Archive - Apr 25, 2012

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. 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 pond is deteriorating fast.