The Brexit has the “advantage” of a country that has kept its national currency. To refer to Frexit is to ignore a fundamental dimension of the situation of the countries of the Eurozone: they share a common currency. Assuming that it is legally possible, which is not the case, the exit of the euro would be a long and complex process.
- The next day: the destabilization of expectations.
If Marine Le Pen were to be elected President, the opening of the Asian markets would lead to a massive dumping of French debt securities.
Then, on Monday morning, at the opening of European markets, the Banque de France would not have the means alone to cope with a fall in bond prices – always expressed in euros – which would have the immediate effect of raising the interest rates of French bonds, or some 2,000 billion euros of public debt.
This scenario is not a mere imagination coming out of my mind, but rather a reality. Since the risk of seeing Marine Le Pen and its far-right ideals gain access to power is taken into account by international markets, the gap between German and French interest rates has quadrupled. On 24 February, the gap was 0.84%.
Faced with what would amount to a rise in the debt, France’s budgetary balance would be destabilized and within 24 hours, rating agencies would lower France by several notches. French banks would then have enormous difficulties to finance themselves on the interbank market at competitive rates and their rating as well as those of large French companies would collapse with the reliability of the State itself.
- The day when the French Franc would replace the Euro: Euro banknotes
One of the major challenges raised by a potential exit from the Eurozone concerns euro banknotes. The fact that the franc becomes available in exchange for the euro, at a parity fixed by the Banque de France, which has once again become the issuer of its currency, does not mean that the population would submit to the conversion of its notes.
A fortiori, banknotes, essential to the balance of the Banque de France, which would not be exchanged, would create an immediate instability. Giving a legal tender to the French franc alone would make the euro a foreign currency. And for a time, a parallel market between the franc and the euro would develop in France.
- French debt in euros could not be converted into francs.
It is not for the Government or the Parliament to decide on the conversion into francs of outstanding bonds. Indeed, this would require the agreement of bondholders and other creditors who have the right to protect their claims in euro. Even in a French court, the debtors would not succeed.