Markets are funny beasts (or at least the investors who play them are). Voter polls in France have been indicating for weeks that Nicolas Sarkozy was trailing the socialist contender for the presidency, Francois Hollande.
And so it came to pass: yesterday Hollande pipped Sarkozy by 28% to 27%. They both go through to a second round in three weeks. The reality is finally sinking in with investors that the odd but effective alliance between Sarkozy and the German Chancellor, Angela Merkel, may soon be over and with it the agreed path through the euro crisis.
It's not clear exactly how Hollande's plans would differ if elected but he has vowed to renegotiate the fiscal compact which President Sarkozy sweated blood to achieve. The compact ties France (like Greece, Spain and the rest) to austerity – most unpopular with voters and Francois Hollande says he’d focus on growth instead.
From Hollande to Holland as the Dutch government all-but-collapsed over the weekend on precisely the same topic. Geert Wilders, a far right politician whose party has been an ally of the governing coalition government, refused to agree on how to cut billions of euros from the country’s budget to meet an EU target on its deficit. Without his support the government is in minority and can’t function.
Although he is from the opposite end of the spectrum to socialist Francois Hollande, Geert Wilders shares this objection to austerity. The Netherlands is a relatively small economy but it is seen as a ‘core’ member and has been a strong advocate of the fiscal compact. To see one of the cheerleaders of austerity wobble like this has sent further shivers through the markets that the entire programme could be knocked off course.