February 11, 2017
With two months left until the French election, analysts and political experts find themselves in a quandary: on one hand, political polls show that while National Front’s Marine Le Pen will likely win the first round, she is virtually assured a loss in the runoff round against either Fillon, or more recently Macron, having between 20 and 30% of the vote; on the other, all those same analysts and political experts were dead wrong with their forecasts about both Brexit and Trump, and are desperate to avoid a trifecta as being wrong 3 out of 3 just may be result in losing one’s job.
Meanwhile, markets are taking Le Pen’s rise in the polls in stride, and French spreads over Germany are moving in lockstep with Le Pen’s rising odds. In fact, as noted earlier in the week, French debt is now the riskiest it has been relative to German in four years.
Why are markets spooked?
As per her recently released manifesto, Le Pen has promised to unilaterally take France out of the Euro within six months, sparking concerns over what might happen then. The answer comes from the National Front itself, which overnight revealed its plans to the FT, suggesting that €1.7 trillion of French public debt would be redenominated into francs if the far-right National Front party gets into power.
Call it Yanis Varoufakis’ dream scenario.
As the FT reports, “in comments that are likely to amplify fears about the impact of a FN victory on the global financial system, several senior-ranking party members have told the Financial Times that in power the far-right would seek to redenominate about 80 per cent of the France’s €2.1tn public debt — the part that was issued under French law — in a new national currency. Confirming that Le Pen’s party had extensively studied the topic, David Rachline, FN’s head of strategy, said in an interview that only about 20% of…