Monday, 7 May 2012

European elections give £ strength

Europe is facing a fresh economic crisis after French voters rejected austerity and elected a tax-and-spend socialist president in the form of Francois Hollande.

Nicolas Sarkozy suffered a defeat against Francois Hollande, who now promises to tear up last December’s negotiated deal to save the euro from oblivion. His comments will be received with interest across Europe. 

The Euro plunged to a recent low against the £ as the inexperienced Mr Hollande, who has never held a cabinet office, planned talks with the European Central Bank and German Chancellor Angela Merkel to demand further borrowing to boost growth.

Already Mrs Merkel has made a speech stating that the Euro deal isn't for negotiation and that growth has to be from increased competitiveness, rather than raising taxes and spending to boost growth.

Today Standard & Poor's said that the Mr Hollande's election would not have an immediate impact on France's AA+ credit rating, (which was lowered towards the end of the Sarkozy Presidency). However, they said there is "at least a one in three chance" that it will be lowered before the end of 2013 - not great news for the markets.

Elsewhere, in Greece, voters rejected the two ruling parties both of which have supported the EU/IMF bailout programme, and they wish to see an end to austerity measures. 

The £ has surged forward to exceed 1.24 against the Euro. (Back in July 2011 the rate was 1.106, so that's over 12% effectively off the price of a house for UK buyers).

Peter Elias (Agent Commercial)