May 8, 2017

France pulled back from the brink

France pulled back from the brink

Bill Blain discusses the implications of the French Presidential result for France, Europe and the United Kingdom. 

The best thing about the French Election is I’ve just won a case of very fine French wine on the result!

The papers and financial blogosphere are full of positivity – France is fixed, therefore the Euro is safe and it’s all great news. Put your buying boots on. And on the back of Friday’s very strong US numbers… don’t worry that bonds continue to rally in the face of a likely Fed hike.

Please, the only thing good about the French vote is the least bad candidate won.

I question the grand expressions of upside the market is calling for. France has dodged a bullet, perhaps, but they haven’t solved the crisis – which boils to down to being the wrong economy using the wrong currency and absolutely no control of monetary or fiscal policy to fix it.

Macron has a head full of supply side policy clichés about sorting the labour market, and some catchy soundbites on Franco-German European hegemony – including the sacrifice of a fraction of the bloated state payroll. For all the hype, he’s a compromise of compromise candidates.

Let’s not forget that fully 12% of the votes were spoilt – meaning a significant minority of Frenchmen made a conscious choice that neither candidate was any good!

I’ll make a grand prediction: Macron will prove a disappointment. His lack of power base from which to actually effect long term change across France means we’ll get one or other of the Le Pens in five years’ time.

Although he will no doubt trade on his youth and popularity – don’t be surprised if the lustre quickly fades. Several blogs say he’ll quickly build a coalition of the willing. I doubt it. He’s going to struggle to form any kind of working government in the face of the established parties, and hostility from right and left.

There is also the likelihood the electorate will come to realise the gifted young game-changer is as establishment as they come. Don’t forget he is the protégé of Jacques Attali –  those of us of a certain vintage will remember Attali as the archetypal enarch – squandering billions on titivating the Glistening Bank (The EBRD) with marble lifts and ego-building offices rather than lending. Macron’s paid up membership of the discredited French upper class is something a better organised Front Nationale will play to in coming years.

On the upside, the numbers are moving in Macron’s direction. The state isn’t in the same perilous debt position pre-ECB intervention. A wee bit inflation will massage the numbers nicely. There are no immediate risks on the horizon. Unemployment is trending down (slowly), and is likely to boost his popularity. Merkel looks a shoe in for the German Election (very strong showing at the weekend in Danish Germany).

But, but and but again.

When Europe looks calm and sorted, it’s not. Nothing is fixed. For all the happy posts this morning about Euro strength, which stocks to buy based on the French recovery, and the rest… I doubt it.

Although there is apparently nothing to worry about in Euroland anymore – we’ve still got the festering pustule that is Italy, episode 47 of the Greek Crisis on our doorsteps, and the who knows what coming from the Brexit negotiations. Europe will continue to amuse, fascinate and frustrate.

I don’t normally spend my Sundays watching the TV wallpaper paste that passes as “political comment” but as I supped my coffee, one soundbite caught my ear: “the aim of Europe is to ensure the economic collapse of the UK to make clear leaving the EU is never an option.”

Oh dear….

Is there a danger the now pointless UKIP decides to establish some convoluted relevance as the force of anti-Europeanism? Sure enough, someone later suggested we should mount a European boycott. If we stop buying French plonk, German cars, Spanish holidays, etc., then that’ll teach ’em.

It so happens an American chum of mine was in Yoorp over the weekend and he popped down for dinner last night. As he is an economist of some renown, and a former Scotsman before he went all Yankee on us, I asked his opinion on Brexit and what America thinks. He was succinct: “We don’t give a fig. As long as you all play nice and don’t break the global economy, meaning we’ll have to bail it out, we really don’t care about Europe and the UK.” Nice, but to the point.

A trade war with Europe and the nihilistic post-UKIP politics of aggression would be a very bad idea. If I can’t get good European wine, it will inevitably mean drinking more Argentine Malbec. Not a bad wine, but it’s impossible to function properly afterward!

1.57 avg. rating (38% score) - 7 votes
Bill Blain
Bill Blain

Bill Blain is Strategist and Head of Capital Markets at Mint Partners, a leading agency brokerage owned by, but independent of, BGC Partners. He has over 30-years experience of investment bank and fixed income markets in particular: including spells as head of FIG at Bear Stearns in the 1990s, DCM at HSBC during the 2000s, and the development of new agency brokerage solutions to the liquidity crisis this decade. He is a regular commentator on financial markets. He joined Mint in 2012 to help expand the firm’s ability to provide clients with non-bank liquidity across complex transactions.

  • Emma Royd

    Don’t worry ‘French Tony’ will f*ck it up.

  • Big Les

    How many people who were thinking of voting for le Pen, and didn’t, will begin to wish that they had?

  • Thats_news

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  • Bosun Higgs®

    It’s ‘shoo-in’, not ‘shoe-in’, Bill. Nothing to do with footwear; much to do with geese.

  • Daphne

    She’s certainly changing the name of her party, which will help.

  • Andy

    Marine Le Pen needs to change her surname and found a new party. She does this and she will win in 2022.

  • The Cuck Stops Here

    Passable economic analysis, Monsieur, but gents of your lofty and affluent station, as always, never get that the real war right now is a cultural one. Try slumming it (or banlieuing it) for a little, and all shall be revealed…

  • Derek

    Nearly half of adults in Europe are populists. In France the figure is 63%. https://www.buzzfeed.com/albertonardelli/extreme-views-are-becoming-the-mainstream-in-britain-and-eur?utm_term=.hca5ora0j#.ijyGQYoPW
    Populists are authoritarian, nationalistic and anti-immigration and are against elite politics of main parties. Populism is hardly dead when around 1/3rd voted for Le Pen who had more extreme policies like Frexit and leaving the Euro. Even the vote for more middle of the Macron shows the effects of populism because voters rejected all the main parties.
    There is no easy answer to France’s problems. Like many other EZ countries it is locked into a Euro that is too strong. French workers favour maximum worker protection, early retirement and long holidays (average 30 days) with less hours worked. I can’t see French workers giving this up to create a more globally competitive economy even if it means higher unemployment.
    The right reforms by Sarkozy were rejected by voters. Hollande’s Socialist policies failed and he had to declare an Economic State of Emergency.

    See “Emmanuel Macron: What are his policies” http://www.bbc.co.uk/news/world-europe-39845905
    ……On the Economy: Pro-market, pro-globalisation and wants sweeping reforms of France’s wide range of state pension schemes…… Isn’t that similar to what Sarkozy was attempting which was rejected?
    Pro-market and pro-globalisation means being prepared to sacrifice the left-behind to boost wealth for the smaller percentage of winners from these processes. The French will reject this – yet again.

  • fitzfitz

    ”’ After 6 Deadly Islamic Attacks and 130 Deaths in 3 Years – Paris Votes 90% for Macron ”’ …

  • Bogbrush

    Perhaps, I wouldn’t know. I think Macron will be much worse because the problems facing France are almost existential – something we can’t say about the US. If as I suspect Macron is utterly ineffectual at best (and could be even worse) and the picture is moving so fast, that’s a Hell of a lot of deterioration to develop before the next Presidential election.

    I would class him as the French Obama, but squared. He’d love that of course but it’s not meant kindly – I mean it as the triumph of froth and spin over substance, and just as after 8 years of Obama America decided to swing to Trump, the Le Pen clan may well clean up once this guy has shown he’s wearing no clothes.

  • StopIslamofascism

    Eight years of Clinton would have resulted in immigration/amnesty policies which would have forged a permanent D and non-white focused majority. It really was “4th and inches” for America during that election and the left know it which is why they are so angry.

  • StopIslamofascism

    Interesting article but I can’t see that Macron was the “least worst option” when there is a growing Islamist and immigration problem in France and the West which will have to be dealt with. Macron is a cardboard cutout globalist politician who will continue policies which make these problems worse. Encouragingly at least 35% of the electorate understand this.

  • Mr TaxPayer

    France had a choice of two female leaders; they voted for the German one.

  • Mr TaxPayer

    I heard similar said in November last year. If the USA hadn’t elected Trump this time; then a Clinton Presidency would have allowed something much worse to bubble up next time.

  • Daphne

    They keep comparing him to Blair, I think he’s more of a Cameron with a French ukip waiting in the background. Le Pen is a good politician, even if you don’t agree with her views. At the moment she’s being treated as Farage was, her niece is being even more vilified, but we’ll see we’re we are in five years.

  • Bogbrush

    Fillon was the only hope for France; Macron will simply bottle up the Le Pen frustration and risk it fizzing out all over the place next time. Macron will get nothing done for all the reasons you outline (plus he looks to be a vacuous type of no real fixed principles).

    I struggle to see a positive outcome over the next 10-15 years. The UK just had to get out of this thing but that also was left 20 years too late meaning the fallout will be awful – just not as bad as it would be if it would have been in 2025 or thereafter. In the long term the breakup of the EU is essential but boy is it going to hurt in the meantime. And Germany will only let it go through kicking and screaming on an epic scale.

  • MyHyde

    Nice to see you getting insulted on Zerohedge.

  • lojolondon

    He has just stiffed all the main political parties, wee know how French politics works – he is going to he the ultimate ‘lame duck’ president. I predict pure stagnation, with the only outlet an early resignation and another election.

  • obbo12

    Macron can deregulate the French economy, but I don’t think he is strong enough.

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