Left-Wing Hollande Would Trigger €urogeddon

Guido shorted €uros last night as soon as the Kiwis got to their desks and the currency markets opened. French Socialist Francois Hollande looks set to become President of France and the Dutch government has fallen apart. International investors are not going to look at that kindly, Guido also has a sense that the election of a left-wing president in France who actually implements a left-wing agenda would frighten the bond markets. Hollande will probably tack to the centre once in office, he is after all only a politician making election promises. If however he sticks to the left-wing agenda that his rhetoric promises, the big macro-hedge funds will take the view that French bonds can join the PIIGS (Portugese, Irish, Italian and Spanish bonds) on the sell list. In government Hollande has to choose between his rhetoric and the reality of the bond markets.

The ECB has already dangerously leveraged up support for the PIIGs via Long Term Refinancing Operations (LTRO). Leveraging up the ECB’s capital base has allowed it to put nearly €1 trillion of PIIG sovereign debt on its books, at a massive leverage ratio of nearly 40 to 1. If the ECB were a marked-to-market hedge fund instead of a Central Bank we would say it was investing recklessly, a mere 2.5% market move against it would wipe out all of its capital. The market doesn’t move it against it because it massively intervenes to support its own position.

If however the German Bundesbank decides that the ECB can’t go on literally doubling the chips on the table – up 106% since last year – the €uro as is could be too big to save. That is why all Osborne’s Treasury’s protestations about the IMF always getting its money back count for little. The US and China want to see Germany bet everything on the €uro before they join the rescue party. German politicians – including those of the left-of-centre SPD – expect Hollande to govern from the centre whatever he says on the hustings. British left-wingers hoping for a left-wing surge on the continent sparked by Hollande should be careful what they wish for, it would trigger the end of the €uro. If Hollande abandoned Sarkozy’s deficit reduction programme Germany would probably seek alternative arrangements – a hard-€uro Fiscal Union made up of Northern Europeans who run their affairs like the Germans and a looser soft-€uro of Southern Europeans who overspend. The dream of a united continent of Europe with one currency would be over…




Tip offs: 0709 284 0531
team@Order-order.com

Quote of the Day

A senior Brexiter:

“If Theresa and Julian have sold us out here they are in real trouble. She reassured us all at the 1922. There is no way she can recover if she has now fucked us over.”

Sponsors

Guidogram: Sign up

Subscribe to the most succinct 7 days a week daily email read by thousands of Westminster insiders.
Riot Convicted Bastani on “Public Nuisance” Riot Convicted Bastani on “Public Nuisance”
Press Gallery Welcomes: Thornberry Press Gallery Welcomes: Thornberry
Labour Candidate on “Holocaust Mongers” Labour Candidate on “Holocaust Mongers”
Lansman to Discuss Corbyn Anti-Semitism “Smears” in Israel Lansman to Discuss Corbyn Anti-Semitism “Smears” in Israel
WATCH: May Speech Brings About Policy Exchange Collapse WATCH: May Speech Brings About Policy Exchange Collapse
Tories Make Sick Labour MP Vote in Wheelchair Tories Make Sick Labour MP Vote in Wheelchair
Leaked Emails Show DfT Lied About Northern Rail Leaked Emails Show DfT Lied About Northern Rail
Alan Sugar Tries to Get Sacked from BBC Alan Sugar Tries to Get Sacked from BBC
May Considers Asking to Stay in Single Market for Goods May Considers Asking to Stay in Single Market for Goods
Smith Must Hold Firm Against Grieve Smith Must Hold Firm Against Grieve
Eurotunnel: Don’t Buy Border Scaremongering Eurotunnel: Don’t Buy Border Scaremongering
CCHQ Defaced With Anti-Heathrow Graffiti CCHQ Defaced With Anti-Heathrow Graffiti
Labour Parliamentary Candidate Distances Herself From Rothschilds, ‘Zion Scum’ and ‘Fake Jews’ Tweets Labour Parliamentary Candidate Distances Herself From Rothschilds, ‘Zion Scum’ and ‘Fake Jews’ Tweets
Saj: Time to Review Scheduling of Cannabis Saj: Time to Review Scheduling of Cannabis
Sally Bercow: We’re Not Packing Bags Yet Sally Bercow: We’re Not Packing Bags Yet
Shouty Cracker Lord Moat’s Mask Slips Shouty Cracker Lord Moat’s Mask Slips
Jolyon’s Mystery £100,000 Donor Jolyon’s Mystery £100,000 Donor
Sandbach: I”ll Report Non-Constituents to Police Sandbach: I”ll Report Non-Constituents to Police
How Dominic Cummings Cost Taxpayers £20 Billion How Dominic Cummings Cost Taxpayers £20 Billion
Collins Data Breach Collins Data Breach