 07, 2012, 10:27AM
    • 1.shameless dissoluteness.
      2.reckless extravagance.
      3.great abundance

      Commenter
      imwithstupid
      Location
      Sydney
      Date and time
      May 07, 2012, 11:15AM
    • Austerity is much worse than overspending. "Saving" is a biggest hazard that can happen to economy. This leads to decrease in consumption - which leads to deterioration in business conditions which leads o job losses which leads to more decrease in consumption and more job losses.
      It is 100% surefire way to put any economy into depression.

      Uneducated people do not understand that there are two types of overspending:
      -Good overspending - where money spent on infrastructure and creating favourable conditions for doing business
      -Bad overspending - when money spend on providing undeserved and unearned services - say to allow people siestas at the middle of working day. It is twice as bad as it seems because it creates heavy government bureaucracy and every bureaucracy breeds corruption.

      Commenter
      Michael
      Location
      Sydney
      Date and time
      May 07, 2012, 11:24AM
    • @Michael. Exactly what level of "education" do you have? I'd hardly say posting drivel on a blog makes you an expert on macro economics...

      Commenter
      LiamH
      Date and time
      May 07, 2012, 12:06PM
    • Bad overspending: Taking out massive loans to purchase property in the vain hope that some fool might pay more than you in the future. All that unproductive money, doing nothing. Only possible result - crash.

      Even the semi literate who bought in the 1970s and has seen massive gains and hates his tenants might be able to understand that. But no doubt, he can't.

      Commenter
      Moo Voo Foo
      Date and time
      May 07, 2012, 12:51PM
    • @LiamH .. Not exactly sure what sort or point you're attempting to make here but 'education' or not, Michael's post (bar the corruption non-sequitur) is essentially correct.

      Commenter
      Nicho
      Date and time
      May 07, 2012, 2:04PM
  • It is most amusing to read these stories and how they express "surprise" that the debt problems haven't gone away. They won't go away until the debt is written off. The depression will take care of it but it will be a hard way to achieve it. Don't be fooled yet again when the headlines read "debt crisis solved" becasue it won't be for a few years yet...

    Commenter
    Les
    Date and time
    May 07, 2012, 10:31AM
    • The people have had enough of banks being protected at the cost of sovereign nations. Yes they were proliferate but the banks have been all but absolved of their responsibilities via massive bailouts. The only way this will end is for nations to default.

      Commenter
      Johnno
      Date and time
      May 07, 2012, 10:46AM
      • Except in Greece's case, that won't actually solve their problem, as even without interest payments their spending is greater than their revenue - which means they will need to borrow, which is a tad hard when you have just wiped out your existing lenders.

        Commenter
        Simon
        Date and time
        May 07, 2012, 1:13PM
    • Bye bye Euro!!

      An ignominious end to a really really bad idea

      Commenter
      Enrico Palazzo
      Location
      Sydney
      Date and time
      May 07, 2012, 10:58AM

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