Socialist Francois Hollande's victory in the first round of the French election, although widely expected, led to falls in European stocks on Monday morning. Some analysts say markets view Hollande negatively and investors also flocked to safe-haven German bunds. Investors were also watching political tensions elsewhere in Europe after the government in the Netherlands failed to agree on budget cuts, making new elections almost unavoidable.
FRANCE-ELECTION -Francois Hollande appears for the first time in Paris since coming out on top in round one of the French elections.
SOCIALIST PRESIDENTIAL CANDIDATE FRANCOIS HOLLANDE, SAYING
"We are confident, but it's up to the French to choose their destiny."
Although the Socialist candidate was widely expected to edge ahead of President, Nicolas Sarkozy, his win still knocked European markets.
Shares in Paris and around Europe fell from the open and the FTSEurofirst 300 was down by just over 2 percent by early afternoon.
Francois Chaulet is a market analyst at Montsegur Finance.
MARKET ANALYST AT MONTSEGUR FINANCE, FRANCOIS CHAULET, SAYING
"The two candidates in the second round have quite contradictory programmes, and marked policies from an economic point of view in any case. So investors are today perhaps justified in being nervous about certain programmes, measures, which could frighten the markets."
Investors also flocked to the safe-haven of German bunds, pushing up bond yields in Europe's indebted peripheral economies.
Budget talks collapsed in the Netherlands over the weekend when the government couldn't agree on cuts.
That makes new elections very likely and casts doubt on the country's support for future euro zone austerity measures says Peter Dixon from Commerzbank.
Peter Dixon, Commerzbank, saying
"There is a, if you like, a rupture between the political establishment on the one hand and the vast majority of the electorate on the other. And of course what the Dutch political parties are doing is reacting to the sentiment that they're hearing from their electorate and what they're saying is, look imposing more austerity upon the economy isn't going to work, we've had enough, there must be another way."
Francois Hollande is also proposing taking France away from the tough austerity adopted by much of Europe .
Analysts say the political situation in two core euro zone members could be an extra hurdle in the bloc's attempts to finally get its debt crisis under control.
Joanna Partridge, Reuters