“It Means A Financial Crisis” Any Questions?

I really, really hope that I’m not right about France. But the setup is hard to ignore.

The argument that Marine Le Pen can’t possibly win the Presidency seems to revolve – at least superficially – on the notion that her name is a “known quantity” in French politics. The implication there is that the pollsters likely have a much better handle on this than they did on the Brexit referendum and the US election.

I’m not an expert on French politics. But what I would say is that the more fractious the race becomes, the more Le Pen will benefit. Yes, you can probably go back and look at the daily polls and find me examples of Le Pen’s support waning on days where her legitimacy is called into question or when this or that scandal takes center stage. However, Le Pen’s campaign mirrors Trump’s. That is, both are trying to capitalize on fear. Fear of globalization. Fear of multiculturalism. Fear of immigration. Fear tied to the notion that the middle class is disappearing. Etc, etc. Given that, it stands to reason that the more chaotic the political landscape becomes, the better for Le Pen. And God knows the French political scene is nothing if it’s not chaotic.

On Wednesday, I ran a post that carried the tongue-in-cheek title “Will Everyone Chill Out? All Marine Le Pen Wants To Do Is ‘Set Off & Conquer The World.‘” Those are her words, not mine.

When I hear sh*t like this (from Patrick Artus, chief economist at Natixis Securities): “Monday she’s out of the euro, Tuesday she’s not, Wednesday she pegs, Thursday she fluctuates. It’s nonsense and it will never be implemented. We have to stop taking her economic pretensions seriously.” I can’t help but be reminded of all those people (some of whom very smart) who insisted that we shouldn’t take Donald Trump seriously when he says he wants to build a giant wall on our southern border or that he wants to ban Muslims from entering the US.

Speaking of very smart people who seem to be largely oblivious, here are some excerpts from a note out Thursday by Credit Suisse’s Andrew Garthwaite:

We think the risk of a Le Pen victory is overestimated: The 30% chance priced in betting markets is too high in our view as: (i) Marine Le Pen would need a polling error more than 3x greater than that seen in the Brexit vote to win; (ii) Front National is much more of a fringe movement than the Trump or Brexit campaigns; (iii) polls indicate Emmanuel Macron will make it through to the second round as he is occupying the centre ground, while the risk of a leftof-centre alliance is diminishing. Even if Le Pen wins, she would likely have very limited powers, making it extremely unlikely that she could pass a referendum on the EU. Opinion polls suggest that even if a referendum were held, a large majority would vote to remain.

Famous last words, Andrew. Famous last words.

I get the "known quantity thing" but if I'm an analyst, I'm not going to set myself up to look stupid by saying "Le Pen Risk Overstated"

— Heisenberg Report (@heisenbergrpt) March 9, 2017

will someone plz remind Credit Suisse that @nntaleb says you can't use the Bell Curve to talk about events that belong in Extremistan… pic.twitter.com/nMsDDE3fVR

— Heisenberg Report (@heisenbergrpt) March 9, 2017

Now once again, I think the general unwillingness to ponder a Le Pen victory and a subsequent redenomination event stems primarily from our natural tendency to avoid thinking about sh*t that would amount to a catastrophe. No one wants to think about the largest sovereign default in the history of the world and what it would mean for markets. Especially when, to quote European Union Trade Commissioner Cecilia Malmstrom, “there is no Plan B if Marine Le Pen would win and organize a referendum in France.”

Well, one person who has thought about it and come to the same conclusion I have, is French ambassador Gérard Araud. Below, find some good (and unnerving) color from a WaPo piece out Thursday:

Gérard Araud, France’s highly regarded ambassador to the United States, didn’t mince words when I asked him what would happen if Marine Le Pen won the country’s upcoming presidential election.

“In diplomatic terms, I would say it will be a total disaster,” said Araud. He explained that should Le Pen make good on her vows to remove France from the European Union and the eurozone, these departures would trigger a “political earthquake” in the West.

“It means the collapse of the E.U., because the E.U. without France doesn’t make any sense,” he said. “And it means the collapse of the euro and a financial crisis, which will have consequences throughout the world.”

Araud spoke with Today’s WorldView on Wednesday at the French embassy, a vast and secluded compound on the leafy fringes of Georgetown. Just a day earlier, another French ambassador had seemingly broken diplomatic protocol to protest Le Pen. Thierry Dana, France’s envoy in Japan, published an op-ed in Le Monde saying he would not serve in a government run by the far-right.

“If the pieces of the French tragedy which are being put in place were to lead to her election, I would stand aside from any diplomatic role,” wrote Dana. Araud, known for his eclectic and pointed commentary on Twitter, tweeted praise of Dana’s “excellent” article.

Le Pen, an ultra-nationalist who takes a hardline stance on immigration and Islam, stands her best chance yet to become president. For now, she is still likely to lose a potential run-off vote. But in the wake of last year’s seismic political upheavals, it would be foolish to write her off.

As Araud’s tenure as France’s representative in the United States draws to an end, the 64-year-old can perhaps afford to be outspoken. A career diplomat, he has spent more than a decade in the U.S. in various posts, including a stint as the French ambassador to the United Nations. He has watched with interest as his counterparts in Washington come to grips with the new reality of life under President Trump.

“This city was in denial that something was happening,” said Araud, gesturing to the capital’s wonks and officialdom. “This city woke up on the ninth of November and it’s still under shock.”

And for those inclined to say this is just another example of an “establishment” figure trying to dissuade voters from supporting a much needed reset of the global order… well.. Le Pen and Geert Wilders would be proud of you…

*****

As a counterpoint, consider the following interesting critique submitted by the same reader who has correctly anticipated many of the twists and turns we’ve seen thus far in the lead up to the French vote:

As you may have noticed, I did not follow up as promised with a comment on the left leaning voters in the French election, although the election will be determined by their choice (and they will do so in the first round)

 

In my view, by being an ‘echo chamber’ of main stream media comments (Bloomberg, Goldman…) on political matters, you do not add value – the problem is these comments are delivered as ‘the stew is overcooked’ (so to speak)

• there is nothing to gain from reports after the fact
  
• politics is a moving scene in a fixed frame of strategy and thoughtful perception of the ‘state of the country’
  
• with the clear understanding of strategic requirements and of implied perceptions, anticipation becomes possible

What makes matter worse, is the confused interpretation putting all the populist right wing European movements in the same bag. Consider not only convergences (they exist and there are well known reasons…) but also how different these movements really are …Media habits to quote Wilders, Le Pen and Petry in the same sentence is just terribly wrong – and these politicians are of course delighted, peddling confusion being their day job. But by doing so, you end up supporting a polical argument you do not seem to share…

Briefly, no Mr Wilders is not likely to weigh much in Dutch politics – Politics in the Netherlands is a special animal, endless negociations between parties, thrashing out governmental options … and apparently it works… Religious faith is still an important component and Christian principles ultimately loom over (almost) everything. If Mr Wilders were to be included in a coalition (not likely), it would be ‘for the show’ – in fact, Wilders does not look for government either… How about checking on Mr Jesse Klaver, whose breakthrough is certainly more of interest…

And also briefly on France – everything stays in line with my estimates as you may have noticed. Mr Delanoe, former Socialist mayor of Paris and very influencial party member, has announced his support of Mr Macron this very morning.