Europe's New Entente Discordiale: The Other French Connection
While images of car-chases and Gene Hackman's pork-pie hat may be conjured, the tough new reality that has emerged this week in Europe's rising tensions is the decisive development in France as the election proved a strong showing for both far-right and far-left political parties at the same time. Somewhat surprisingly these extremes are in agreement on critical economic policies: they both want to restrict free-trade and the labor market, and also want to subjugate the ECB. Together with the Socialists and even most Centrists, the extremes clearly converge on a very strong consensus for anti-growth structural policies and massively lax fiscal (fair estimate might be 60% of the voters) and monetary (ditto, perhaps 90% of the voters) policies. This means that France has given up its ambition to become anything like economically similar to Germany. Instead, they have reverted towards joining their natural economic allies in the Eurozone: Italy and Spain. Perhaps this is why French spreads/yields have risen over 40% in the last few weeks as the politically pragmatic Anglo-Saxon spirits are starting to seize the enormity of what is happening: France is no longer any form of supporter of ally of Germany.
French spreads are rising rapidly - perhaps reflecting the country's shift away from Germany's bosom of inflexible stability and austerity towards one of stimulation and debasement...
France - Strategic Comment
- The decisive development is the strong showing of both the far right and the far left, in tandem.
- Both extremes are in agreement on critical economic policies: they both want to restrict free trade, the labor market and both also now want to subjugate the ECB.
- Together with the Socialists and even most Centrists, the extremes clearly converge on a very strong consensus for anti-growth structural policies and massively lax fiscal (fair estimate might be 60% of the voters) and monetary (ditto, perhaps 90% of the voters) policies.
- This means that France has given up its ambition to become anything like economically similar to Germany.
- Instead, they have reverted towards joining their natural economic allies in the Eurozone: Italy and Spain.
- Germany will be outvoted by the PIIGS, France and Belgium. The EURO, having ceased to be the DM in 2010, will now shift to become the French Franc in 2012.
- Eurobonds are inevitable in this process.
- Capital flight will be massive, but no longer only from the South to Germany, but out of the Zone to USD, GBP, and CHF.
- Such large scale capital flight will be repressed with much more energy than even the current fight against tax evasion (France and Italy had these issues way into the 1970s), to force money into Eurobonds and PIIGSFB Bonds.
- The convertibility of the EURO will be questioned by the new PIIGSFB. Here, remember that only Germany, but not the Eurozone as a whole, depends on the export economy.
In summary, there is now evidence an overwhelming political force in the Eurozone, perhaps almost all of French voters, are against growth and against fiscal and monetary responsibility.
Especially the politically pragmatic Anglo-Saxon spirits are failing to seize the enormity of what is happening:
- France is no longer any form of economic supporter or ally of Germany, but only of the PIIGSB or “Garlic Belt”.
- Not only the Socialists, but close to virtually everybody in France supports economically destructive and dysfunctional policies and there is no intention or tradition to adapt to their lacking in competitiveness.
- Instead, demand stimulation through increased deficits and monetary debasement.
The cultural background of this is that the French react to economic decline with irrational and destructive political aggression and revolts (expropriation of the rich, protectionism, severe public sector strikes, etc) rather than in an adaptive manner (the poverty in England and the US has never led to serious political revolt, to common knowledge).
The idea that somehow, pragmatic voices will stop this political groundswell is entirely misplaced: this destructive belief set has started to run its course. It is now in the Continental blood and the healthiness of economies over the Channel is deteriorating fast.
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