Revived Franc could be our nightmare

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France’s Marine Le Pen reiterated the National Front’s commitment to pull France out of the European Union, NATO, and to restore the franc as the country’s official currency, as she launched her presidential campaign over the weekend. Mark Kelly reports. Image: AP

Marine Le Pen could pull France out of the euro by the end of the year, if she becomes President. Picture: Valery Hache / AFP


AUSTRALIA should brace for further market volatility in the run up to the French Presidential election, where one of the leading candidates has vowed to quit the euro by the end of the year.

French National Front (NF) leader Marine Le Pen is forecast to make it through to the second round of the April 23 elections with around 26 per cent of the vote.

This week, her finance chief confirmed the party would stick to its promise of dumping the euro in favour of a return to the Franc which could take as little as six months.

NF economic strategist Bernard Monot said the “new franc” would be used to denominate France’s EUR $2 trillion (A$2.77 trillion) debt in a move that would lead to huge losses for international investors and disruption for global markets if the switch was implemented.

He confirmed European leaders were aware of plans and “all capable of understanding that if France leaves the eurozone and the European Union then there is no more euro and no more European Union,” he said.

AMP Capital economist Shane Oliver said while polls show it’s unlikely Le Pen will ultimately succeed, Australia won’t be immune from volatility in the run up to the election.

“It’s unlikely that it will happen but it doesn’t mean investors won’t worry about it and therefore you’ll see the volatility in sharemarkets,” he said

“But if she does [win] and you can’t rule these things out, it would be a major problem for Europe. France and Germany are core members of the euro, there would almost certainly be a referendum [on French membership].”

“We’d be affected by economic uncertainly that would come. Say Le Pen wins, there would be rising probability that the eurozone would break up, that would create significant economic turmoil across Europe and I suspect some countries would be placed into recession if they faced much higher borrowing costs.”

“Business investment would stall, consumers would lose confidence. This is the problem with eurozone countries leaving the eurozone, the cost of divorce would be massive.”

Dark clouds: AMP Economist Shane Oliver said there are some bright spots on the economic horizon but fears about Europe and the prospect of a US trade war with China are keeping investors nervous. Picture: Spencer Platt/Getty Images/AFP

Dark clouds: AMP Economist Shane Oliver said there are some bright spots on the economic horizon but fears about Europe and the prospect of a US trade war with China are keeping investors nervous. Picture: Spencer Platt/Getty Images/AFPSource:AFP

Mr Oliver said the Europe’s uncertain future combined with nervousness about the new Trump administration has led to said “dark clouds” hanging over the economy.

“I don’t see Europe breaking up but it doesn’t mean investors won’t worry about it. It’s a bit like the kids worrying about a divorce.”

“You’re got some positives out there, and some uncertainties … Will Europe hang together [and] Will America get in a trade war with China putting a break on some global growth.”

Marine Le Pen, Republican candidate Francois Fillon and independent Emmanual Macron are the three main contenders in this year’s presidential race, which also includes Socialist candidate Benoit Hamon. Le Pen has consistently campaigned to take France out of the Europe Union and bring back border control. She has taken heart from the Brexit vote and election of Donald Trump and claimed that France will be next to “take back control”.

The prospect of her victory has European politicians and economists nervous the anti-Europe sentiment could spread to other countries like Italy, where the Five Star Movement has also promised a referendum on euro membership.

Marine Le Pen has wanted to take France out of the European Union for years. Picture: AP Photo/Christian Alminana.

Marine Le Pen has wanted to take France out of the European Union for years. Picture: AP Photo/Christian Alminana.Source:AP

On Monday EU financial affairs chief Pierre Moscovici said a Le Pen victory would be a “tragedy and a suicide” for the country and a death blow for the European project.

“It would be a tragedy for the eurozone and a catastrophe for France. When it comes to departure out of the EU, it would be pure and simple, in a certain way, the end of the European project,” he said.

France’s central bank governor Francois Villeroy de Galhau said withdrawing from the single currency would cost around EUR30 billion (A$41.48 billion) a year in increased borrowing and leave France “helpless” in the face of currency speculation.

“If we were alone, we would be helpless faced with financial market speculation … and helpless faced with US pressure on the dollar,” he told France Inter radio.

“Financing France’s public debt would cost over 30 billion euros ($41 billion) a year: that’s the equivalent of France’s annual defence budget.”

“That is very significant for those with home loans, for business investments and all taxpayers.”

Instead he argued for a “refurbished” economy, warning against “tearing down the foundations, our currency the euro, which forms a very strong basis in uncertain times.”

The first round of French elections will take place on April 23 followed by a run-off on May 7.

-With wires

Victoria.craw@news.com.au

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