An auction of French government ten-year bonds three days before the triumph of François Hollande met strong demand from investors and produced a borrowing cost of 2.96 per cent, a fraction cheaper than a similar issue in April. This fact told those who noticed it that France was not the story to watch last weekend. Markets had already assessed Hollande as a closet moderate who would rapidly be forced to back-pedal on his socialist rhetoric and embrace Angela Merkel. Flag-waving Bastille crowds made good television, but it was the Greek election and the rumblings from Spain — where Bankia, a conglomerate of savings banks, is heading for a multibillion bailout — that really mattered.
It’s hard to know which is a worse outcome for Greece: a fractious hard-left coalition or another election next month with another chaotic ‘anti-austerity’ outcome. ‘Growth’ will be the new mantra for European leaders, as a concession to Hollande, but before they can turn it into an ‘agenda’ they must deal first with urgent Greek demands for an unwinding of the bailout terms.
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