Magicians never reveal their secrets, but we all know that magic lies in the distraction of one's attention. This is exactly what the politics of prestidigitation is all about.
Since Emmanuel Macron's coronation at the helm of the French state, we have never heard the French make as much noise as now.This former banker has mastered the art of showmanship without substance.
Support from some high-profile media outlets has helped create the myth of Macron. A couple of magazine covers from The Economist set the tone: "Europe's saviour" depicts the French president walking on water, whilst "Europe's new order" shows Macron on stage under theatrical projectors holding a mike. The latter summarises the politics of Macron; words speak louder than actions.
First, Emmanuel Macron has no real political base. He has risen to power on the back of a centrist party, the Democratic Movement, presided over by the former short-lived French Education Minister Francois Bayrou. Secondly, he relied on voters from the fragmented right-wing party, The Republicans, who were left with no one to turn to after incessant media bashing of their candidate Francois Fillon. Thirdly, Macron's current position is that he must deal with the rise of disenchanted voters who see him for what he really is, a political proxy.
Why does this matter to us Brexiteers?
The answer is simple: because France is actively seeking ways to keep Britain in the European Union (see my previous article). Yet, anyone preventing us from exercising our right to leave the European Union following the referendum on 23rd June 2016 should be classified as an "enemy" of the British democratic system.
In The Art of War, Sun Tzu writes:
If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.
So, what do we know about France?
Our neighbour across the Channel has a sizeable public debt. French bonds attracted the attention of investors around the globe during the 2017 presidential campaign. Talks of a possible euro exit rattled the market. Advisers of National Front candidate Marine Le Pen met with UBS, Black Rock and Barclays to present their plan about exiting the common currency (see article here). Pressures on French bonds oscillated throughout the campaign as mentioned by The Financial Times.Jitters could be felt in Asia as Japanese "investors suffered another setback after French bonds, one of their favourite assets, crumbled earlier this year on worries about the French presidential election." (full article in Gulf News). Emmanuel Macron's surprise win in May 2017 should have restored market peace but it was not to be.
The latest figures show French debt soared over the first quarter of 2018 to 97.6% of its GDP, which equates to 2,255 billion euros. So far, the French state is only paying the interest (yield) on its debt rather than the actual debt. The world's seventh largest economy (behind the United Kingdom and India) would be bankrupt if the yield rose to 5%.
One can understand why the Meseberg Declaration has been described as a breakthrough by the French. Emmanuel Macron has presumably achieved more than its predecessors! It remains to be seen whether the Germans agree to use their current account surplus to bail out France. The French president is exploiting the fact that the fate of Merkel hangs in the balance whatever happened when the Christian Social Union Party met on 1st July 2018, it is hard to access money when an economy is unable to generate it by its own means. Then again, the German Chancellor may have other things to worry about, such as finding ways to convince the American president not to impose sanctions on European car imports into the United States. It would be fair to say that Emmanuel Macron did not jump at the chance to save Merkel out of altruism but by simple opportunism. Macron and his advisers hope Merkel will concede to their effort to reform the European Union and spread their debt burden to all European countries. Something the Dutch are strongly opposed to. Yet French debt is not the only problem Emmanuel Macron has to worry about. Italy is also a great source of concern.
Double debt
The Italian government made up of the Five Start Movement and the North League has not helped Emmanuel Macron's affairs. At the latest European Summit, the Italian Prime Minister showed that Italy has a stronger negotiating hand than it used to, and the rise of the populism may have had a lot to do with that. The quandary for France is that it is one of the biggest holders of Italian bonds.
Société Générale… disclosed a €2.76bn exposure to Italian sovereign debt and a €7.2bn exposure to Italian corporates as of the end of 2017.
This would have increased substantially since the Italian election. The spread between the German Italian and German bond yields was recently at his highest since 2013 (see graph here). This has put substantial pressure on the Italian structural system and, by extension, the debt-ridden French state. Talks of a possible merger between the French bank Société Générale and its Italian counterpart Unicredit have allowed respective shares to soar but underneath the veneer one must realise this creates a systemic risk for a sinking European ship. Allegedly Italy's debt to the European Central Bank is nearing €500bn (see here). Only the future will tell how this will unravel!
Let's tie this down to the matter of Brexit
In the absence of a political win, Macon and his technocrats are desperate for a reversal of fortune. For the French elite, Brexit must fail. Since his appointment, Jean-Pierre Jouyet, French Ambassador to the United Kingdom, has consistently repeated Brexit is no good (see here). Jouyet has recently been interviewed on the BBC where he reiterated the French state's and president Emmanuel Macron's views on Brexit, which have not changed one iota.
Over 40% of French assets have been invested in the United Kingdom. For instance, one of France's biggest defence company, ADS, is based in the United Kingdom. Any devaluation of sterling would impact on the value of these assets. The United Kingdom does not have a constitution but relies on common law, which is feared by the French elite because they are unable to influence the British statute book.
This would explain why French-born Brexit negotiator Michel Barnier has insisted the United Kingdom must accept the primacy of the European Court of Justice over the British legal system. This would enable the EU to maintain a hold on the British legal system to their advantage.
If May presses on with her half-baked Chequers Deal, which should be described as a submission, she will damage our institutions for good and enable people who do not have the UK's best interests at heart to dismantle British sovereignty. The Prime Minister would not only have held the 17.4 million people who voted to leave the European Union in contempt but she would have proven she has no desire to uphold that vote. Citing David Davis, May's Brexit plan is "profoundly dangerous"!
A French euro exit could enable France to reduce its deficit by regaining the power to print its own currency. However, Emmanuel Macron and his technocrats are unlikely to consider leaving the common currency for ideological reasons even though a euro exit may become unavoidable! Gavekal's Founding Partner and Chairman, Charles Gave, seems to think it is worth considering.
Why does all this matter? Simply because knowledge is power or in the Latin words of Francis Bacon:
ipsa scientia potestas est