Will France Leave the Euro?

This is not exactly literature, but it is a good international report on the economic reality of the financial and economic crash.

France is now seeing an unprecedented outburst of debate on "exiting or not exiting"
the euro. Even French President Nicolas Sarkozy, in Brussels on
Dec. 17, felt obliged to respond to the growing groundswell in
the French public, when he stated dramatically that it would be
"irresponsible and inconceivable" to leave the EU monetary union,
since "the disintegration of the euro would mean the
disintegration of Europe."

Unprecedented, today's {Le Figaro}'s front-page headline
reads: "What It Would Cost for France to Abandon the Euro?" So
far, the Banque de France and the Finance Ministry claim that no
Plan B exists. But Marc Cliffe, of the research department of ING
bank, published an exhaustive attempt to "quantify the
unthinkable." For him, "Complete break-up would have effects that
dwarf the post Lehman Brothers collapse." The ING note evaluates
two boundary cases: "a Greek exit and a complete break-up." For
France, overall, leaving the euro would provoke a 10% drop of GDP
over a three-year period, according to that account.

Cliffe then desperately tries to scare countries and
convince them to remain in the Eurozone: "By comparison [to a
Greek exit], the impact of complete break-up is dramatic and
traumatic. In the first year, output falls by between 5% and 9%
across the various former member states, and asset prices
plummet. With their new currencies falling by 50% or more, the
peripheral economies such as Spain and Portugal see their
inflation rates soar towards double digits. Meanwhile, Germany
and other core countries suffer a deflationary shock. Indeed,
with the U.S. dollar surging on safe haven flows to the
equivalent of 0.85 EUR/USD, the U.S. also suffers a bout of
deflation."

Arguing for the opposite approach, Marine Le Pen, running
for President on her father's anti-immigration National Front
party slate, has jumped on the issue to promote her candidacy and
national chauvinism in general. As of this weekend, her campaign
started circulating a three-page document, in reality written up
by monetary experts from the French banking establishment,
outlining "12 essential steps" to leave the euro. While the memo
points to some useful technical means to exit the euro, it
doesn't represent in any way a viable economic or political
alternative to the global disease of monetarism. Outsiders should
realize that for the past several weeks, the French financial
oligarchy has been heavily promoting Le Pen in order to bring in
Dominique Strauss-Kahn and Sarkozy as viable alternatives and
"winners" of the 2012 Presidential election.

First, says the memo, France should negotiate a "group exit"
with other countries that are "suffering" from the euro, mainly
Ireland, Greece, Italy, Spain, Portugal, Belgium, and countries
having a "free currency" outside the Eurozone. The next steps
include the printing of a new franc as national currency, the
abrogation of the French law of January 3, 1973, which outlawed
the creation of state credit by the national bank. Then, Article
38 of the Constitution needs to be invoked, in which the
parliament gives full power to the executive for a limited time
period to handle issues normally decided by the legislature.
Next, one should decide to have a transition period, let's
say two months, in which both currencies will be accepted as
legal tender, both the euro and the new franc. Initially the new
franc will have a total parity with the euro [under the condition
the euro still exists at that point]. Monetary policy will be
decided on by the governor of the Banque de France and the
Finance Minister.

Initially, says the document, the value of the new franc
will rise as compared to the dollar, the peseta, etc., given the
"decomposition [compared to France] of the economies of the
Eurozone (besides Germany)."

Not saying a word on how to free the world of the gigantic
mountain of unpayable debt, and saying nothing about how a
revival of physical economy could give substance to monetary
creation, the National Front memo is poisoned by extreme forms of
national-monetarism as opposed to the globalized forms of the
same disease: "In a second phase, France will be obliged to adopt
a policy of controlled competitive devaluations similar to those
currently adopted by the U.S.A. and China." The Cheminade
campaign will of course remind educated Frenchmen that "It's the
physical economy, stupid!"