It's just one part of an almost seismic geopolitical shift in Europe at the moment. In the space of a weekend, France has gone Socialist and is threatening to tear up the austerity pact that it was one of the lead negotiators of along with Germany.
The Greeks are also having parliamentary elections and face the prospect of nationalists and Neo-Nazis starting to wield more influence in light of massive public opposition to austerity.
The Italians are also having local elections, which could yield a similar sort of outcome, but at a lower level. On top of all this, the Dutch government collapsed a couple of weeks ago, again almost inextricably linked to austerity.
Like it or not, the general population in Europe doesn't like what the politicians are doing. And neither do the Bond markets, but for an almost diametrically opposite reason to the general population.
If Europe tears up austerity and goes for a more balanced approach, encouraging growth with cuts over a longer period of time, the Bond markets will potentially disagree with this. Then they will do what the politicians have been unable to do and force a solution by demanding higher and higher yields on gilts forcing more countries to the edge of default.
Europe is also politically shifting to the left, leaving the UK increasingly isolated within the EU and amongst the political and economic decision makers. It could be a way for the UK, if it plays it clever, to at least split the French off from the Germans and gain a bit more of a foothold amongst the European decision makers than it has now. All depends how much the Germans want to follow any French decision towards redefining the austerity pact and moving more towards growth.
Either way, Osborne's Plan A starts to look out of kilter with the rest of Europe, especially if the UK doesn't come out of recession next quarter. However, at the highest levels, we are potentially facing a period of serious pan-continental instability, especially if more nationalist parties start to gain influence. I think it was Mark Twain who said that history doesn't repeat itself, but it sure does rhyme. Well, this is starting to look an awful lot like the 1930s, right down to the dodgy international treaties designed to prevent war European war breaking out again and the UK slashing its defence budget.
Last edited by Melchett01; 6th May 2012 at 21:48.