Political uncertainty in debt-laden Greece and the leftward shift in France have rattled wealth managers although some hope that, particularly in the case of France, action may prove less radical than rhetoric.

The election of socialist candidate Francois Hollande in France as president, who has pledged new tax burdens on the wealthy and a big change to the austerity measures agreed with Germany, has reignited fears, or confirmed expectations, that the eurozone in its current form is doomed. Greece’s political dramas, meanwhile, show no sign of ending.

At Bedrock, the Geneva and London-based private investment office, one of its co-founders, David Joory, managing partner, said that however the French results are viewed, they are not positive for the euro or Europe.

“Hollande is determined to renegotiate part of the stability pact with Merkel, something she has already declined, as he wants to show his voters that he will not be another Sarkozy and 'take orders from Berlin'. Germany and France have been the bedrock of the euro and the biggest proponents of fiscal rectitude and austerity, as well as anti-'euro bonds',” Joory said in a note on the issue.

Meanwhile, in a regular note on strategy, Willem Sels, UK head of investment strategy at HSBC Private Bank, notably found few positive things to say about the euro when examining favoured currency trade ideas although he noted that the policies of the European Central Bank were one of the few factors holding the euro higher than it would otherwise be.

"We receive a lot of questions about why the euro is not weaker given persistent stress in the eurozone, increased concerns about Spain and growing uncertainty following recent election results,” said Sels.

Sour on Europe

Recently, the private bank at France’s own Société Générale told this publication that it remains underweight of eurozone equities (with some very specific caveats), predicting no growth overall in the eurozone this year. In recent times it has been hard to find any significant dissent from that view.

In his note, Bedrock’s Joory continued: “However, the problem is that France does not have the money for all his promises, and this will certainly not be accepted by the financial markets. On a longer term basis, Hollande will have to come back to some sort of reality where hopefully he will start being more pragmatic and see that he cannot fulfill all of his campaign promises.”

Joory may have in mind the example of former French president Francois Mitterand, elected in the early 1980s on a socialist platform and who took a number of industries into state control before being forced to reverse course.

In his note, Joory points out that there are still parliamentary elections ahead, which “will be even more important as we will only see then if Hollande has a majority to govern or if he has to form a 'cohabitation' government with the members of the French Right”.

Greece

“In terms of the Greek elections, these have added yet more confusion and not less, making the outlook for Greece appear grimmer and grimmer. If no coalition is formed there is a risk that there will be yet another general election in one month which will add even more uncertainty,” he said.

“Unfortunately Greece appears to be on the verge of a social explosion and it is difficult to see how they will stick to the austerity programme and more importantly, the euro, Joory added.

Ryan Hughes, Senior Fund Manager, Skandia Investment Group, said there is a significant chance that Greece will run out of money in the summer of this year.

“As the country and financial markets digest the weekend’s election results, ‘fear’ and ‘pity’ are observable in equal measure. Fear from the Greek people knowing that the far Right Golden Dawn Party now has 21 MPs and the KKE [Communist Party] has 26 MPs, giving extremist views a strong platform,” he said.

“The Greek stock market continues to spiral downwards, falling a further 10 per cent post the election results. With the pro-bailout parties failing to agree a coalition, it falls to the anti-bailout parties to try and form some sort of government. While this significantly increases the chances of Greece leaving the euro, this looks premature, with many Greeks still believing that a future out of the euro is more painful than remaining in it,” he said.

“If no government is formed, then another election will be held in the summer, potentially becoming a ‘referendum’ on remaining in the euro. In this scenario, the fears created by the far Right and far Left may be enough to shock the Greek people back towards the mainstream parties. Ironically, it may be the mainstream parties that resort to creating fear to shock the Greek electorate into realising that reverting to the drachma is more of a step back towards Ancient Greece than they may think,” he said.