Tuesday, March 13, 2012

France’s Upcoming Election Means Euro Devaluation—and a Pop In Gold

On May 6, France is holding its second round of Presidential elections, where the Socialist François Hollande is fully expected to win.

François Hollande
I’m pretty sure two things will happen immediately following the election: The first is, Carla Bruni will leave Nicolas Sarkozy (because everyone knows that a professional courtesan never stays when the going gets tough for her patron).

The second thing that will happen following the election of Hollande is that the euro will begin to fall—amid persistent, insistent calls by the new French President for Europe to spend its way out of the hole it’s in.

In other words, France is about to elect their version of Paul Krugman to the Presidency.

Up until now, Europe has been going the way of Austeristan: Forcing the weaker eurozone nations (Greece, Portugal, Ireland, Spain, Italy) to severely cut their budgets and reign in their deficit spending, so as to thereby cut their overindebtedness. (Though Germany itself has been conspicuously remiss in meeting its own austerity targets.)

Germany has gotten this continent-wide austerity regime by way of French acquiescence, an acquiescence brought about by Nicolas Sarkozy’s lapdog-like partnership with Germany’s Angela Merkel. (Sidenote: What is up with Sarkozy and strong women? Whenever Carla or Angela crook their little finger at him, he gives it up like a prison bitch.)

The results of austerity measures have of course been disastrous: By severely cutting the governments’ budgets, those countries trying to reign in their deficits have successfully managed to shrink their economies, thus engorging their debt burden in relation to GDP, while simultaneously increasing unemployment and accelerating the fall in tax revenues—and thus making the sovereign debt burden even more onerous.

This Austerity Wave has hit Greece, Ireland, Portugal, Spain (sort-of), Italy, and it’s looking like it’s going to France next—

Entrer Monsieur Hollande.

Fuck austerity, the French don’t want it. Direct stimulus is what François Hollande favors—and he has not been shy about making his thinking known.

And that’s why he’s winning—and will likely get elected, even though he has the political sexiness of cottage cheese.

From a BusinessWeek article last week:
[Hollande] repeated his promise to renegotiate Europe’s latest fiscal treaty, saying it puts undue emphasis on austerity and offers little about the need for growth measures.

“Discipline is necessary on a European level; each state needs to make an effort to improve its accounts,” Hollande said on France 3 television today. “But it will be impossible to meet these goals if there isn’t growth and jobs and activity.”

European Union leaders signed a German-inspired deficit- control treaty on March 2 that puts a tighter curbs on spending and mandates automatic corrections of deficits that stray from targets. It is due to take effect on Jan. 1, 2013, and must be ratified by at least 12 of the 17 euro-area countries. All 17 countries in the euro area, including France, and eight EU members outside the currency bloc signed the treaty.

“If tomorrow I’m president, I’ll say there are parts of this treaty we can accept, but we won’t accept sanctions that are against countries’ interests and, second, we’ll add growth, activity, big industrial projects, Eurobonds to pull the economy ahead.”

[emphasis added]
So there goes the entendre that’s existed so far between Germany and France: Where Sarkozy was all accomodating when it came to applying “fiscal discipline” to the eurozone members (such a BDSM phrase, that), Hollande will not go the route of austerity, at least not for France.

Instead of austerity for France, Hollande will insist on more stimulus—

—which means Europe will have to take on a lot more debt to pay for this Hollande-demanded stimulus.

The only way for Europe to get more money to pay for any sort of stimulus package is to do what the Americans have done: Ramp up the bond printing machine and borrow your way out of the hole.

Of course, the American Federal Reserve tacitly financed the Obama stimulus package by embarking on Quantitative Easing-2 (QE2), while simultaneously lending money to banks at zero-percent interest rates (ZIRP).

This is what Hollande will push for: Get the European Commission (EC) to create some sort of continent-wide stimulus program, while the European Central Bank (ECB) embarks on its own version of QE2 and ZIRP, thus executing a back-door monetization of the stimulus money.

The effects of this stimulus (which would have to be huge to be effective) would be obvious: A fall in the euro against the dollar and the yen, and a sugar rush of economic growth. And of course, a pop in the price of gold—both against the euro, and against every other currency.

Will Hollande get this stimulus? And if he does, will it work? And will gold begin to rise in anticipation?

Hold on to your chappeau, mon frère—we will soon find out.


  1. When can we get the foreplay over and just have a stimulative continent-wide war in Europe. Put everyone you can to work building bombs and tanks and kill the remaining unemployed. Problem solved.

  2. Great piece.
    Chapeau has one p Gonzalo.

    1. and reign is rein

    2. ...and reign will fall until it becomes rain........

    3. Europeans have not been able to agree with each other since the dawn of recorded history. Coming to terms with a currency? I guess the Brits did the right thing stayed out of it. World War II was a civil war in Europe. At least it started out that way. Unlike in the U.S. Nothing much changed. Many things changed for the better after our civil war. Those countries still fight each other not militarily. They are not unified instead of working together. How did the U.S. become the most powerful countries in the world? No need to think twice. Every independent state unified and used a democratic policy for the benefit of all. Represented by all in the U.S. Europe is still a bunch of small independent countries looking out for their own special interests and not the good of their Euro zone continent. Back in WW2 if somebody invaded their country it was their problem. It didn't become some one else s problem until they were invaded. Try that in the U.S.! Look what happened when we were bombed at Pearl Harbor in WW2. that is unification. European countries still only care about their special interest. Not the common good of the Euro Zone. Time will tell if the Euro survives. Getting the test of a life time now.

    4. Without unification it's just time to disintegration. Please not another war in Europe. Most waring zone since the dawn of man kind. Get together once and in history. Europe is an amazing place been to many of your "feudal fiefdoms" You people came so close to losing it all. Get your heads out of your "special interests" Work together for once since the last time you were invaded. Is this WW3 happening? Warring factions in the European community. Will time repeat it self again? WW2 began with social unrest especially Germany after WWI than we got WW2. Then social unrest was taken to all time new proportions. When are you people going to be as beautiful as your country side is. Unify and stop fighting each other for your own special interests. Do it for the common good.

  3. I've given up on the current generation of European politicians. They are the past ... and they have no answers.

    The real future is more likely to be determined by the unemployed youths who wander the streets of Athens, Lisbon and Madrid. What do you do when over 50% of your generation cannot find a job - and your parents have run out of money? The answer to that critical question will probably determine the future direction of Europe.


    1. That all sounds very mysterious. What you do if you cannot find a job is elect politicians who will give you social welfare.

  4. As a French man, allow me to say this, Mister Lira : you are completely wrong on this one.

    One thing you need to know about the French "Socialists" is that they have become the equivalent of the Obama Democrats: slightly to the left of the Republicans. Or, put another way: Republicans with slightly more brain cells (not a lot more, mind you, just enough to pass for normal XXI century human beings, and not religious zealots straight from the XIV).

    But they are exactly the same in every other respect: don't misunderstand me, François Hollande may be tooting the ZIRP horn, promising to tax the rich to help the poor, etc... But he is a tool of "The Man" and he will ultimately carry on the policy decided by the ECB, the IMF and the too-big-to-fail banks: austerity, austerity and more austerity.

    There are already rumors swirling in France that he has sent influential friends around to comfort the richest 1% of Frenchmen that, no, all that talk about taxing them is not really going to happen.

    Then, there is this small matter of a (very inconvenient) article published in UK's Guardian that, as a socialist, he is certainly not going to let banks go bust or impede the free flow of capital in (or out) of France. He even went as far as saying that French socialist governments have been, overall, much more business - friendly than others (and that is a fact, by the way).

    In other words, Hollande is throwing red meat to people on his left, trying to attract more left and extreme-left voters by promising things he has absolutely no intention of EVER delivering.

    Which, by the way, is exactly what Sarkozy has been doing, only with the extreme-right, by promising to pull out of EU "open borders" agreements and re-establishing protectionist measures.

    Both of them know this is crunch time - election is right around the corner and they desperately NEED those extra votes to win. Hence, the absurd declarations and promises of both of these... excuse my French... wankers.

    A socialist France, mark my words, will carry out the exact same policies that are blowing apart the Greek economy. And Germany has proved, time and again, that it is quite willing to work with a Socialist French President. Some people even say

    I'll leave you with one last thought: Francois Holland nickname, in France is "Flamby". I'll let you look for it over the Internet, but it really means the guy is as interesting and strong-willed as that disgusting product.

    1. I agree with Anonymous Mar 13, 2012 03:36 PM. (Ah, "Flamby", je savais pas, c'est bien trouvé ...).

      Gonzalo, you are looking at the EU and the US through the same prism, and that won't work. So, about Hollande and the euro:

      Not only France, but a lot of EU countries will also see their head of state change mid-2012: Italy, Greece, Slovenia, Belgium ... and it's going to be a whole new ball game for the EU. The "old guard", who is not much in sync with the EU paradigm and is still aligned with Washington and the UK (like Sarkozy), will be replaced by a team that will be definitely more "european-oriented" (like Hollande). Thus we may expect even more innovative reforms and solutions that will end up strengthening the euro.

      Yes, they very well may launch big spending projects, but at least these projects will have to do with infrastructure, modernization, education, research, etc., which will give a solid base to economic development, and not stimulus and bailouts that are swirling in a sterile closed circuit of banks investing the QEs into TBs like in the US.

      Finally, the euro devaluated compared to the dollar? The yen? Two currencies that are facing dire prospects. The dollar, on its way out from being a reserve currency, and the yen, the currency of a moribund country...

      So no, I'm not holding my breath about a demise of the euro.

    2. ...big spending projects.. infrastructure.. etc.
      These are the wrong type of projects for growth, but they suit big government, big bank, big business.
      The right sort of impetus is to SME businesses (small companies). If you have 10 of a staff and you take on 1 more, that's 10%. If you have 3,000 staff and you take on 30 more, that is only 1%.
      Small is beautiful. Break it all up.
      We don't want central control, they just burn the money, always do.
      And that is before you talk about corruption. If you look at the cost of the Greek submarines (a big infrastructure, modernisation project) sounds like the cost was doubled to pay for all the 'enablers'.

    3. I would hope that you understand that it is an essential policy of the left that they "promising things he has absolutely no intention of EVER delivering." This is how they get elected; by promising free stuff.

    4. That can be said of EVERY politician, in EVERY country, almost EVERY time there is an election coming up. Right, Left or Center, all of these wankers lie all the time.

      As as matter of fact, I rather like this definition: "When do you know a politician is lying? When you see his mouth moving".

    5. If it wasn't for the Brit's and the U.S. coming to the French you would be speaking German or Russian. You were already taken over right? Who liberated you? You people have to run like a unified region not a bunch of rinky dink small countries fighting each other. Germany got blown to hell in WW2 and they are still the strongest zone in Europe with the Brits and they are not in the Euro. British pound is a way better investment than the Euro. IMO.

  5. Thanks Mr. Anonymous Frenchman.
    It should be clear by now that left/right means nothing whatsoever, not in any country. Look at what Obama promised and look at what he did. It's the same everywhere in our so called "democracies", they promise whatever to get elected and then they go on doing whatever their masters tell them.
    "The people choose, it's a good thing we tell the people what they can choose"

  6. The only thing European politicians are interested in is not letting Financial Armageddon happen on their watch.
    Put this off for the future .... that is far enough away to be sheltered from any fallout.

    As has previously been posted, the real future of Europe lies with the legions of unemployed end destitute.

  7. I don't think Carla will leave, they make such a cute couple!!! And didn't they have an adorable baby??

    Your fan Tita

    1. I heard Carla has a relationship with Woody Allen...

  8. All I can say is .....que la fete commence...!!!

    Sarkozy was a dead duck when France lost its virginity....its AAA rating.
    The silly man allowed too much debt to be issued and didnt do anything to regulate to stop the french banks from buying so much of the other crap paper.
    Best he can do now is to hang it on the line and beat the crap out of it. That way he might be able to re-use it.

    As for your predictions on the certainty of future liquitity and its deletirious effects...well all I can say about that is what about CDS. This is not over by a long shot. Greece CDS #2, 3,4,5.........is about to be unleashed....France cant have all the limelight. I expect Portugal, then Spain followed by Ireland and Italy all wanting to express their eagerness to do a nice debt swap arrangement followed by some "default" negotiation.......

    Dont expect the US to sit idly by either and watch the EURO fireworks . Their plan is to unleash ship(t)loads of paper to keep the EURO for washing away. The GOLD prediction is pretty much on the "money" (sorry) though. It will do more than POP and THAT I dare say, will be the agent provocateur of unexplained deaths.

    Au revoir mes amie....bon chance

    (As a side serving...I think Carla and Frau Merkel have some stuff on the Sark man.....he is a bit of a girly man...cant make a HARD decision to save himself let alone France).

  9. This is the unraveling.

    It will spare no country.

    I hope you can eat all that gold you bought.

  10. Having lived quite a long time in France, I know that most french people are today very sceptical about what could say them any politician from the left or the right. It means that in the next election only the fanatical socialists will vote for Hollande while of course the fanatical right wingers will vote for Sarkozy but the latter will have also the votes of many nationalists (in the second part of the election) as well as the many who have no definite political opinion since these many tend to find Sarkozy far more sympathetic than Hollande.


  11. France -as ever, it seems to me- strongly advocates one course of action.... to apply to everyone else but not themselves.
    So I am sure they will demand austerity the loudest (and carry on as before)

  12. So what you are saying is the French people want more "free stuff" and the Socialist candidate has promised more "free stuff". The price for this "free stuff" in the short term will be devaluation/inflation and some form of economic collapse. But in the long term it will be even worse.

  13. I think you mean entente, not entendre.
    And "rein in" as an analogy is derived from the world of horse riding, not monarchy. It means to restrain, brake, pull back. I don't understand why so many American writers get it so wrong.

    1. many analogies make it into our languages via unexpected sources...It takes only a little imagination to transfer the meaning of "reining in" to the monarchial "reigners in".

  14. gonzalito

    after the second round of elections

    carla might leave nikolito

    but the euro wont go down

    and the gold wont go up.

    silver may go up, but this will not have nothing to do with the french boyz

    So long


  15. The future of America is in the hands of the Independent Voter

  16. Hi,

    What creates a better economy? Spending printed money on useful infrastructure which puts real people back to work doing real things in the real economy, or spending printed money on bailouts for bankers? And while we're on the subject, using printed money thereby debasing the currency in oder to finance lower tax rates for "job creators" like Goldman or JPM?

    What's so responsible about shrinking the real economy with austerity for the sole purpose of scooping up enough money out of that real economy only to hand it all over to the banks so they don't suffer losses on foolish and uneconomic loans to corrupt governments?

    And while we're at it, what's the long term effect of a destroyed economy on that economy's currency? People buy into a growing economy, but they pull money out of a collapsing one.

    Furthermore, and for sure, an antidote to "conservative" austerity should never be the so called "liberal" (??) alternative of bought and paid for politicians (Sark, Angela, Barry, Mitt, Dave, Ben, Merv, Mario, etc) printing money (for the banks only of course) and debasing the currency. Liberal? Conservative? Are these terms even worth using anymore?

    In my opinion, the greatest toad in Europe right now is not Sark, it's Mario who brings down the austerity whip on the backs of ordinary people while he prints unlimited Euros for the banks. The ex Goldman operative has managed to become both an irresponsible liberal money printer and an oh so responsible fiscal conservative all at the same time. Mario may have come to the ECB not to praise the Euro, but to bury it. Just wondering.

    Destroying a real econony with austerity while undermining the currency by printing money for the banks is not the way to save the Euro.

    The Europeans ought to do what the Icelanders did. Waive burning torches in the faces of their politicians, default on unpayable debt, no bailouts, and jail the bankers and their associated politicians.

    There's nothing wrong, per se, with the Euro that not bailing out the banks at all cost wouldn't cure.

    And now back to my espresso.



  17. I tend to agree with my fellow countrymen (and women) who told you that you did not get the picture clear on France.

    "Fuck austerity, the French don’t want it. Direct stimulus is what François Hollande favors—and he has not been shy about making his thinking known."

    Your command of American (and English) is impressive. Your grasp of the US culture even more so. But you certainly miss the debate that is taking place here on money and economic issues.

    What you you did not get is the fact that most French people are currently quite aware of the situation. Their politicians are certainly serving them their good old lies. But the people is certainly more aware of the situation than what their "masters" do believe.

    Should you understand the language, make sure to listen to the way TV networks do cover both the crisis and the current elections.

    What is happening here is not 1981 Mitterand. It is the following:

    Both the middle class and what is left the old labor class, most French native are quite bourgeois now by international standards, want those who made this mess possible to pay for their crimes.

    Who do they feel is responsible?
    1- bankers taken as a whole,

    2- multinational head-office executive staff who choose to favour their Asian development systematically, There is a "buy France", "dump China import" campaign all around!

    3- politicians who have not suffered from the crisis; since the "activité politique" is now fully subsidised by public money in order to avoid corruption, all of them are indeed quite comfy "politiciens professionnels".

    Are these people wrong? Looking for the scapegoat? Only partly of course. Of course French people can certainly not afford all of their nanny state, and health support system. Are they worse than their equivalent OECD counterparts? No.

    A weaker Euro, certainly. But where are the international alternatives?

    Are China, India, Brazil going to enjoy such effective handling of their public purses and banking systems that their respective currencies will fly in the coming two years... No more!

  18. I think people need to stop demonizing "austerity", and start embracing it.

    Austerity, if you mean radically reducing government's ability to take on new debt and reducing spending programs, is a great thing. What is done with that unspent government revenue is a different thing. If what you are doing is shoveling the money towards the banking cartels, then no, that's a bad thing. If you are reducing the size of government and the needs for extra taxation, then that is a great thing and will cause the economy to grow.

    More on the benefits of austerity: http://mises.org/daily/4648

  19. Loved the Paul krugman reference. Although I am no Frenchman, if you are right Gonzalo then France will go the way of Greece. The idea that France can borrow its way out of its mess is preposterous.

    1. If I have to chose between Lehman Bros. and Paul Krugman, I take Krugman 101 % !
      Obviously, Andrew F., you don't have the slightest grasp of French politics. Get educated (anmd learn a second language) !

    2. There is no difference between Lehman Bros and Paul Krugman.
      They both were/are "Keynesians" aka "financial alchemists".
      They believe that they can turn toilet paper into gold.
      French just like liberal Americans think that they can "... get money for nothing and chicks for free ..."

  20. yeah right, why would Carla leave Sarko, are you a fortuneteller or something ? Will see if greece defaults as you predicted, and the probably i will look at this article.

  21. The US Founders never would have imagined an American elite so corrupt that they would dissolve the people and import a new one. But how about the WHITES? There future?

    How is this not genocide:
    White countries are being flooded by non-whites. We are told to be

    TOLERANT. We are forced to integrate. With assimilation we see the

    extinction of one race only, the white race.

    Its not funny, not comedy, its white genocide.

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  23. Gonzalo, your analysys misses an important aspect: what about the germans? Who care about what the french want, the decision is in the hand of the germans, they are the "sponsors" so far of Euro's survival. Should the french fight the austerity "way", germans will move to plan B: the mark (i.e. the Deutsche Mark) :)

  24. You are going to be wrong again (Greece to default on March 22). France just facilitated their own Mossad 9/11 and it's "rally around Sarkozy" time.

  25. The socialists won the Danish election promising to stop the austerior policy of the "blue" government. It were all a matter of gaining power, limo´s, Queens parties and free lunches. Nothing has happened at all, they have continued the previous governments policies. It is a quest for power and all lies and empty promises to the voters that got then elected. I think the french politicians are just as lousy as the danes. It is so easy to promise!


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