ECB policy is playing a part in the rise of Le Pen's FN in France
Published 09/12/2015 | 02:30
In Europe over the past few days, two seismic events have happened which are related but at first glance appear not to be. First, Mario Draghi, the Italian man who, as president of the ECB, controls your money, said that he would keep printing cash for as long at it takes to get prices in Europe to rise. In Europe, prices have been falling or rising very modestly. This is because the economy is weak, unemployment is high and debts are steep.
The second event was the huge success of Marine Le Pen's Front National (FN) in the French regional elections. It won 28pc of the national vote, its best performance yet. Strikingly, Madame Le Pen gained 40pc of the vote in Nord-Pas de Calais. (Hopefully, Ireland will be based in this region for Euro 2016, as it is the region closest to us and the easiest to reach.)
What might French - and by extension European - politics look like by the time the hoards of us arrive with our inflatable leprechauns, sun-burned faces and stretched overdrafts?
If Madame Le Pen manages to maintain this surge in popularity, she will be a major threat to the French establishment in the presidential election in 2017. Quite apart from the issue of immigration and Islam, she appeals to the Frenchman who feels left out, who feels he is going backward, who wants more protection from the state and who feels the rich are getting richer and, as a result, that his stake in the society is under severe threat.
One of the factors driving this insecurity is the fact that the gap between the rich and the poor in France has been rising rapidly since the financial crisis. The top 10pc of real incomes in France increased by 2pc per year during the crisis (compared to an average annual drop of 1pc throughout the OECD), while the incomes of the bottom 10pc decreased by 1pc each year (compared to an average annual decrease of 2pc).
In addition, asset prices in France, such as the stock market and Paris property, have been going through the roof, and guess who owns stocks/property in France? Rich people own assets so they have been getting richer, both in terms of income and wealth.
And this is where the ECB and Mr Draghi come in: the European establishment is undermining the French establishment, to the benefit of Madame Le Pen and the anti-establishment Right.
The ECB has reacted to the crisis by printing money and reducing interest rates to zero. At first this was called Zirp, the zero interest rate policy, then it was called LTRO, then there was the explicit promise to do "whatever it takes to save the euro" and now, it is called quantitative easing. All these are fancy ways of saying they are printing money.
What happens when a central bank prints money? Interest rates fall to zero and this pushes up the value of all companies. The excess liquidity sloshing around the economy looks for a new home because deposit rates are so low that investors don't want to keep money in the bank. This too creates a demand for other assets, pushing up their prices.
So we get the strange situation where stock prices are rising even though the underlying economy in France is faltering. Over time, all this money printing pushes a wedge between the market value of companies and the actual value of those companies. This can go on as long as the money is being printed.
However, what this does is enrich the people who hold assets such as stocks. But what do you need to buy these assets in the first place? You need wealth. As a result, the already wealthy see the value of what they own go up. In truth, the vale of the most risky asset goes up when interest rates are zero. And who holds risky assets? The rich guy does!
In the meantime, what is happening to the nest egg of the average person?
Normally, the average person tries to put a bit aside every month and usually puts this on deposit in the bank. Because they don't normally know too much about stocks or bonds and the like, they keep their money there. So they are being penalised for being prudent, while the risk taker is being rewarded for taking a risk.
All this means that both the income and the wealth of the richer person is going up as a direct consequence of the financial engineering orchestrated by the ECB.
What the ECB is hoping for is that the rich guys will feel wealthier, they will spend and some of that spending with "trickle-down" to the average guy. But this, even if it does happen, takes ages and in the meantime all the average guy sees is that the rich guy is getting richer. This makes him feel excluded.
Once people feel excluded, they can become disillusioned with the mainstream and they look for other political solutions. In time, some fall into the arms of Madame Le Pen.
So it is not difficult to see how the policies deployed by the establishment in Frankfurt are undermining the establishment in Paris, as we saw in France's election on Sunday. The ironic part of all this is that Madame Le Pen sees the ECB as a problem and has vowed that if she wins the presidential election,she will take France out of the euro and return it to the old French franc.
If this were to happen, in the same year that Britain votes on Brexit, the EU is in for a massive crisis and it would have no one to blame but its own institutions. When you follow the money, you can see what is driving the growth wealth and income gaps in France and these are feeding into general discontent.
At the moment, a Le Pen presidential victory is still a long-shot, but you can't rule it out and 30pc of the electorate is a lot of French people who want change - wherever that change may take them.