by Jason Jenkins, Investment U Research
As the European crisis has come to unfold, we have seen Eurozone governments receive votes of no-confidence because of their inability to solve financial crisis and new governments installed. It happened to both Greece and Italy. But to be honest, these members aren't that pivotal. They're the "bailoutees."
The bullies on the block �C otherwise known as France and Germany �C possessed all the leverage to make sure some sort of austerity package was passed to keep the currency bloc going for the time being.
However, 2012 brings some new challenges to the Eurozone as its unofficial two-headed driving force may be chopped in half. France, the Eurozone's second-largest economy, will hold presidential elections on April 22 and May 6, followed by general elections in June.
Sarkozy's Rocky Five Years
French President Nicolas Sarkozy, along with German Chancellor Angela Merkel, has been cozy in leading the way to the 17-member currency bloc's response to their sovereign debt crisis. For the most part, the Conservative leaders have been in lock-step preaching austerity over monetary easing and the creation of euro bonds.
This 2012 election conversation would all be a moot point if Sarkozy was safe�� but he's not. The conservative leader is heading towards April's election with rampant unemployment, the debt crisis and the prospect of a sovereign debt downgrade all hanging over his head. Also, many French citizens resent the fact that his campaign pledges of five years ago to bolster employment haven't delivered.
His popularity ratings have inched up as he has shown leadership over the Eurozone crisis, but still stand at a dismal 34% in recent polls, and some two-thirds of French are unhappy with his performance.
Recent surveys show his competition could beat him by as much as 10 percentage points in a deciding second round in May.
The Competition
Sarkozy is fac! ing a ch allenge from Socialist party candidate Francois Hollande, and let's just say they don't see eye to eye on the management of France or the Eurozone.
In terms of governance, there's a gulf between the Conservatives and the otherwise moderate Socialist party �C that's just fundamental ideology. However, Mr. Hollande's thoughts on the direction of the Eurozone could have global implications.
Hollande is "highly unpredictable," Alistair Newton, Senior Political Analyst at Nomura, told CNBC. Newton went on to say Hollande has promised to "renegotiate the (European Union) agreement to put what it lacks today" and said he would push to include European Central Bank intervention and a new euro bond �C both measures opposed by Germany. He has also stated that he would not vote for the balanced budget part of the agreement, which has to be implemented at the national level.
Disagreement between Germany and France on the direction of the Eurozone would be catastrophic.
"This could cause a serious setback for the political process in Europe, and after years with Merkozy's intensifying leadership it could become rather uncomfortable for the financial markets to watch a Hollande publicly showing that he is very much in disagreement with German Chancellor Angela Merkel on several accounts," analysts at Danske Bank wrote in a note.
As always, look down the road when analyzing Europe. The headlines currently offer glimmers of hope but there are still more far-reaching issues to be addressed. A German/French schism may prove to be the next "Eurocrisis" to overcome.
Good investing,
Jason
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