Unemployment is crucifyingly high. Factories have lost competitiveness. The share of euro-zone exports is in relentless decline. Industrial production is still lower than it was in 2008. The euro might have been a French idea – but France has turned into one of its main victims.
The National Front Leader Marine Le Pen is certainly right to insist that France can’t recover while it is inside the single currency. There is a problem however. Her plan for getting out is completely deranged.
The first round of voting in the Presidential election is only three months away, and the National Front leader seems almost certain to make the second round. So in the last week, Le Pen, and her economic adviser Bernard Monot, have started to flesh out details of how France will leave the euro.
How’s that going to work? In the first instance, she will ask the rest of the zone to replace the euro with a basket of national currencies. If they don’t agree to that, apparently the franc will be re-launched, but the exchange rate will be ‘managed’. Meanwhile the state will take control of the Bank of France. It will print money to repay its debtors, and pay for increased welfare and an industrial strategy. Le Pen's plan is crazy. Seemingly inspired by 1970’s Latin America, it is a kind of Argentina on steroids.
First, there is no point in trying to go back to a basket of linked currencies. That would simply recreate the old Exchange Rate Mechanism, which Britain crashed out of so spectacularly in 1992. It wasn’t just us that struggled within it, however. The whole of Europe struggled to maintain the ERM. Indeed, the main argument for creating the euro was because the ERM didn’t work. If it was a failure in the 1980s and 1990s, why would it work any better now? The answer is simple. It wouldn’t.
Next, if you re-launch the franc, there is no point trying to ‘manage’ the exchange rate. It may not play well with the National Front’s hardcore support of proud, tricolour –waving French patriots, but the ‘new franc’ would get hammered. It would be down there with the Egyptian pound and the Venezuelan bolivar. Smug-looking Brits would be buying up chateaux in the Loire for less than the cost of a parking permit in Fulham, and the Chinese would be buying vineyards in Bordeaux with loose change. Get over it. Just let the ‘new franc’ sink and sink, until the market finds a bottom from which it can recover.
Finally, don’t start printing money like crazy. To re-establish confidence in the ‘new franc’, you would need stern monetary policy, combined with a radical slimming down of the state. Only that way can you rebuild its industrial base and start exporting again. Printing money will simply subsidise inefficiency, block reform, and finally destroy any confidence the capital markets might have in eventual recovery.
France certainly needs to leave the euro. It is in relentless decline, and tinkering with the 35-hour week, rigid labour laws, or the size of the state won’t make any difference so long as it is stuck with a monetary system that sucks demand out of the economy. In truth, it should be a fairly simple exercise. France has already been through three currencies since the end of the Second World War (the franc, De Gaulle’s new franc of 1960, and the euro, in case you haven’t kept track). One more is hardly a big deal. Once France decides to get out of the euro, it should do fine. But Le Pen has no idea how to get there – and the plans she has put forward so far would be a catastrophe.