Bullish sentiments in the worldwide stock market were taken for a rude awakening by a double clap of thunder emanating from France and the Netherlands over the weekend. First, the defeat of French President Nicholas Sarkozy seems almost certain. He's the first French president in history to fall behind in the first round of voting. While the French electoral system has its own set of complications, the constellation of political parties in France almost guarantees that Francoise Hollande, the Socialist candidate, will be Sarkozy's replacement in two weeks.

The second clap of thunder occurred in the Netherlands, which was totally unanticipated.  Mark Rutte,  the Dutch prime minister, announced on Monday that his governing coalition had been handed a vote of no confidence in parliament.  Geert Wilders, head of the Freedom Party, broke publicly with his coalition, saying that the Dutch government's policies of  imposing forced austerity to comply with European Union demands was totally unaceptable.

 What makes the Dutch situation so significant is that up until now, the Netherlands was regarded as one of Germany's closest and strongest allies in its drive for imposing austerity on Greece, Italy, Spain, Portugal, and Ireland (AKA the PIIGS).  To world financial markets, the incredibly weak showing of Sarkozy to Hollande was expected.  France, is of course, Germany's major partner in dictating PIIGS' debt reduction, and Monsiuer Hollande will  most likely take a more skeptical approach towards imposing austerity on the European Union's weaker cousins .

What both the Netherlands and France have in common besides a newfound opposition to the German approaches toward stressing repayment of individual country national debt and an austere internal budget, is the fact that in both countries there appears to be a direct rebellion by both left and right wingers against the center.  For example, Marie Le Pen, of the fascistic National Front Party in France received a record high of almost 17% of the national vote.  And at the same time Jean Luc Melachon, of the  hard left Left Front party,  also did quite well, receiving about 11% of the vote.

In Holland, Geert Wilders of the Freedom Party last achieved worldwide fame by inciting Islamophobia in that country.  And now the Freedom Party has broken the coalition it's in, by complaining about the overly restrictive measures imposed by the EU from Brussels.

Dmitri Papadmitriou, an seasoned observer of the European debt crisis observed yesterday that these and other events clearly show the long term instability of the euro as a viable world currency under the present circumstances.  He's labeled the tyranny dictated by Berlin and Brussels on the PIIGS as being similar in its structure to the gold standard that ruled the world economy all through the 1800s up until the Great Depression.

One of the things driving the current Euro crisis is the fact that if individual countries like Italy or Greece had their own liras and drachmas, they could merely devalue their national currencies. Then their internal economic problems would correct themselves automatically.  However, as in the world gold standard of yore, since there is an external standard of money outside their countries (i.e. the euro), then imposing harsher standards on the PIIGS inevitably results in a vicious circle of greater and greater poverty. 

While the bankers of Brussels and Berlin fixate on inflation indexes and the repayment of such things as Spanish or Greek debt, the southern tier of European countries wallows in greater and greater economic despair, with less and less chance of  making good on the required debt payments. The European Union coalition has up to this point succeeded at increasing debt payments for Greek and other debt through ever increasing rounds of creative accounting.  The problem now is that the looming potential crisis of funding Italian, Spanish, and Portugese debt is now well beyond the capacity of the European Union to do any more magic tricks as far as the world financial market is concerned.  And major outside players, like the US and China, have informed the Europeans that they're pretty much on their own.

Alan Greenspan himself was reported to have said at a J.P. Morgan Stanley party that he felt that the euro as a viable currency has a limited shelf life.  He  joins an increasingly large gathering  of economic thinkers who say the same thing.  Interestingly enough,  Papadmitriou has suggested that the new political realities in Europe will not force the southern tier of European countries out of the EU.  With an emerging majority of European citizens and governments rebelling against the forced austerity programs,  he thinks that Germany may ultimately take steps to abandon the euro on its own, leaving  the PIIGS, France, and whoever else to populate a reconfigured euro without German participation.

Papadmitriou agrees with George Soros that this is a dangerous situation politically, as it could lead to even more extreme and powerful right wing movements on the continent.  Whether Germany stays in the euro, or whether Greece, Spain, etc. continue on their present course in the face of growing domestic opposition --  it's obvious that the European debt crisis may now be entering its third act.  

Whether the climax of this play works itself out later in the year or in 2013 and beyond is impossible to say at this time.  However, for the short run, the crisis shows all indications of dramatically pushing the entire world economy significantly lower in the next six months.