Friday, May 25, 2012

Has the Eurozone Already Fragmented?

The invaluable Gillian Tett raises an interesting question. Despite the enormous concern about the possible breakup of the euro, divorce proceedings may already be under way in the dark recesses of bank portfolios. Risk managers, preparing for an eventual collapse, have realigned their portfolios, Tett reports, so that assets are matched to liabilities. In other words, if a French bank has lent money to entities in Spain, the bank will have attempted to secure Spanish financing for those loan assets. Previously, this was not the case. A French bank might lend to Spain against short-term financing from Germany, say, or the United States. This promoted a free flow of capital and made financing of loans to the periphery cheaper and more plentiful, but also vulnerable to sudden stops and, in the event of a breakup and reversion to national currencies, currency risks. Under the new "asset-liability management," or ALM, procedures, this is no longer the case. In short, one of the benefits--a problematic benefit, as we have seen--of the euro, namely, cheaper capital for the periphery, has already been lost, a casualty of past irresponsible lending and intoxication with what, in principle, should have been a good thing.

Succession Crises

Both the UMP and the CGT are having difficulty settling on a new leader.

The UMP's predicament is of course no surprise. If I were casting a film, I probably wouldn't choose Copé for the role of party leader, because his ambition is so naked, raw, and obvious that he isn't quite believable in the part. Sarkozy was no less ambitious, surely, but he had the knack of projecting into his portrayal a little authentic concern with something other than his own success. His principal rival is the dark Iago of French politics, François Fillon, who is less enamored of the cameras but still a consummate player behind the scenes. And now, presenting himself as a fallback and proposing that the party leader should not be the standard bearer in 2017 (a position that must be driving Copé mad with rage) is the perennial Alain Juppé, a most capable fellow, once considered too arrogant to lead anything but rather humanized by a long traversée du désert in the Canadian wilderness following his conviction on corruption charges and declaration of ineligibility.

At the CGT, Bernard Thibault is leaving after what seems like an eternity at the helm, and he would like to choose his own successor. What's more, he wants her to be a woman, and this doesn't sit well with some of les gars. I'll be sorry to see him go. I've always enjoyed his haircut and blunt talk, although I harbor a sneaking suspicion that he was a little too susceptible to the flattery of the powerful to be a really effective union leader.