French elections could make April a cruel month
Sarkozy’s rivals even more sceptical of euro
by David Marsh
Mon 9 Jan 2012
“With its exorbitant interest rates and over-valued exchange rate, the monetary policy of the 1990s penalised investment, lowered the competitiveness of French products and French labour, led to an explosion in unemployment and provoked recession. If France had practiced the same monetary policies as England at the beginning of the 1990s, then our public debt would not be much more than theirs.”
If you were to deduce that the author of these lines – Nicolas Sarkozy, finance minister of France when he wrote them in 2007, and now president – was not much of a believer in economic and monetary union (EMU), then you’d be right. The astounding point, from a French and European point of view, is that, of the three main candidates for the French presidential election (first round on April 22, second round May 6) , even the dubious Sarkozy is the most favourable towards EMU.
Both François Hollande, the Socialist challenger, who is leading in the opinion polls, and Marine Le Pen, the National Front leader, are campaigning as euro sceptics. A strong sign of how the French election could be a potent trigger of further unrest within EMU.
Sarkozy’s view is that if France had left the Exchange Rate Mechanism in the early 1990s, as the UK did in 1992, and allowed the franc to float and interest rates to fall, then it would have been a great deal better off. Sarkozy withstood the effects of the franc’s unchanged parity against the D-Mark in the 1990s as Budget Minister in the government of Prime Minister Édouard Balladur in 1993-95, a time of hefty increases in public debt which Sarkozy blamed on the unduly high exchange rate.
Like many Frenchmen, Sarkozy saw EMU as the means for France to rescue itself from German domination after Germany’s reunification in 1990. While giving full rhetorical force in the past year to shoring up the edifice of the single currency, Sarkozy has been deeply frustrated by EMU’s failure to allow France more leeway in its increasingly fraught relationship with an ever more economically potent Germany.
France’s economic vulnerability has been a central feature of the election campaign so far. Hollande, belying his image as a political teddy bear, went on the assault last week, declaring in an open letter that the country under Sarkozy had been “humbled, weakened, damaged and degraded” – the last a pointed reference to expectations that France will shortly lose its prized triple A credit rating.
As far as EMU is concerned, Hollande has said he will renegotiate the euro rescue accord reached in Brussels as the pre-Christmas summit. He wants greater powers for the European Central Bank (ECB) and for member states to issue joint Eurobonds – measures to which German Chancellor Angela Merkel is implacably opposed. Mme Le Pen, for her part, daughter of the rabble rousing National Front founder Jean-Marie Le Pen, and currently running No. 3 in the opinion polls after Hollande and Sarkozy, has said she would quit EMU altogether and return to the good old franc.
Beset by high unemployment and low growth, Sarkozy seems likely on the basis of current opinion polls to go down in history as the first single-term president of France’s Fifth Republic since Valéry Giscard d’Estaing in the 1970s.
There are already a sufficient number of potential flash points in the 2012 world economic calendar, with the Greek orthodox Easter weekend (a week before the first round of French voting) ear-marked by some as a potential time for Greece to leave the euro and bring back the drachma. Traditionally, French presidential and parliamentary elections where political majorities change hand have proved to trigger considerable financial market turmoil.
On present reading, the French elections in spring 2012 could provide a particularly inflammable trigger point. April is likely to be the cruellest month for EMU. Foreign exchange dealers, finance ministers and central bankers should give up any idea this year of a long Easter holiday.
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