The Rise Of Nationalism Will End the Euro Before Summer’s End
May 19, 2012 By gpc1981
{The following is an excerpt
from my (Summer’s) latest client letter.}
The
collapse of
The
collapse is taking shape via three key developments:
1)
The Rise of Nationalism (see the recent Greek, French and German elections)
2)
The shift to focusing on “growth”/ rejection of “austerity” which is
essentially a rejection of the EU contract and
3)
The end of the dominant political alliances.
All
of these developments are Euro negative. Indeed, they reveal the core problem
with the EU as a concept: how can one unite very different countries with long
histories of conflict under one economic and monetary regime?
The
answer is that one cannot. Voters were willing to go along with the idea (or at
least submit to it) while the going was good. However, now that the we’ve
entered a secular downturn in global growth, particularly for the western world
which suffers from massive debt overhangs and age demographic issues, we are
going to see EU member states focus more on domestic issues rather than saving
the “grand idea” of the Euro.
This
refocusing on domestic issues is a natural political consequence of economic
contraction: those politicians who implemented the measures that are now seen
to be the cause of the downturn will be held accountable (see Sarkozy). New faces will enter the political arena along
with “new” ideas (I use quotations because few if any politicians in the EU
have a clue what they’re really dealing
with).
However,
now that the concept of a “union” is seen as the root cause of EU members’
economic woes, there is the risk that some of those new political faces and new
political ideas will be nationalistic if not outright hostile to the concept of
any union at all (see France’s
first round of elections as well as Greece’s recent parliamentary elections
which we’ll address later on these pages).
Regarding
the rise of Nationalism, I can tell you from first hand experience that this
notion is not to be dismissed. I travelled to
True,
on the surface the results appear innocuous enough (
Let
me paint the picture.
The
French election results were announced at 8PM in
8:20PM: every
single vehicle in the above image was honking its horn incessantly. Passengers
in cars were waving flags (I’ve circled on in the above image) or hanging out
the windows yelling and singing. However traffic was still relatively light.
Things
began to reach a crescendo around 9-9:30PM. By that time the sound of car horns
was deafening. The street was jammed as drivers temporarily parked their cars at
intersections, then left them to cheer, yell, or simply smoke cigarettes as the
young man atop the white car in the below image is doing.
Traffic could
barely move. It was as though Parisian youth decided to hold a giant block
party without bothering to actually shut down the street. And while the
situation never actually became riotous the underlying tensions were obvious.
Parisian
youth, like most young people in the EU, have been hit
hardest by the Crisis: youth unemployment across the 17 nations using the Euro
is at 22%; in
The
result of this is that young people feel that the political elite and older
generations voted for a bunch of policies that have proven disastrous. These
youth are angry. And a young angry population can very easily go from being
simply “anti-the current establishment” to outright hostile very, very easily
as we’ve seen in
In
Thus,
in many regards, people see Sarkozy’s defeat as a
victory for
Indeed,
even the numbers show that the victory was anything but dramatic: Hollande took 51% of the vote while Sarkozy
took 48%. And while the media makes a big deal of the fact that Sarkozy is only the second incumbent French President to be
defeated since WWII, the fact is that France has essentially gone from one
career politician who was ostentatious and outwardly classist (Sarkozy once called a French farmer a “loser” and openly
associated with France’s wealthy) to one that is similarly wealthy (Hollande owns over $1.5 million in property) but simply
more understated in his lifestyle.
For
that reason, the victory of Francois Hollande, while
having significant implications for the EU in of itself (more on this later in
this issue), does not paint the full picture of what is really happening in France.
So
let’s dig a little deeper.
French
Presidential elections take place in two rounds. During the first round, voters
will vote for anyone running. The two candidates who receive the most votes
will then proceed to the second round, the winner of which will become
Hollande and Sarkozy
were the winners of the first round. But as the final tally in the second round
revealed (51% vs. 48%) voters weren’t exactly thrilled with either one of them.
Instead,
the major development in the
French elections was the fact that the hard right, anti-Euro, anti-immigration
party, the Front National Party, or NFP, took the most votes from French youth.
That
is correct. When it came time to vote in round one, more French youth voted for
a party whose leader wants to break up the Euro, who wants to deal with
immigration by ending dual citizenship, affirmative action, and by kicking out
any immigrant who cannot adhere to French
principles or who commits a crime, and who once compared the legal French
tolerance of Muslims praying in the streets to putting up with Nazi
occupation.
Oh,
and her father, who founded the NFP, wanted to do away with the concept of
immigration completely and once commented that
That is the
party that took in the most votes from French youth during round one of the
French elections. And French youth were not the only ones leaning towards
Nationalism.
Indeed,
the NFP took in 20% of ALL French votes
during the first round of the French elections. That’s a record
high for the party and not far off from Sarkozy’s and
Hollande’s first round showings of 25% and 28%
respectively.
Again,
Nationalism is on the rise in
Right
now the socialists are in the lead to win, leaving the loosely organized
center-right party,
1)
Join forces with the NFP to take the control of the National Assembly, or…
2)
Hand
I
cannot say how this will play out. But for now, we must take into account that
there is a very real
possibility that the NFP may take control of
IF this
happens and Francois Hollande proves to be a
Presidential dud, then it is not a stretch to imagine that the NFP will gain
even more traction in French politics.
And
this is just one of numerous Euro negative developments taking place
today. On that note, if you have not taken steps to prepare for the end
of the EU (and its impact on the
With
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Best
Regards,
Graham Summers
Chief Market Strategist