Anti-austerity parties in Greece gained power this past weekend.  The two mainstream political parties that had been critical in drafting agreements with other European nations have lost their combined majority and will need coalition from a third party to form a government.

This election is a direct rejection of current plans to reign in the debt crisis in Europe by imposing strong austerity measures to control the unmanageable deficit.  A third party necessary to have a majority coalition will be one with a pro-growth platform.  The pro-growth belief relies on government spending to stimulate economic growth and thus lift the country out of its current deficits.  The coalition would need to come up with a compromise in order to work together to run Greece.  There is much concern that a compromise can be reached between the many divergent views.

In France, Francois Hollande unseated incumbent Nicolas Sarkozy in the presidential election, becoming France’s first socialist president in 17 years.  Hollande ran on reining in the spending cuts and has proposed imposing large taxes on the wealthy and corporations.  e has stated that there must be a change in the austerity programs as the way to fix the budget imbalance.  He believes that the current austerity programs, agreed to by the European Union, need to be changed.  Hollande’s views are in direct conflict with its most important economic partner, Germany.

German Chancellor Angela Merkel noted that European fiscal treaties will not be renegotiated. German leaders are staunchly against further spending.  Almost two-thirds of Germans polled said that they oppose further Greek bailouts. Hollande will be meeting with Ms. Merkel shortly after his inauguration on Tuesday.  It appears that Hollande is not ready to back down and is even willing to battle with Chancellor Merkel over the direction of Europe.

As the political posturing, conflict, and compromises continue, uncertainty is the only clear winner.  At this time the election in Greece only shifted enough power to force compromise between opposing views. Hollande’s victory in France was sound, but he will need to compromise and tone down his rhetoric in order to affect real change in policy.  There is a crack in the austerity wall, but it is still too early to determine its overall effect on policy. Uncertainty has returned and the concern is that any other hiccup in Europe could be magnified because of the environment that the EU is now working its way through.

As the outlook for an economic recovery in Europe deteriorates, prospects for growth in the U.S. economy will also decline, which will likely contribute to an increasingly bearish outlook for both gas and power prices for the balance of 2012 and into 2013.

Source: Wall Street Journal