Hollande the Brave
The French President has been in the press a lot recently. Firstly, there was the triumph in Mali. “Vive le France!” could be heard in the streets and the swift removal of the Taliban from Northern parts of the country is to be lauded. But after a rousing welcome in Timbuktu, Hollande might find he has a chillier welcome closer to home.
This week Hollande spoke out against the level of the euro. Not only did he do that, but he questioned why the ECB is the only authority in the euro zone who has power over the currency and said that governments’ should have some say on FX policy. This is brave stuff. Hollande is questioning the notion of a free-floating currency, something that the euro zone is fully signed up to and advocates along with other countries in the G20.
Sure, there are some rogue G20-ers who manipulate their currencies. The Swiss and the Japanese do it openly, others adopt more covert measures, but for a head of a member state in the currency bloc this is a political hot potato that could leave him with some explaining to do at the ECB and also at the next G20 meeting.
It’s pretty obvious why he did it. The French economy is tanking. Its latest PMI data are underperforming the peripheral economies of Spain and Italy. The French readings for January were back at 2009 levels, deep in recession territory. The unemployment rate is rising and Hollande’s popularity is taking a pounding. Thus, he needed to find a scapegoat and chose the euro, and by proxy the ECB.
Hollande’s actions of late reminded me of an episode of the excellent Danish political drama Borgen. The Prime Minister is coming under pressure and needs to boost her popularity. She decides to organise a peace summit for an African nation split apart by war. Not as interventionist as Hollande’s actions in Mali, surely, but the reasons for the action in the first place might be similar.
If Hollande can’t win in economic policy can he win votes in foreign policy? It certainly boosted his profile around the globe and made him look surprisingly daring, especially when other nations are withdrawing from conflicts that are far away from their own shores.
However, while the Mali episode deserves a gold star, Hollande’s performance regarding the value of the euro does not. One thing a stable FX market does not need is interventionist tactics from European politicians. If the French leader can get some cheerleaders then this may only heighten the currency war theme that is beginning to gain traction.
Hollande should not try to deflect attention from his own inept running of the economy. France needs to implement a plan to reign in fiscal deficits and attract new investment and business to France to stem unemployment.
Currency wars are a hot topic right now, and Hollande is right in the middle of it, yet again.