Being a geopolitical analyst and forecaster often means having to explain to people sitting in America how and why a single event in Africa, Russia or China will directly impact them either personally or professionally. One such event is the French presidential election set for May 2012, for which the opposition Socialists are selecting their candidate today in a final round of open primary voting.
For most people, the knee-jerk reaction to an event on the other side of the world is, “Why should I give a toss what happens in France? Also, they are Socialists and promiscuous, so there’s that.” While such foreign policy prowess might be a hit at the local pub, would it really be smart to ignore an election that will impact everything in your life for which you pay or require borrowed money? Bear with me as I explain how and why this is the case.
No one really knows who will be the French president by this time next year. The French haven’t been keen to elect a Socialist to highest office since Francois Mitterrand in 1988, and polls strongly suggest that they aren’t now. If anything, they’d be voting against Nicolas Sarkozy, whose ideas and promises they like, but that fail in their transformation from hot air to something tangible. The French are also tired of the near-weekly “casseroles,” as they call the regular scandals involving the Sarkozy entourage. But they don’t seem to want National Front leader Marine Le Pen either—a nationalist and Socialist whose platform has gradually revealed an aversion to free-market principles. Le Pen blames the world’s problems on capitalism rather than heavy-handed government meddling, and believes the solution is more government intervention. That leaves the Socialists in a shocking position of being a viable alternative, if only because the bar has been brought right down to ground level. If Sarkozy’s ratings remain low, and the ruling party ultimately decides to replace him, the current dynamics might change quickly.
In all cases, future of Europe depends on this French election. Le Pen openly fantasizes about a Eurozone breakup, a position supported by many French people who loathe the idea of paying other countries’ social nets, while the Socialists and Sarkozy’s Union for a Popular Movement party both want sheer political will to hold Europe together as it careens toward collective bankruptcy at hypersonic speed, money flying out of the fuller pockets and into emptier ones. Socialist candidate Francois Hollande claims to defend the middle class while taxing high-earners who create jobs. He vows to significantly reduce the debt while bailing out other countries along with Germany, all while undoing Sarkozy’s retirement reforms so people can again cash in on benefits earlier. It’s the usual Socialist fiscal math of “1 + 1 = You’re paying, so who cares.”
Whoever gets elected in France, the Eurozone risks breaking apart—if not from Le Pen’s proclaimed will, then by default from the other two parties’ blind ignorance. Europe’s economic engine, France and Germany, representing 40% of its economic power, will eventually have rummaged around and spent all the loose change they unearthed from between couch cushions. Greece and other countries are going broke faster than French and Germans can produce.
The solution to this predicament is decreased spending and/or increased production. Because less spending seems unlikely, then it would make sense to produce more. This would mean slapping import taxes on products from China to make them competitive with domestically produced goods, reducing union costs that drive up prices, and lowering taxes on French producers to keep them from outsourcing. Think that sounds easy? Think again: What’s China’s largest export market? Europe. Who’s buying up Europe’s debt bonds to ensure European consumers can keep getting their “Made in China” fix?
China certainly doesn’t have anywhere near the kind of internal consumer economy, because wages are so low. So China is outsourcing its consumers to Europe and Europe is outsourcing its production to China. It’s a symbiotic survival relationship. Does Europe still exist as Europe, with China as a major investor calling the shots? And where does this leave America? Relegated to mistress status, with China buying fewer debt bonds in favor of leveraging Europe. This means less money floating around in America to buy that Chinese-made swing-set for your kid from Walmart.