It has been a landside victory against austerity measures for both French and Greek voters last week. But the markets did not rally on the outcome of the result, quite the contrary, as the Greek stock market fell nearly eight per cent while the French CAC 40 index was down 1.7 per cent. This is because voters in Greece sent tremors across the eurozone last Sunday by recording a massive protest vote against EU-dictated austerity. History was made when one considers that voters’ participation was so focused that a total of 9.85 million Greeks, including 360,000 new voters, cast their ballots. With this protest vote, one recalls with sadness that Greece is currently a recession-hit country lurching deeper into poverty and despair. Notwithstanding the precarious economic imbalances faced by Greece, the voices from the left and the right both opposed the deficit-reduction policies demanded by international creditors. On a humanitarian level, one cannot but sympathise with them. As a result of this massive swing, confidence in the euro slumped and Asian stocks tumbled with the euro sliding to a three-month low.

Francois Hollande, who defeated President Nicolas Sarkozy to become the first Socialist in 17 years to control Europe’s second-biggest economy, pledged to push for less austerity and more growth in the region. His mission was to go to European leaders to demand measures for “growth, jobs and prosperity”. He said that “no child of the republic will be abandoned” and told supporters in Tulle that “austerity is not inevitable”, naturally strengthened by the electoral result that saw him garnering about 52 per cent of the votes compared to the 48 per cent for Sarkozy. Hollande is seen as turning the tide on a rightward lurch in European politics and he has vowed vowing to transform Europe’s handling of the economic crisis by fighting back against German-led austerity measures.

The disturbance of the delicate political balance in Greece saw the pro-EU bailout coalition of New Democracy and Pasok hanging on a knife edge. A novel twist in the political tapestry is a new political party called Golden Dawn. It wants to put land mines along Greece’s borders to prevent illegal immigration while more pronounced is another party, the Independent Greeks. It claims compensation from Germany for World War II war crimes and the return with interest of the tonnage of gold bars seized by the Nazi regime. The political confusion in Greece adds to uncertainty and renewed pressure on the euro. Evil tongues are saying that Greece may opt out of the euro even after having received bailout funds twice. Political observers note that both France and Greece delivered clear verdicts that are not so flattering to Europe’s fiscal plan to rein in sovereign debt mountains. What remains to be seen is whether the French president can sustain the relationship Sarkozy had built over the years with German Chancellor Merkel: critics feel that unless this relationship is cemented it may have a negative effect on the future of the eurozone.

The King is dead, long live the King – so all leaders were quick to welcome Hollande into the Brussels club. The various prime ministers and chancellors starting from Merkel, David Cameron, Italy’s Mario Monti to the EU’s José Manuel Barroso and Herman Van Rompuy all called to congratulate the new French leader. Now that both the French and Greek electorate have spoken and expressed their wish that the austerity option as a means of correcting financial imbalances be rejected, can we look forward to a period of negotiations to rewrite the fiscal pact signed by 25 member states? What happens to the agreements concluded with Merkel and Sarkozy that paved the way for the second Greek bailout? Are we going to face a limbo in economic stability and, as can be expected, this will continue to erode the value of the euro in international markets. A lot depends on the ensuing talks this summer between the new French incumbent and the rest of the Brussels team. Yes it was a strong democratic mandate (over 52 per cent) given to Hollande to steer away from agreed austerity plans and the next question is whether there will be unexpected surprises in German elections, particularly in North-Rhine Westphalia (which is Germany most populous state). Will these interim elections bring some disappointing results for Chancellor Merkel? Certainly some opinion polls point to a defeat for Merkel and a victory for the opposition social democrats (SPD) and Greens. At the same time, there is also some doubt whether the SPD is strong enough to register an absolute majority when one considers the challenges from a rival party called the Prates party.

Back to Greek politics where voter alliances have fragmented under the weight of the country’s massive debt burden, with Pasok and New Democracy – the centre-left and centre-right parties respectively, which have run the country for decades –losing much of their support that some say reflects in part the punishment doled out after years of corrupt mismanagement. In particular, the election unearthed major shifts in voters’ wishes such that Samaras, the centre-right leader of New Democracy, although seeing a severe drop in popularity, his party still remained the biggest single party. Notwithstanding a major shift in voter preferences, Mr Samaras remained faithful to his manifesto and argued that Greece’s place remains firmly with the euro. Having said that, Mr Samaras still has an uphill struggle to form a coalition government. Taking this as a sign of the political tumult that lies ahead, Samaras said he would seek to create a “government of national salvation” that would attempt to amend the loan agreement Greece had signed with its “troika” of creditors – the EU, European Central Bank and IMF. “We are ready to assume the responsibility of forming a government of national salvation with two goals,” he said, “keeping Greece in the euro and amending the policies of the memorandum outlining the terms of the country’s rescue loans so that there can be development and relief for society.” This election has really put the cat among the pigeons since it released the pent up frustrations of Greek voters and their aversion to EU dictated rule, mainly the tightening of their belts and reduction in pension rights. Many could see the writing on the wall, that the country was in freefall, and the accompanying social disintegration resulted in a strong right protest vote. This is exemplified by Chrysie Avgi, leader of Golden Dawn party that campaigned on an anti-immigration ticket. Equally vocal was the party calling itself the ultra-nationalists, who demonstrated in the main squares with some voters holding burning torches. This anti-immigration party succeeded in capturing seven per cent of the vote – enough to place 19 deputies in the 300-seat House, which is quite an achievement as it is the first time that such a small party rose to popularity since the collapse of military rule in 1974. The conservative New Democracy party came in first with 18.9 per cent of the vote, while Pasok, the socialist party led by Evangelos Venizelos, won only 13.4 per cent, dropping from 40 per cent registered in 2009.

All this goes to show that the electorate in two diverse economies in the EU have expressed their democratic wish to change and to hope for a better political future. The democratic forces in such countries have voiced their appeals for less austerity and better job prospects even though in the short term their elected leaders cannot be expected to perform miracles in the short term. It is all a lesson in pragmatism that after years of soporific profligacy the penny dropped and citizens woke up to the bitter truth – that recovery is painful and the medicine sour but inevitable. In Malta we have had mixed feelings regarding such foreign events that have rocked the stability of the euro and we all hope that sanity will prevail so that our exports will quickly pick up, as well as expect another bumper tourist season. The latest IMF report was quite reassuring on the slow but steady economic recovery of the island. It comes as no surprise that Finance Minister Tonio Fenech welcomed the IMF’s concluding report on its economic review, saying that yes it is a valid and independent “certificate” of the progress despite the ongoing crisis in the eurozone. Due to wise management of its macroeconomic resources, Malta witnessed a healthy recovery in 2010, spurred by good local consumption and the combined effect of increased financial services (including the unsung contribution from gaming companies). Against all odds, it managed to surpass the low figures in 2009 (a recession year). This came about after careful application of a targeted financial stimulus directed to SMEs and family companies (particularly the tax credits and the micro-invest schemes) plus other initiatives driven by Malta Enterprise. The report warns us not to rest on our laurels and in the short term it is important to strengthen the financial sector’s resilience even further. As is the case in both France and Greece, the IMF has pointed out that our dependence on a large financial sector may represent a number of risks with regard to future financial stability and fiscal sustainability. Still, we can console ourselves that thanks to our resilience we have maintained a modest GDP growth for this year and will most probably end the year with a reduced deficit (under 3 per cent). Can this be a lesson for emerging politicians in both France and Greece to observe and emulate our economic model, which so far has survived the euro crisis and, equally important, our banks have not been stained with the evil linctus of the credit crunch.

George M. Mangion is a partner at PKF, an audit and business advisory firm.