Well this one is fun.
So here at HR, we’ve discussed at length the fact that should Marine Le Pen win the French presidency and then somehow manage to succeed in taking France out of the EMU, it would be a veritable disaster for financial markets.
If we’re going by OAT-bund spreads, that risk has dissipated of late, but the ISDA basis appears to tell a different story:
Of course in addition to triggering the largest sovereign debt default in the history of the world and causing all kinds of trouble for the ~60% of French debt that’s under domestic-law…
…a redenomination event would likely have disastrous implications for the savings of French citizens. Indeed, it’s difficult to imagine that the introduction of a new franc wouldn’t be met immediately with bank runs triggering the imposition of capital controls, which would only add to the panic (think Greece ca. 2015). More on that here.
But for those concerned, Marine Le Pen has a message. Consider the following via Bloomberg:
- Le Pen Says Falling Currency Would Help More Than It Hurts
- The euro “is at the end of the road” and is likely to disappear, French nationalist candidate Marine Le Pen says on France Info radio.
- The new currency she wants to introduce would fall by about 10 percent, which would help exports but have no effect on the savings of the French, Le Pen says
- “The euro has fallen about 25 percent over the past years. Have you noticed any impact on your bank accounts?” Le Pen says
Now there are obviously so many things wrong with that that it would take all day to document them properly, but we just wanted to point out two things.
First, that’s indicative of everything we’ve said over the past two months about Le Pen and about populism anno 2017 in general. Namely, that populist “saviors” are lying to the public about the consequences of their agendas.
Second, allow us to explain one simple flaw in Le Pen’s logic as outlined above. Here’s a quote from a new NOAA report:
During February, the average contiguous U.S. temperature was 41.2°F, 7.3°F above the 20th century average. This ranked as the second warmest February in the 123-year period of record.
And here’s Le Pen’s logic applied: “last month was the second warmest February on record. Did you burn alive?”