For all the coverage of hacking, pasty tax and the like, the continuing
crisis in the eurozone remains the most significant political story. Until it is resolved, it is hard to see how the UK returns to robust economic growth.
I suspect that the market reaction to a Hollande victory will be limited as it is already pretty much priced in. Those expecting a degringolade will be disappointed. However, if Hollande does
actually try and implement some of his more extreme ideas, the markets could take fright.
What is far more worrying than France is Spain. There’s a growing sense of inevitability that the Spanish banks will need a bailout before the autumn. This is a particular worry because it is
Spanish banks who have been buying Spanish government securities, increasing their
holdings of them by 85.4 billion euros since November. If the government then needs a bailout, we’ll soon find out if Spain really is too big to save.
If all this was not bad enough, the higher than expected German unemployment numbers have increased fears that the eurozone’s largest economy might be about to go into recession.