Veritas: the heat is on – and it’s not even summer yet

This is already shaping up to be a bad week for the Eurozone. The hangover from last week’s auction of Spanish debt, which initially looked quite promising, has returned with a vengeance, and yields are once again nudging the 6% level.

We all know what happened. Money from the ECB’s LTRO programme was immediately recycled to buy Spanish government debt, creating a fleeting illusion of demand and confidence. But the market quickly saw through that one, and has now returned to test the determination of the policymakers.

The French presidential election over the weekend surprised some and not others, depending whom you have backed so far. What is clear is that a first round win for Socialist candidate Francois Hollande is uncomfortable for German Chancellor Angela Merkel, who made the elementary political mistake of backing one candidate too early. She may now be obliged to fight for the future of Europe alongside a man, and a party, she has already publicly rejected.

For a moment some weeks back, Nicholas Sarkozy publicly referred to his non-political interests, and it became an open question whether he really wanted another presidential term. But his recent appearances show he loves a scrap, and is determined to battle to the end.

Both main candidates require support from the extreme left- and right-wing parties, all of which are hostile to further European integration, and inclined to renegotiate standing European agreements.

This shift is a game-changer for Europe. Over the past year, markets (and voters) have been led to believe that “they” – referring to the Franco-German relationship which is the core and foundation of Europe’s future would not let the “Euro project” fail.

Now that is at least open to question on the French side. The prospect is so unsettling that deep denial is already under way. Many in European capitals today are talking of the “over- reaction” of outsiders – notably the Anglo Saxon investment community. They simply refuse to acknowledge the cracks appearing at the European core.

If the Spanish and French situations are not enough, there is also looming change in the Netherlands, where the coalition government is struggling to maintain a consensus.

“We don’t want to follow Brussels’ orders. We don’t want to make our retirees bleed for Brussels’ diktats,” said Geert Wilders, leader of the far-right Party for Freedom in the Netherlands, as he pulled his party out of budget cut talks. 

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