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November 25, 2019

Twenty years on - and less safe than ever

Over the 13 years since we started Eurointelligence, one of the few constants has the been the markets' backwards and forwards shift between complacency and panic. When we started in December 2006, we recall an analyst from a now-defunct bank telling us that his sophisticated value-at-risk models had the situation under control. As we are ending a decade of crisis, we note that complacency is back. We agree that the ECB will continue to support the monetary union under its new leadership. But the political threats are bigger than ever. And that is especially true for Italy.

Wolfgang Munchau writes in his FT column that the shifts in position on the euro by both Marine Le Pen and Matteo Salvini are tactical. They understand more clearly than before that they cannot win power by campaigning against the euro. But that should be no reason for optimism. On the contrary. Salvini may still introduce his minibots. Anybody who strategically gamed euro exit scenarios always ended up with transient stages of debt instruments with money-like characteristics. The danger to the eurozone is not an outright withdrawal of a member state. The smoke and mirrors of multiple currencies and parallel economies are a more realistic threat.

Both Salvini and Le Pen are now within striking distance of an absolute power grab. Le Pen is polling 45% in presidential run-off polls against Emmanuel Macron. Her seeming moderation, the disintegration of the centre-right and the radicalisation of the left are trends that run in her favour ahead of the 2022 presidential elections. 

Salvini’s return to power in Italy is even more likely. We keep hearing that the present coalition will probably change the electoral law and stay in office to the very end - so that they can elect a new president before the next elections. That calculation is crucially dependent on the government coalition holding together. We currently see strong voter movements away from the Five Star Movement and towards the Lega. A good number of Five Star senators and MPs will have an incentive to jump ship as the Five Star Movement disintegrates. In that case there may not be a majority for a new electoral law, especially since the interests of the coalition partners are not aligned. The Italian political debate has an inbuilt tendency to overestimate technical features - like electoral systems or presidential veto powers - and fails to take sufficient account of political dynamics. The underlying political reality is that the Italian electorate is revolting not against the euro, but because of the euro and its governance framework. 

We think Salvini is very likely to return to power, and very unlikely to follow European fiscal rules. Events can intrude, and they probably will. But the threat of political disruption to the eurozone is higher now than it was during the crisis.

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November 25, 2019

Philippe's last round of talks ahead of strike actions

The confrontation between the French government and trade unions is sharpening ahead of the strike actions starting on December 5. Emmanuel Macron and several ministers orchestrated a media blast over the weekend, casting strikers who will show up on December 5 as opponents of a unified pension reform or defenders of their special pension regime. They also appeal to the companies affected by the strikes to make provisions for teleworking, so that protesters cannot prevent workers from showing up at work. The government counts on public opinion and its dislike for what they frame as egotistic attachment to special benefits and violent protests.

In reality not much unity may be achieved in the pension system after the reform. Behind-the-scenes negotiations continue to get potential strike joiners on board. Underground and metro companies RATP and SNCF are crucial in this standoff, as both threaten to participate in the strikes. The RATP union insisted that the reform only applies to those who just entered the job market. The negotiations are now about applying it to the 1973 or 1978 generation. For the SNCF there are also wider implications from its structural reform last year. Progress is slow and negotiations are suspended, awaiting new proposals to solve the impasse. There are over a hundred separate negotiations on other special regimes. For months now the special commissioner Jean-Paul Delevoye negotiated with liberal professionals, health workers, lawyers and road drivers in order to sweeten the deal. So far he met with only partial success.

Over the next two days Édouard Philippe will receive the three employer organisations and five trade unions one last time before December 5. But even the moderate CFGT, probably the only ally the executive had for this reform, is increasingly irritated by the executive's confrontational course. The CGC already decided to join the other trade unions for the strike action on December 5, reportedly due to pressure from the members. France is heading into a winter of confrontation and discontent.

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