Manuel Valls…dans le merde

Paris government split, Italian government broke: eurozone’s crisis now deeper than ever.

Just five months after the last government resigned and he took office as Prime Minister, France’s Manuel Valls must now form a new government after two leftist Cabinet rebels, Montebourg and Hamon, flayed the country’s economic policy in general and Francois Hollande in particular.

As predicted here and elsewhere, the Socialist Party is finding it increasingly difficult to carry out the austerity policy dictated to it by Brussels-am-Berlin. Hollande himself would not have adopted it had the US/EU axis not blatantly attacked his borrowing costs – as reported by The Slog earlier this year. The PS Left has been incandescent about the austerity policy since that time.

Sources in Paris confirm that Montebourg and Hamon will be fired, damaging the fragile unity of the Socialists still further. It is also thought likely that Valls will appoint more close allies to the Cabinet. But none of this will solve the increasing radicalism of the syndicats (Unions) beyond the National Assembly.

The right wing UMP Opposition was quick to take advantage of weekend criticisms of Hollande. “If Arnault Montebourg and Benoit Hamon had any dignity they would quit. If Manuel Valls and François Hollande had any authority, they would fire them,” centre-right UMP deputy Bruno Le Maire told Le Monde. “The problem is that never in the Fifth Republic have we had so little dignity and so little authority at the head of the state.”

Well, Hollande has asserted his authority….but his left wing has predictably condemned the action as “too authoritarian”.

This is a pivotal moment in both French and EU history. After the Jackson Hole speech from Draghi, it is now even clearer that the eurozone is flatlining, and Germany is the only real safe haven: immediately the markets opened today, German Bunds went net negative yield and currently stand at -0.04%.

Two things, both predicted here, are now falling into place:

1. Berlin is becoming increasingly isolated from the rest of the eurozone…but ironically, by far the most powerful State in it.

2. France’s role as the country that breaks the EU – along with Italy – is now coming to fruition.

This significance of this second point cannot be underestimated. The FN under Marine LePen will oppose EU austerity with all the bitterness of the Left. From here on, we are a short step away from blocked autoroutes and political chaos. The dead French economy and this latest development will push France’s borrowing costs up: but the EU power-brokers will have to tread carefully if they try to bring Hollande further into line. A France en faillite would be the end of the euro….and could mark the beginning of bank failures.

Having been outspoken for over a year now about the understated nature of Italian anarchy, The Slog noted yesterday that over 75% of Italian new debt since November 2011 has been 3 years or less. and at least 50% was issued with maturities of less than a year.

France and Italy are not peripheral players. The eurozone is facing the beginnings of meltdown.

Last night at The Slog: the alternative to the neoliberal v socialist globalist stalemate