Austerity versus growth becomes a common theme in Europe
There’s never a dull moment in Europe these days. Whether it’s France, Greece, Spain or the Netherlands, Europe continues to make headlines daily, and investors want to know what it all means. At the moment, many Europeans are having second-thoughts about the austerity measures their leaders have agreed to.
France is a perfect example of a country that just said “no” to austerity as the sole solution to the current problem. In an early-May French presidential election, Nicholas Sarkozy lost power to socialist rival Francois Hollande. The main campaign issue came down to a simple question: Did the country need more austerity or more growth? We know now that the French people rejected the austerity policies pursued by Sarkozy that cut debts and budgets at a time when Hollande argued that further economic stimulus was needed.1
Of course, the situation in France isn’t unique. All across the Eurozone politicians, policy-makers and people are debating the best way to move forward. Greece is also questioning its previous commitments. It’s a delicate balancing act that these nations face, and it’s too early to say what the outcome will be. There are more elections to come this summer and more arguments to be made in the growth versus austerity debate.
Risks, recessions and uncertainties remain in Europe. The banking system is fragile, but we believe policy-makers will avoid a complete collapse by continuing to restructure debt and focus on long-term solutions that strike a balance between growth and austerity. Volatility will continue as markets react to the decisions and indecisions of politicians and policy-makers, but real progress has been made. And we’re hopeful that there’s more on the way.
1“Austerity faces sharper debate after European elections” by Alan Cowell and Nicholas Khulish, The New York Times, May 7, 2012.