A Hollande victory could destroy the anti-austerity movement

It seems faintly absurd now but back in the mid-nineties, the political world was abuzz with concerns about the risks of 'capital flight' should Labour win the next election. The fear was that a shift to the left would freak the markets leading to a sudden withdrawal of investment from the UK. Of course, the concern was groundless. It overlooked how much Blair and Brown had done to reassure the City of London in person and how core policies - sticking to Tory spending plans, independence for the Bank of England, no repeal of union legislation - had convinced investors that this was a very 'business friendly' Party.

Now, it is suddenly possible that the fears may arise once again but this time for real .

On Sunday, Francois Hollande beat Nicolas Sarkozy in the first round of the French Presidential election. On Monday, the markets recoiled from the prospect of a Hollande presidency with shares dropping in France and more widely in Europe. This suggests a Hollande victory could be a huge test for anti-austerity parties across the continent.

For months now rows have raged about whether the markets could live with less severe approaches to deficit reduction. If Hollande is indeed elected and the markets go into an even greater nose-dive, it will be exceptionally difficult to sustain the argument that slowing austerity programmes is a realistic policy. The Chancellor, for example, would be quick to paint Labour as risking a 'French scenario' in the UK.

Of course, it may not work out like this at all. The markets were also reacting on Monday to further poor data about the state of the Eurozone and the collapse of the Dutch Government. And the fear of Hollande may be as much to do with the disruption he could bring to the agreement to save the Euro rather than his plans for the French deficit.

These rapid market moves are difficult to put down to specific causes but in two weeks we should know for sure. And we may just be at a crucial turning point which could see a simultaneous high and low-point for the anti-austerity movement in Europe.