Austerity is a dirty word in Europe but what next?

Paris: The day after Francois Hollande rode to power in France on a slogan of "change now" the conversation in Europe is already different: Austerity has become a dirty word.

Greek parties who reject the extreme belt-tightening that comes with international bailouts were the big winners in parliamentary elections there. German voters in a northern state ousted the coalition led by Chancellor Angela Merkel's conservative party, which has pressed the case for austerity.

And France, of course, elected Hollande, its first Socialist president in more than a decade and one who has promised stimulus spending.

"Austerity can no longer be inevitable!" he shouted in his first speech after Nicolas Sarkozy conceded Sunday night. The question remains whether Germany agrees - and will allow at least some countries in the eurozone to spend more freely.

That raft of elections Sunday unsettled markets, which sunk in Greece, fell across Europe and then pulled back amid some bargain hunting. France's borrowing costs rose initially and Germany's fell - an indication that investors are pulling back into the safe haven offered by German debt. The 17-nation euro spiraled to a three-month low Monday against the dollar, hitting $1.2972 before traders sniffed a bargain and pushed it higher.

Much of the negative reaction was focused on Greece, where voters did make one thing clear: the political parties that backed the bailouts lost their majority in Parliament. That opens up the possibility that Greece's new leaders could renege on commitments made to secure the country's massive rescue loans. The conservatives will try to put together a new government, but there's a good chance they could fail - and that would usher in another month of financial chaos before new elections.

Merkel pressed Greek leaders to stay the course.

"Of course the most important thing is that the programs we agreed with Greece are continued," she said Monday.

Any pivot from the fiscal compact that insisted on massive budget cuts across the 17 nations who use the euro will have big implications for Europe and the world. The pact, while not perfect, did calm markets for a time. Some fear the new political wave could usher in more turmoil, opening the wound of Europe's debt crisis and further threatening the ailing eurozone economy.

Eight of the 17 eurozone nations are already in recession and unemployment across the bloc rose to 10.9 percent in March - its highest ever.

If investors pull back from Europe amid uncertainty, growth policies will have trouble making headway. Continued slow or no growth in Europe will also drag on the global economy.

The U.S. and European Union are important trading partners and each consumes a large portion of the other's exports. With unemployment skyrocketing in Europe, consumption is flagging and that will have a knock-on effect on the U.S.

The American and European financial systems are also heavily intertwined, and U.S. money market funds still have significant exposure to Europe.

Over the past two years, France and Germany have steered Europe through the debt crisis - though not always well. Germany and France declared an end to the flagrant flouting of deficit limits that led Europe into the crisis.

But the crackdown could not have come at a worse time - with the world economy slowing - and propelled Europe into a vicious austerity spiral. Cutting spending - which meant laying off state employees and ending stimulus programs - further slowed nations' economies and produced less tax revenue, which meant more cuts were needed to meet deficit targets.

Now a backlash has begun and for many, Hollande is its leader.

The new French leader has promised to put an end to the negative loop, demanding that the fiscal compact that targeted spending be re-negotiated to include measures to promote growth and declaring that his election brought comfort to countries across Europe.

"At the moment that the result was proclaimed, I am sure that in many European countries, there was relief, hope," he told supporters in his hometown of Tulle in central France.

Many economists have long advocated for a greater emphasis on growth, but that idea seemed to gather steam among European policymakers and politicians in the past few weeks as Hollande promoted it.

European Central Bank President Mario Draghi called for a "growth compact" even though that institution has long demanded fiscal discipline. A government in the Netherlands, long a supporter of such discipline, fell over the issue of too much austerity and too little growth. And even Germany, the primary architect of austerity, has said an agreement for a growth pact should be drawn up.

Still, concrete proposals for stimulating short-term growth have been few. European officials have talked about boosting funding for the European Investment Bank, and economists have urged making more targeted and aggressive use of so-called EU structural funds for infrastructure projects such as roads.

Yet with a budget only equivalent to around 1 percent of EU gross domestic product, the EU's prospects for large-scale spending are limited.

Jeffrey Bergstrand, a professor of finance at the University of Notre Dame, said it would be only natural for Germany to shift on the subject of stimulus. Even though its economy is the largest - and among the strongest - in Europe, it can't thrive if no one else is.

"Merkel has to be paying attention to (unemployment) because Germany, unlike the United States, is very, very reliant on exports, and exports tend to go to your neighbors," he said. "She will have to listen. She will have to give."

Germany has long maintained that it made painful cuts and reforms after the reunification of its East and West while other nations kept spent beyond their means - so why should Germans have to bail out their profligate neighbours?

But economists argue that Germany reaped the benefits of all that spending, too, since it sells goods to eurozone countries. And at any rate, Germany is one of the few eurozone countries that can spend a little more because its economy is strong and its deficit is in check.

Despite this new divergence between France and Germany, that relationship will remain central to a solution to the crisis. Merkel and Sarkozy were so close they were known as "Merkozy" - and the big question now is if there will be a "Merkollande" in Europe's future.

"There can be some short-term friction when they have to adjust to each other," said Laurence Boone, chief European economist at Bank of America Merrill Lynch. "But it doesn't seem to me that there is an alternative, because Spain and Italy are not strong enough."

Hollande will determine how bumpy the road is by whether he follows through on campaign promises of jump-starting the French economy by investing in infrastructure and buoying small businesses.

He has promised to keep the deficit in check by also raising taxes on the wealthy and closing some corporate loopholes - but some investors say that will kill the very growth he hopes to foster.

"Hollande's platform of anti-austerity is not really anti-austerity; it's really anti-growth," said Jeffrey Sica, president of U.S.-based Sica Wealth Management, which has over $1 billion in assets under management. "Whether it's taxation or regulation or however they're going to raise revenue ... they're going to shift the blame to business and to other higher income levels."

Some are hoping that Hollande will turn out to be more pragmatic. If he does start wildly increasing spending, France will no doubt see its borrowing costs rise - which could make his policies untenable and prompt a shift back to austerity. It was those rising borrowing costs that eventually forced fellow eurozone nations Greece, Ireland and Portugal to seek bailouts.

Several German papers indicated that Hollande the president won't be the same as Hollande the candidate.

"Adieu, election campaign. Bonjour, reality," read an editorial in Germany's daily Sueedeutsche Zietung.