This week has seen a double hit for proponents of austerity in the Eurozone. On Monday was the overwhelming victory of anti-austerity candidates (not only François Hollande topping the polls, but also the strong showing for Marie le Pen) in the first round of the French presidential election. Then yesterday the Danish government collapsed, after the far-right politician Geert Wilders pulled out of budget talks with the centre-right governing coalition saying that he refused to let "our pensioners bleed for Brussels’ diktats".
The news from France is unsurprising in terms of its outcome. Hollande has been expected to win the election for some time, and his victory is largely priced into the markets already. However, three of the four leading candidates – including the fascist Marine le Pen – are strongly anti-austerity, and their combined support is well into an absolute majority of ballots cast, and given the high turnout, close to a majority of the French electorate.
The popular backing for anti-austerity policies makes it far more likely that Hollande will have the confidence to enact them once in office (as opposed to, for instance, his policy of a 70 per cent top tax rate, which is widely expected to be quietly dropped). He has proposed renogiating the fiscal compact with Germany, which many are fearing would be the precursor to a break-up of the Eurozone as we know it. Without a united France and Germany, the currency bloc looks even more like the latter keeping a number of countires under its financial cosh, which may be an usnustainable proposition.
The collapse of the Dutch government has more immediate consequences. The cabinet was negotiating the passage of a budget which would have cut the deficit to the 3 per cent required by the fiscal compact, but the loss of Wilders has thrown that into turmoil. The result of the elections which will follow may result in another pro-austerity government (the previous government was one of the most fiscally conservative in the Eurozone), but the uncertainty until then has unsettled the markets. The biggest hope for Dutch austerity advocates at the moment is that Parliament agrees that, as with Italy and Greece, an interim government has the authority to pass the required budget.
If they agree, then the European Commission will be pleased: it has demanded a presentation of an appropriate plan deficit reduction plan within a week. If not, it will have to wait until elections, pencilled in for June 27, which may return a government far less eager to step in line than outgoing prime minister's Mark Rutte's was.