A Frexit Could Bring Economic Collapse for Europe
After Donald Trump’s election and Britain’s vote in favor of leaving the European Union (EU), France may hold the next big event to threaten the economic and political order. Next spring, French citizens could vote in Marine LePen, a noted anti-Euro candidate. She could lead France, one of the EU’s founding members, out of the EU, in what is being called “Frexit.”
Pundits have started to consider the possibility of Frexit seriously. If there’s anything that 2016 has taught us, it’s that nothing can be taken for granted any longer.
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If France were ever to achieve Frexit, the effects would be more intense than Brexit. Indeed, it would cause a financial “catastrophe,” said Columbia Threadneedle Investments, which is owned by Ameriprise Financial, Inc. (NYSE:AMP).
France, unlike the UK, is not only a key EU state; it is a key eurozone partner. Frexit would cause two major shocks to the system at once. Frexit would put excessive pressure on the financial system of the euro itself, as well as the many European banks that sustain it. (Source: “Frexit would be financial ‘catastrophe’ – Columbia Threadneedle,” Reuters, November 17, 2016.)
Often blaming the EU as an aggravating cause for the economic difficulties in France (and other EU countries), the French have grown disillusioned with the EU and the euro. Polls, for what they are worth these days, suggest that 55% of French citizens want to leave the EU. (Source: “What is Frexit? Will France leave the EU next?,” Express, July 1, 2016.)
France’s abandonment of the European Union and a return to the franc would bring about major upheavals in the daily life of the French. Frexit supporters say that France would have more room to manage its economy. It would get rid of the boundaries imposed by the EU in Bruxelles (Brussels). Frexit proponents say that EU rules have limited its capacity to create jobs.
Still, there has been a tendency, now accentuated by Brexit and Trump’s win, to identify the EU as the “mother of all problems.” If France leaves, it would have to shed the euro. If that were done, it would have terrible consequences. First, it’s not a process that could happen within a fortnight. It would take time. It would be necessary to print new banknotes, presumably francs. It would be necessary to determine an exchange between the euro and the new currency.
Indeed, an entire new system of logistics would have to emerge to manage the transition from one currency to the next. France has a deficit on its balance of payments. The day it leaves the EU, whatever currency replaces it would collapse. But Frexit could also spell the end for the entire European Union and the inevitable return of nationalism. Perhaps Germany and a few other countries might keep the euro, but the effects will be felt widely.
