Tonight’s election results mark the next challenge to the euro. In France, the Socialist candidate François Hollande has
won. Having campaigned on changes to the fiscal compact, Hollande will have to deliver something on this front. But Angela Merkel, with her own elections next year, will not want to agree to
anything that appears to be a watering down of the pact.
I doubt, though, that there’ll be that much market reaction to Hollande’s victory. City sources say that it has been priced in for while and that there is an expectation that Hollande
will merely accept some window-dressing about growth being added to the agreement.
But what could set off a reaction are the results in Greece. According to the exit polls — so treat with caution — parties opposed to the terms
of the bailout will have 60 percent of the seats in the parliament. If this is accurate, then it is hard to see how Greece stays in the euro given that the Germans, and the rest of northern Europe,
are not going to want to ease the terms of the deal.