Philippe Waechter, Chief Economist, Natixis Asset Management looks at the market implications of a “Frexit”:
- “Currency would be at the very crux of the new framework that France would need to set up. The central bank would lose its independence and would be used as an instrument to finance state spending. In other words, the state would have the wherewithal to create its own currency to finance its own spending: economic history tells us that this type of situation triggers inflation and fuels macroeconomic, financial and monetary instability. French savers would be directly hit.”
- “The monetary question is the key to the difference between the French situation and the UK’s situation with Brexit. Many talk about continuity in the UK after the June 23 referendum, and see the absence of a doomsday scenario as proof that a withdrawal from the European institutions is perfectly innocuous. This view is very extreme as Brexit was only effective after the UK notified the European Union it was triggering article 50 of the Treaty of Lisbon on March 29. But this is not our point here. The point is that France’s potential withdrawal from the European institutions and the creation of a new currency go well beyond Brexit.”
- “In the event of a return to a national currency in France, the overall dynamics would be very different. There would be a macroeconomic shock that would be similar to the Brexit effect, as French companies would have greater difficulties in selling their products internationally as relationships with partners shift.”
- “So taking France out of the Eurozone is not at all comparable to Brexit. It is a much more complex process that would affect behavior across the board, creating deep uncertainty and a severe risk of instability that would affect macroeconomic momentum in the long term. All of this would push back the economy’s return to growth to a much later date.”