Antoine Bayet
In a recent speech, Marine Le Pen said that government bonds would be redenominated in francs instead of euros. The proposal was formulated with technical terms.
If this happens, Europe will face a huge financial crisis. After all, if France decides to devalue its currency, why wouldn’t Italy and Greece do the same?
If redenomination of debt becomes an up-close possibility, "we will have to reconsider our position in France," said Yannick Naud from Banque Audi in Geneva. According to him, investors in emerging markets expect much higher returns from local currency rather than in hard currency to offset currency risks.
The leader of "National Front" is trying to convince French voters that the country may abandon the single European currency without harm to its well-being. As part of her plan to switch to the franc, she intends to take control of the Bank of France and start typing francs to provide material assistance to social security and serve financial obligations of the government.
Speaking on television on Thursday, Le Pen has actively advocated the idea of redenomination, saying that it will not affect investors or the French people. Fears that Le Pen will win the presidential elections in France, has roiled markets this week. The uncertainty and doubts resulted in the fact that demand from large investors on French government bonds instead of German bonds with a similar maturity reached a peak of more than 4 years. Consequently, their profitability will be declining.
"We do not care who holds the French debt, what is important is the type of contracts that the debt concerns," - said Le Pen. She says that 90% of the French debt, according to the IMF, refer to the French law, which means that only 10% are at risk.
Change of French debt would constitute a default in eyes of the major rating agencies, experts say.
However, it’s not all that simple, and observers doubt this initiative, as Marine Le Pen has a little chance to win in the second round of the presidential election. The same thing happened with her father in 2002, when voters united and supported conservative Jacques Chirac. Today, bookmakers estimate probability of Le Pen’s victory at 30%.
Even if she becomes president, it will be very difficult to implement this proposal. To return to the national currency means leaving the EU, which is quite a serious step. Only a fifth of the French believe that this would be possible in the next ten years.
Nevertheless, some investors fear a new surprise after Brexit, and Trump’s victory. "I do not think we should calm down and unconditionally believe in results of public opinion polls, which, as recent experience has shown, can make mistakes," - says Simon Derrick, a strategist at BNY Mellon.
source: bloomberg.com, economist.com
If this happens, Europe will face a huge financial crisis. After all, if France decides to devalue its currency, why wouldn’t Italy and Greece do the same?
If redenomination of debt becomes an up-close possibility, "we will have to reconsider our position in France," said Yannick Naud from Banque Audi in Geneva. According to him, investors in emerging markets expect much higher returns from local currency rather than in hard currency to offset currency risks.
The leader of "National Front" is trying to convince French voters that the country may abandon the single European currency without harm to its well-being. As part of her plan to switch to the franc, she intends to take control of the Bank of France and start typing francs to provide material assistance to social security and serve financial obligations of the government.
Speaking on television on Thursday, Le Pen has actively advocated the idea of redenomination, saying that it will not affect investors or the French people. Fears that Le Pen will win the presidential elections in France, has roiled markets this week. The uncertainty and doubts resulted in the fact that demand from large investors on French government bonds instead of German bonds with a similar maturity reached a peak of more than 4 years. Consequently, their profitability will be declining.
"We do not care who holds the French debt, what is important is the type of contracts that the debt concerns," - said Le Pen. She says that 90% of the French debt, according to the IMF, refer to the French law, which means that only 10% are at risk.
Change of French debt would constitute a default in eyes of the major rating agencies, experts say.
However, it’s not all that simple, and observers doubt this initiative, as Marine Le Pen has a little chance to win in the second round of the presidential election. The same thing happened with her father in 2002, when voters united and supported conservative Jacques Chirac. Today, bookmakers estimate probability of Le Pen’s victory at 30%.
Even if she becomes president, it will be very difficult to implement this proposal. To return to the national currency means leaving the EU, which is quite a serious step. Only a fifth of the French believe that this would be possible in the next ten years.
Nevertheless, some investors fear a new surprise after Brexit, and Trump’s victory. "I do not think we should calm down and unconditionally believe in results of public opinion polls, which, as recent experience has shown, can make mistakes," - says Simon Derrick, a strategist at BNY Mellon.
source: bloomberg.com, economist.com