World — In the space of just a few days, Europe threatened to unravel. On May 6, voters in France and Greece elected new leaders, rejecting attempts to impose what most analysts say are necessary austerity measures. The Dutch prime minister tendered his resignation a week earlier after his country failed to agree on budget cuts.
But on the Monday after the French and Greek elections, the U.S. markets—after opening down—rebounded into positive territory. Why? In part because the results were expected, and the markets had some of the downside already baked in. The S&P 500, for example, up 11 percent in the first quarter, was flat in April. The Dow Jones Industrial Average at one point was down about 500 points from where it started in April. These moribund performances were despite strong earnings reports from many companies.
But the real reasons the markets did little more go beyond a purely technical analysis. In the case of Greece, lots of Euro watchers believe the country is unsalvageable, and a speedy demise is preferable to a slow descent into chaos, a word which—appropriately in this context—comes from the Greek khaos, which means “gaping void.”
France is more complicated. Outgoing French President Nicolas Sarkozy was so chummy with German Chancellor Angela Merkel—and so agreeable to the austerity measures she negotiated—that Sarkozy’s critics derisively called him “Merkozy.” Their relationship rankled the French, and the election of Socialist President François Hollande (left) may be more about his vow to stand up to Germany than it is an affirmation of socialist policies.
Hollande, indeed, may be pushing Germany back with one hand, but he’s reaching out with the other. He announced even before his inauguration a trip to Germany to meet with Merkel to renegotiate austerity measures. Merkel, for her part, said the day after the election that she “does not negotiate what has already been agreed.”Continue Reading on www.worldmag.com