France looks to go its own way

One theme here is the social mood is driving the crisis in Europe and for that reason, one needs to view the European crisis as political, not economic. The initial crisis over Greek debt levels and the subsequent bailouts all have the veneer of finance and economics, but this is truly a political crisis because it deals with the concept of a unified Europe pushed by European political elites coming face-to-face with growing nationalist sentiment as social mood declines. Now France, in typical bold fashion, is leading the way.

Sarkozy dangles "empty chair" threat over Europe

French President Nicolas Sarkozy told a Sunday newspaper he is serious about pushing for more trade protectionism in Europe and tighter external border controls, hinting he could take a stand as tough as Charles de Gaulle's 1965 "empty chair" policy.

The conservative leader told the weekly Journal du Dimanche in an interview that he meant business with an election campaign pledge last month to push for a "Buy European Act" and a threat to pull France out of Europe's open-border Schengen zone unless external controls are tightened.

Many no doubt see Sarkozy's move as cynical and opportunistic, aimed at picking up right-wing voters in the coming election. However, his shift reflects underlying political shifts. Whether he believes it or not is irrelevant because the electorate will continue moving right. Either he or another politician will eventually satisfy voters, or they will find someone who will.

"All the public markets on our continent have been open since 1994. In Japan the only open market is water. In China no public market is open," he said.

"All I am saying is, show reciprocity. Otherwise, French public contracts will only be awarded to companies that produce in Europe. When General de Gaulle instigated his empty chair policy in 1965 he obtained the Common Agricultural Policy and pushed Europe forward."

Former president de Gaulle triggered a crisis in the nascent European Economic Community in 1965 when he withdrew France's representative during a disagreement over agricultural funding, leaving the organization crippled for several months until the so-called Luxembourg compromise agreed to give more weight to national sovereignty in voting conflicts.

An empty chair policy at this moment would be terrible for Europe if it crippled political cooperation. I doubt he will need to implement the policy though, my hunch is that most politicians will cave to public opinion if they are faced with discord in Europe over what are widely seen as unfair trade practices by Asian nations. Ten to twenty years ago, when social mood was high and peaking, France would be alone and end up losing the battle. Today, the establishment will fight, but ultimately the victory will be France's.

European officials have said privately that they hope Sarkozy's stand is just election rhetoric.

But he reiterated his vow to pull France out of the 25-nation Schengen zone, which guarantees the free movement of people, unless the bloc's external frontiers are strengthened.

"There are 120 km between Greece and Turkey which are not guarded. I am in my right to demand what the sanctions should be," he said.

They hope it is just rhetoric, but the real issue is that Sarkozy's rhetoric will be popular in Germany, Italy, Holland, Poland......once the cat is out of the bag, the right will see a surge in popularity. Sarkozy is putting the issue on the table and that will make it a topic across Europe where it isn't already (such as Holland).

France's stock market has steadily advanced on gold since the yellow metal peaked last September, but we are now witnessing another test of the trend. Any breakdown is bad news for Sarkozy domestically, but good for him if he pushes this new political strategy, because it will become more popular. At this point though, one must say the election seriously favors Hollande. I posted the lower chart on March 26, the CAC 40 closed at 3217 today. If it goes below, Sarkozy will tack even harder to the right.