On Sunday night, the euro plunged to $1.2988, a nearly five-month low.
Greek voters on Sunday voted mostly for two parties that want to change the nation’s international bailout terms or even overturn its rescue deal, according to early projections of the election results. Greece won’t have a government until parties with divergent worldviews can form a governing coalition.
Greek voters are reacting against spending cuts imposed on the recession-weary nation by the international lenders whose bailouts are keeping it afloat.
Also Sunday, French President Nicolas Sarkozy lost in a runoff election to Socialist candidate Francois Hollande. Hollande has criticized France’s austerity program and wants to encourage growth by boosting government spending.
Sunday’s votes raise serious doubts about whether voters will swallow the current plan of international bailouts coupled with severe cost-cutting, economists said.
Many believe the austerity program is necessary to keep bond investors from panicking about the possibility that more European nations will default or require bailouts. But a growing number, like Hollande, say the cuts have been too much, too fast. They say the region’s economy can’t return to growth unless governments stop tightening the fiscal noose and start spending again to create demand.
Uncertainty about the path forward in Eu-rope may mean a return to extreme market volatility after several months of relative calm.