Grexit? A flesh wound compared to Frexit (exit of France from EU)

By Donald Hank

The Telegraph reports this morning that Greek economic minister Varoufakis now threatens to sue in a higher court if the EU attempts to force Greece to leave the EU (our thanks to G. in the UK for this tip).

The article quotes French President François Hollande as follows:

"What is at stake is whether or not Greeks want to stay in the eurozone or want to take the risk of leaving," said French president Francois Hollande.

Now you would think from this bold statement that Hollande heads up a country that pays its bills to the EU on time, wouldn't you? After all, financial pundits are all saying that if Greece leaves the EU, Spain, Portugal and perhaps even Italy could be next. No one mentions France.

However, there's a colossal French debt that no one wants to talk about, except some brave journalists like Francis Journot at the site Agora, who shows that France is actually the elephant in the EU room.

My translation of the opening paragraph of this extraordinary article follows:

The French State's public debt has reached 6 trillion euros, equivalent to 5 years of tax receipts and nearly 300% of GDP. The process of extravagant financial operations [tentative rendition of cavalerie financière, see below] on the public debt that are available to the government since the banking law of Jan 3, 1973 exposes France more than ever to the volatility of the financial markets and to a default. More-confidential commitments, off the balance sheet and allowed by the State, for payment of retirement pensions of government employees and the like, could also prove impossible to meet in the long run. An exit from the EU could eventually be the only way out of a fraudulent system that is threatening to blow up. [my highlighting] [original text below]

This debt has been constantly fed by new loans to ensure reimbursement of the elderly and their interests, as well as new deficits. The amounts kicked down the road in this way are far greater than those payable by the Greeks. But the off-the-books debt is no less than the debt shown on the books. The author makes it clear, citing authorities, that this debt could never be paid without major growth through new investment in industry. Some of the debt is owed to the IMF and hence, represents US exposure.

One rendition of the term I rendered as "extravagant financial operations" is "Ponzi scheme" and that is just a more direct way of saying the same thing.

Now, if a Grexit is a threat to the integrity of the EU, a Frexit would spell certain doom to the already-shaky entity, and the entire globe is exposed.

Original text:

La dette publique de l'État français atteint 6 000 milliards d'euros, équivaut à plus de vingt années de recettes fiscales et près de 300% du PIB. Le processus de cavalerie financière de la dette publique auquel les gouvernements ont recours depuis la loi bancaire du 3 janvier 1973, expose plus que jamais la France à la volatilité des marchés financiers et au défaut de paiement. Des engagements plus confidentiels, hors-bilan et portés par l'État, pour le paiement des pensions de retraites des fonctionnaires ou assimilés, pourraient également s'avérer, à terme, impossibles à honorer. Une sortie de l'UE pourrait s'imposer comme l'unique voie de sortie d'un système de cavalerie qui menace d'exploser.

End quote

Cavalerie financière is a fraudulent financial practice based on the discrepancies between the amounts and periods for recording income and outflows to mask a failure between resources and debt owed. Other possible renditions include "can kicking" and "Ponzi scheme."

© Donald Hank