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Friday, April 20, 2012 6:51 PM

Paris – City of Dimmed Lights?

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Steen Jakobsen, chief economist for Saxo Bank in Denmark pinged me with an email this morning called "Paris – City of Dimmed Lights?"

I asked for my taxi driver’s political opinions on my trip to Paris, and he practically shouts back: “Promissez, promissezz – eet’s all just promissez”.

He clearly doesn’t trust anyone - Sarkozy? “Everybody hates him.” Hollande? “He want to take everything away from everybody” Le Pen? Then he smiles “Well, she could do OK on Sunday.” Indeed she could – if France decides to use the “free option” of the first round, which is an opportunity to demonstrate their general distrust of French politicians.

Then he makes another important point: if there is one thing the French deserve a world championship for, it’s for going on strike - the French are world class at that!

That’s right, it’s presidential election time in France, with voters going to the polls this Sunday the 22nd and then having a second run-off round on May 6th - and it feels like French voters are ready to go on strike en masse. Maybe this could be another 2002 moment where someone comes from behind and disturbs the assumed two-horse race of Sarkozy and the Socialist Hollande? I’m not sure about that, but clearly the Parisians are feeling something in the air, and trust me it’s not just the spring weather.

But despite the French disgust with their politicians and the spirit of protest in the air, the menu of voting options is not compelling. So whoever “wins” the presidential election will almost certainly be a loser in the fight to get France and the European Union moving in the right direction.

None of the candidates is about reform, none of them runs a platform for change similar to the one Thatcher promoted in the late 1970’s and early 1980’s. No, Hollande wants to be a new Mitterand, Sarkozy wants to be the President he promised but failed to be since 2007 and Le Pen is simply against everything. Change? Pas du tout! [Not at all! - Mish]

Hollande leads Sarkozy by 10-12 percent in the expected head to head duel on May 6th - but two weeks in politics can be like a decade in real time. There is plenty of ground yet to be covered and mistakes to be made.

The consensus among the French economists I have talked is that things will get worse in the aftermath of the election - whoever wins needs to do the “Greece/Spain thing”: Own up to the real size of the problem. France has sinned on deficits and spending like no other EU nation in the last three years and now it is France’s turn to make real sacrifices.

The ideal platform for any new President would be to use the first 100 days to create a credible ten-year plan that is created with all the relevant parties at the bargaining table: the unions, the private and public sectors and the banks.

France, like most of Europe, has become uncompetitive and needs to do a long-term 'internal devaluation' - this plan does not need to provide miracles and short-term massive gains, but it needs to be simple, broadly backed by all stakeholders and credible. The financial market is willing to accept any slight hint of reform and willingness to discuss the real issues as a positive sign of integrity and good intentions, but as we have gotten used to in the elections around Europe, the French election will be an exercise in protest rather than a mandate for change.
Mike "Mish" Shedlock
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