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Friday, 20 October 2017

A cock and bull story

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Anthony Peters, SwissInvest Strategist

OVER THE YEARS, I have been to more economics presentations than you can shake a stick at, most of them worthy but few memorable. The one I attended on Thursday was very different.

The mighty house of Natixis, through the good offices of its chief economist, Patrick Artus, set up a pre-French election roadshow featuring a punch up between left-winger Karine Berger, economic adviser to Francois Hollande, and right-winger Christian Saint Etienne, economics professor and member of the government’s Council for Economic Analysis.

Coming on the day on which Hollande announced an election manifesto that included the reintroduction of the mad notion of retirement at 60, Berger was fair game and Saint Etienne, who holds a masters degree from the LSE and for whom the term “Anglo-Saxon” does not have horns and a tail, was not in the mood for taking prisoners.

To an extent I felt slightly sorry for Berger. The City of London is not the easiest of places to find an audience sympathetic to her very special brand of Gallic socialism – or any brand of socialism for that matter – and with this being her first public appearance following the lifting of the embargo on Hollande’s political programme, she was rudely cast into the lion’s den.

However, the most striking feature of the debate was that for both sides, to varying degrees, the economic woes of La Grande Nation boil down to the straight-jacket that the euro places on the country.

MY MIND WANDERED back to the 1990s when I spent eight very happy, though financially fruitless, years of my career working for BNP until it acquired Paribas and the BNP fixed income division was wiped off the map, myself included. At the time I sat next to Cyril Beuzit, now head of BNPP’s rate strategy group, as he cut his teeth as the lone economist in the London office.

It was during the post-Maastricht period when currency and rate convergence was all the rage. The pragmatic Brits all argued that the convergence criteria were never going to be met and that there was a dog’s breakfast in the making. Cyril gave the Gallic shrug and insisted that nothing was going to stand in the way of the introduction of the euro on a grand scale. The guillotine awaited those who disagreed. In the event, time has proven us both to have been right.

Nevertheless, to hear a Frenchman of the profile of Saint Etienne declare the euro project a failure and predict its imminent demise came as a shock, even to me. I didn’t think you did things like that in France.

He alluded to the often used comparison with the US with its single currency but remembered to add the critical difference that, although California is economically like Germany and Alabama like Greece, financial transfers by way of Washington DC happen without the customary wailing and howling and gnashing of teeth that we see here in Europe.

Without the structure of a central, tax-raising European government the edifice is damned. However, and interestingly, he conceded over a glass of wine after the formal event that a single currency could survive in a smaller group that included neither the strongest nor the weakest members. A eurozone without Germany but with France leading? As Sean Connery’s James Bond would have it: “Shurely shome mishtake”.

To hear a Frenchman of the profile of Saint Etienne declare the euro project a failure and predict its imminent demise came as a shock

Irrespective, Sarko looks to have burnt his bridges with the French electorate and Hollande will quite possibly win the presidential election by default rather than by design. Let’s face it, political elections are customarily lost and very rarely won.

I WAS SURPRISED how often the S&P downgrade was mentioned by the speakers. I had thought that the French would dismiss the ratings agencies – or as a Swiss portfolio manager I know calls them, the raping agencies – as an unnecessary and horned adjunct to that Anglo-Saxon conspiracy to pluck and gut the Gallic cockerel.

Nevertheless, it appears to have hurt French pride even though it has had no notable effect on bond prices.

I left convinced that both speakers were, to varying degrees, wishing the eurozone away. What was also clear was that they are both obviously comfortable with the notion that, if it is to be saved, it is Germany’s sole responsibility. Do you blame Mutti Merkel for being so darned cagey about ponying up the cash?

I won’t dwell for too long but it is nice to close on the assertion that economics conferences can be framed around something other than beating participants to death with stats and charts. Well done, mes amis.

Just one final addendum…. It’s that time of the week again – all that remains is for me to wish you and yours a happy and peaceful week-end. Being late January, my you have a spring in your step rather than you finding your garden already stepping into spring.

(This is an updated version from earlier on Friday)

 

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