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.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.
“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.”
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.