Four elections this weekend have the potential to reshape theEuropean political map and show how the response to the financialcrisis remains hostage to the whims of voters on both sides of theregion's economic divide.

Recession-weary Greeks will pick a new government and polls showthe French will probably install a Socialist president for thefirst time since 1981. Local elections will test Italy's politicalpulse, and voters in a northern German state may deal a symbolicblow to Chancellor Angela Merkel's coalition.

The May 6 elections capture the popular agitation in debtor anddonor countries alike, after emergency loan packages worth 386billion euros ($507 billion) and a focus on deficit reductionfailed to halt the debt crisis. Instead, Europe has been sunderedin two economically, with Greece's unemployment rate of 21.7percent contrasting with Germany's 6.8 percent.

“We have to look out for political risk still in Europe,” JulianCallow, chief European economist at Barclays Capital in London,said on Bloomberg Television. “We've been in a situation frankly inthe last year where the politics has really been quite favorable topush through structural economic reforms, to push through fiscaltightening. My concern is the political pendulum is starting toswing back.”

The gathering political storm has already swept away the phaseof calm in financial markets that was ushered in by the EuropeanCentral Bank's lending of more than 1 trillion euros to banks intwo operations in December and February.

Bond yields in Spain, which ousted its Socialist government inNovember, have become a day-to-day barometer of whether Europe isclimbing out of the crisis or sinking back into it. Ten-year yieldsrose above 6 percent on April 23 and were at 5.80 percent at 10:45a.m. Brussels time today. The euro headed for its biggest weeklydecline in a month, trading at $1.3129, down 0.8 percent for theweek.

The vote in Greece, the epicenter of the euro crisis, mayamplify the mutiny against the wage and spending cuts and taxincreases that are conditions for drawing on financial aid andstaying in the currency.

“The biggest risk for markets is that in Greece we just don'tget a government and it becomes completely unclear whether or notGreece will be able to comply with the austerity program,” saidHolger Schmieding, chief economist at Berenberg Bank in London. “Ifwe're unlucky on Monday morning, markets may wonder whether Greecewill be out of the euro within a few months.”

Political Horse Race

Greece's first ballot since then-newly installed Prime MinisterGeorge Papandreou uncovered a 20 billion-euro budget hole inOctober 2009 may yield a parliament with as many as 10 parties,making it hard to form a government with a clear mandate.

Papandreou was replaced by non-partisan former central bankerLucas Papademos last November after an aborted call for areferendum on budget cuts led Germany and France to make aprecedent-setting threat to expel Greece from the euro.

Greece's best-case scenario would be a coalition of conveniencebetween Pasok and New Democracy, the two parties that havealternated in power since military rule ended in 1974 and aresignatories of the austerity program, Schmieding said.

The two parties, never before joined in a unity government,would combine for 32.6 percent of the vote, possibly enough to ekeout a majority under Greek electoral rules, according to the finalpre-election poll on April 20.

Europe's crisis pervades the presidential campaign in France,with incumbent Nicolas Sarkozy vowing to match Germany's economicsuccesses and claiming that Socialist Francois Hollande would makethe country look more like Greece.

France's loss of its AAA rating from Standard & Poor's inJanuary and Sarkozy's vote-seeking tilt against austerity haveshattered the image of the German-French “Merkozy” duo in commandof Europe's crisis management.

Sarkozy began the campaign planning on joint appearances withMerkel to burnish his European leadership claim, only to end it bydenouncing Muslim immigration and bashing the ECB's German-tingedinflation-fighting orthodoxy.

Hollande, ahead in the polls throughout the campaign, has echoedthe criticism of the central bank and promised to renegotiate adeficit-limitation pact at the core of Merkel's approach to thecrisis.

In the only pre-election debate, on May 2, Hollande claimedcredit for shifting the conversation from “austerity” to “growth.”The challenge to Merkel is mostly rhetorical, said Mujtaba Rahman,an analyst at Eurasia Group in New York.

“It's going to be easy for Merkel to sign up to Hollande'sgrowth agenda because it means very little in terms of actualsubstance,” Rahman said. “However, on the fiscal side, much ofMerkel's agenda is now codified in EU legislation.”

State Votes

Merkel has her own electoral business to attend to, with herparty vying to hold on to a share of power in the northern state ofSchleswig-Holstein and to re-enter the government of NorthRhine-Westphalia, the largest state, a week later.

In Italy, mayoral elections on May 6-7 in more than 1,000 citieswill be a first gauge of the mood since Mario Monti took over fromSilvio Berlusconi as prime minister in November and a corruptionscandal shattered the top ranks of the Northern League,Berlusconi's former coalition partner.

Monti's technocratic government has imposed 20 billion euros insavings, deepening Italy's fourth recession since 2001. Aneconomics professor and former European commissioner, Monti hassaid he won't run in national elections due by May 2013.

“It is rare that a single day offers the chance to gauge thepolitical mood in the euro zone so widely,” Janet Henry, chiefEuropean economist at HSBC Holdings Plc, said in a research note.“This election blitz could have far-reaching consequences forfurther efforts to tackle the debt crisis.”

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