This Is Marine Le Pen’s Plan to Break Up the Euro

  • Bank of France to finance government under Le Pen proposals
  • ‘If there is a catastrophe, I have a plan,’ adviser says

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National Front leader Marine Le Pen will take back control of the central bank and fire up the printing presses as she leads France out of the euro if she wins the presidential election in May, her chief economic adviser said.

Le Pen is making a “return to monetary sovereignty” a key plank of her policy platform as she seeks to replicate the populist victory of Donald Trump in the U.S. and has set up a task force to prepare, her adviser Bernard Monot said, as he explained the details of her plan on the sidelines of a rally in Lyon Saturday.

Bernard Monot

Photographer: Guillaume Souvant/AFP via Getty Images

“I don’t think it will be a catastrophe because France is after all a major country and people will understand soon enough that we are working as patriots to restore France’s sovereignty,” Monot said in an interview. “If there is a catastrophe, I have a plan -- it’s in here,” he added, pointing to his head.
Le Pen’s campaign for the French presidency has grabbed the attention of investors around the world with her aim to rip out the financial foundations of the European economy. Although she’s leading in polling for the first round of voting on April 23, no survey has projected she would win the run-off two weeks later.

The Le Pen Plan:

  • Replace the euro with a basket of new national currencies
  • Revoke central-bank independence
  • Create money to finance welfare, industrial strategy, repay debt

Emergency Summit

On becoming president, Le Pen would immediately call for a summit of European Union leaders and the European Central Bank where she would ask euro members to replace the single currency with a basket of new national currencies comparable to the European Currency Unit or ECU, which preceded the euro.

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France’s currency would probably be called the “new French franc” and it would initially be equivalent to the euro, Monot said. The French state would pledge to limit its fluctuations against the EU currency basket to a maximum of 20 percent, though Monot said movement up to 10 percent would be more normal. There’s no timetable as yet for introducing the new currency and if the other euro nations decline to adopt their national currencies again, then the new franc would float freely.

“A dual currency system has never worked in the past,” Samy Chaar, chief economist at Banque Lombard Odier & Cie in Geneva, said in an interview. “The strong currency will be hoarded while the weak currency will be spent and lose its value, making it difficult for the Bank of France to maintain the peg.’’

Devaluations Appeal

Chaar said the risk of switching currencies would mean international investors would be certain to dump French assets. Monot, on the other hand, predicted that a devaluation would provide a quick boost to the French economy.

Indeed, the idea of a devaluation might also appeal to other euro nations like Italy which is also struggling with lackluster growth and even higher public debt, according to London-based Capital Economics.

“A devaluation would make France’s exports more competitive in international markets and should allow it to turn its trade deficits into surpluses,” Jennifer McKeown, an economist at Capital said. “It would also reduce France’s debt load in euro terms. The National Front has made clear that it would seek to redenominate the public debt into francs following a euro-zone exit.”

Under the Le Pen plan, the French government will take control of the central bank and create money to fund government spending. Le Pen plans to scrap the 1973 law and the subsequent European treaties that ensure central-bank independence, preventing it from providing money to the Treasury.

The Bank of France would be “autonomous” but supervised by parliament and allowed to add new money into the system up to an annual maximum of 5 percent of the total money supply, Monot said. That’s roughly equivalent in size to the ECB’s current program of quantitative easing, he said. Monot forecast that inflation in France would rise to 3 percent under the new regime.

“What’s worse?” he asked. “A reasonable rate of inflation or the near-deflation we’ve been living in?”

Government Debt

Government debt would be redenominated in the new French currency and the state would seek to buy back the debt from foreign lenders. France would meet all its obligations, Monot insisted, to “secure the trust” of lenders.

The Bank of France’s quantitative-easing program would generate about 100 billion new francs a year for the government -- theoretically equivalent to 100 billion euros ($107 billion) -- which would use the revenue to cover welfare payments and to fund its industrial strategy. Between 30 percent and 40 percent of the revenue would be used to repay government debt.

France’s borrowing costs will rise as result of this policy “but not crazily,” Monot said. He forecast that the yield on 10-year bonds would be between 2 percent and 3 percent -- remembering times when yields were well above 10 percent.

The extra yield that investors demand to hold the French government’s 10-year bonds instead of German bunds approached the most since 2013 on Monday because of the risks generated by the election campaign. The yield on France’s 10-year debt rose four basis points to 1.11 percent at 1:40 p.m. in Paris.

— With assistance by Mark Deen, and Paul Gordon

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