Marine Le Pen, the depressingly popular, proto-Trumpish leader of France’s anti-EU, anti-immigrant National Front party, is probably not going to win her country’s upcoming presidential election. Polls show that she’s leading the first-round vote at 25 percent but would get creamed in the runoff. However, considering the way we’ve all watched seemingly unlikely political nightmares spring to life over the past year, it seems at least worth noting that Le Pen has more or less promised to rock the global financial system to its foundations with a half-baked scheme to pull France from the euro.
Le Pen’s top economic adviser, Bernard Monot, outlined the plan to Bloomberg recently, and reportedly discussed it back in September with a governor from the Bank of France. The plot has three steps:
- Le Pen would call a meeting with the EU and ask it to replace the euro with brand-new national currencies. If it balked, France would go it alone.
- Le Pen would commandeer the French central bank, ending its independence.
- She would print “new French francs” to finance government spending.
Not to put too fine a point on it, but the National Front is essentially threatening to suicide-bomb the whole EU monetary system. It’s long been said that if Spain or Italy were to abandon the euro, it could spell doom for the entire currency bloc. (Greece, not so much, which is why it has close to zero leverage in debt negotiations. Sorry, Greece.) Were France—the eurozone’s second largest economy—to unilaterally bid adieu, it would be even more devastating. Markets would seize. The cost of borrowing would skyrocket and become prohibitively expensive for many smaller countries in anticipation of a chaotic breakup, which could conceivably lead to sovereign defaults by governments unable to roll over debts. Banks holding lots of euro-denominated assets would be imperiled. There would be bank runs (I’m guessing people would rush to withdraw euros and convert them to dollars). It would be carnage.
And if the rest of Europe decided to go along with Le Pen’s plan? I doubt the outcome would be much better. People have tried to imagine an orderly process for breaking down the euro, but the plots tend to rely on springing the news quickly and slamming down controls on the movement of money between borders to prevent chaos. Obviously, that’s not what anybody who inhabits the real world is looking at anytime soon.
As for the National Front’s plan to end central bank independence and monetize government spending, well, Monot tries to present it in the least Zimbabwe-ish way possible. According to Bloomberg:
The Bank of France would be “autonomous” but supervised by parliament and allowed to add new money into the system up to an annual maximum of 5 percent of the total money supply, Monot said. That’s roughly equivalent in size to the ECB’s current program of quantitative easing, he said. Monot forecast that inflation in France would rise to 3 percent under the new regime.
“What’s worse?” he asked. “A reasonable rate of inflation or the near-deflation we’ve been living in?”
Suffice to say, that is not how things usually work out when populist governments take control of a nation’s printing press.
In any event, what if things didn’t go quite according to plan? Monot says he’s got it under control:
“I don’t think it will be a catastrophe because France is after all a major country and people will understand soon enough that we are working as patriots to restore France’s sovereignty,” Monot said in an interview. “If there is a catastrophe, I have a plan—it’s in here,” he added, pointing to his head.
Sound familiar?
