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Friday, November 16, 2012

Dieu save the baguette!

Many of you have probably already seen it, but this is the (quite clever) front cover the Economist has chosen to present its special report on France:

You decide what annoyed the French government the most:

a) 'Les Anglo-Saxons' making fun of France's economic grandeur with their unpleasant sense of humour;
b) The irreverent picture of a bunch of France's beloved baguettes about to explode;
c) The content of the report.

One thing is certain: the Economist has hardly made any new friends in Paris. Here are some reactions from the French government:

French Prime Minister Jean-Marc Ayrault (from Berlin yesterday)

"I can tell you that France is not at all impressed by the excess aimed at selling [more] copies."

French Industry Minister Arnaud Montebourg (on French radio Europe 1 this morning)

"Honestly, the Economist has never distinguished itself by its sense of self-restraint. It's the Charlie Hebdo [a well-known French satirical weekly] of the City."

Najat Vallaut-Belkacem (French Women's Rights Minister and government spokeswoman)

"[The Economist] should update its software...We borrow money at historically low rates, not to say negative. We have gained this credibility, and it is acknowledged by the markets."

We expect more reactions to come - and we may also elaborate a bit more on the future of the French economy in the eurozone at some point. For the moment, though, the idea that France should start to be looked at as a potential reason for concern does not sound completely far-fetched.


Rik said...

1. The problem with France is that if France falls the Euro is gone. No way that Germany will be able to keep the thing up basically by itself. Also such amounts will be involved that very likley some of the Norths will go for an EUxit.
2. My original idea was that Italy first would have to tumble and take the French banks with it and subsequently France would be dead and buried.
3. However I clearly overestimated the IQ of both the French population and that of Mr Hollande.
But got the smell of garlic and the white flag right (2 out of 3 is not bad).
The guy is simply seen as as big a liability as Berlusconi.
4. If I read the markets correctly is it as stated above. Smart money is moving out with Mach 10 speed. Everybody begins to worry.
5. Problem with France is that the price is based basically on technical valuations. While with fundamental ones bonds would now be completely overpriced.
Summarised the price is maintained at this level because there still can be greater fools found. These situations, history shows, however are hardly stable. Basically the world always runs out of fools at some point and usually pretty quick.
Which would tank (Baumgartner style) France and at that point it simply will be too late to make structural changes, things go too fast.
Also looking at the risk involved when materialise it will do so ,say within 2 years from now, meaning a very likely haircut plus a near certain devaluation, say a 2 times 1% interest makes simply no sense (to run that risk, it is at least share-like).
6. With France with the added problem that we likely first would see the usual ineffective Euro-rescue machine at work. Dumping a lot of the problem with the ECB (for friends: the Northern taxpayer). And government related institutions would get another part of the disaster on their balancesheets. So French banks would be even buster than they already are and they likely rob the local pensionfunds before folding their cards. So at first the drop therefor might look relatively modest (only the people would not have any pension left).

Rollo said...

When the big bang comes, the French will be on the S-Euro side, not in the Northern rump. The French are a big part of the problem. It is they that believe in protectionism, the 30 hour week, the huge public sector. 20 years ago, there was a trade balance France-Germany. Since then, every year, a gap has widened. The French can no longer compete. Nothing Hollande has done is going to help.

christina speight said...

Of course the French government don't like the truth - it hurts and it should hurt. The article is good analysis except that in some ways it doesn't go far enough.

The whole EU leadership is suffering from delusions of grandeur and megalomania. King Cnut here tried to teach his nobles a lesson by ordering the tide to stop coming in. He failed (as HE expected] and they all got very wet. Just the same with the euro. Its very structure makes its grandiose ambitions laughable.

My only regret is that we didn't leave the EU when the rest went ahead with this lunacy or at least shouted the truth from the rooftops day-in, day-out.

Idris Francis said...

The French never have forgiven us for winning two wars they lost within weeks. And as they never will, any attemt to suck up to then is doomed.

It is no coincidence that Folies de de grandeur is a French expression, there it is a way of life. But now doomed too due to their escalating financial crisis.

jason haris said...

I loved reading this piece! Well written! :)

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