Vive La Difference!?

The above relates to a phrase uttered by then French President, Charles de Gaulle in Montreal in 1967 for those of you either old enough or well-versed in modern French history. It was the second utterance and followed ‘Vive le Quebec libre’.  In other words, long live the difference, long live a free Quebec as the French President was keen to promote a separatist French-speaking Quebec movement much to the consternation of the rest of Canada.
Today, nearly fifty years on, we are in the midst of isolationist/separatist politics following the result of the EU referendum in June. The Donald that is Trump is a key figure popularising the move against immigration and the free trade lobbyists and most fair-minded citizens (including many Republicans) will hold their breath on 8 November and hope that Hilary Clinton becomes the first female President of the United States of America although many wish it was another first lady – Michelle Obama.
Quickly after the US event, we will have the Italian constitutional reform referendum on 4 December and will be peering past the tinsel and turkey into 2017 and other European political outcomes.
The French Presidential election scheduled to commence in April next year will be interesting as French citizens and other Europeans including ourselves (we’re still Europeans – it’s a geographic reference) will be monitoring the fortunes of the Front National (FN) of Marine Le Pen. It is most unlikely that the incumbent and unpopular Francois Hollande will be returned.  He is currently fifth in the betting, two places behind Marine Le Pen with former President, Nicolas Sarkozy in second place and Alain Juppe a warm favourite.  Even so, Marine Le Pen and her FN party have seen rising popularity in recent years and the right-wing party has been boosted by the ‘Brexit’ outcome.
With French unemployment showing only modest improvement (see below), the blame for this slow progress is often laid at the door of immigration. (A rate that’s finally dipped below 10% isn’t much of a triumph for Hollande).
But is that the case? Certainly for the youth of France, where the unemployment rate has moved in the opposite direction, as depicted in the following graph and is shockingly high, this is a bone of contention.
No doubt Marine Le Pen will play on this ‘fear factor’, blaming immigrants for taking French jobs perhaps but as we have noted before, the real reason may be that the lack of labour reform in France is the real reason. With the older generation steadfastly resisting any hint of labour reform and striking at the earliest opportunity, one wonders when the French youth wake up, ignore the jingoistic rantings of the FN and question the previous generation as to whether their intransigence could be the stumbling block in reducing youth unemployment?  It would be optimistic to think that might happen in the run-up to April but one can hope.
While many may point to higher rates of youth unemployment in the other EU countries, most of them have seen significant reductions although not in Belgium – and I don’t know what the youth unemployment rate is in Wallonia!
So France is different, wants to be different in Europe yet pretends it has the same economic agenda as Germany. The next President of France needs to address that difference.
While the US Presidential Election is on the immediate horizon, Europe has a series of political events starting in early December and into 2017. Youth unemployment across the EU 28 remains just above 20% and while it has been falling at a reasonable pace, if one in five can’t find a job and the majority of them can vote, political parties need to seriously take them into account – especially as younger more radical parties will appeal to those that see the political system not working for them.
Of course, the younger voters either didn’t exercise their democratic right or voted to remain in the UK EU referendum. While the post ‘Brexit’ effects rumble on under a new Prime Minister, it is disappointing to see the leading figures of the EU want to make it tough for the UK as it seeks to negotiate for the post-triggering of Article 50 period – assuming that happens of course.  Europe should be looking inwards at its own issues of which youth unemployment is just one, rather than pointing smugly in the UK’s direction.
Given that Central Bank’s across the developed world have called time on QE and the pointlessness of negative interest rates, the sharp rise in bond rates and steeper yield curves we warned of in our ‘Operation Steepener’ blog ( at the end of August, could well continue not just from a change in inflation expectations but from fiscal expansion promises like those from both US Presidential candidates. We continue to avoid interest rate risk (duration).
NB –EU youth unemployment is classified as those seeking employment between the ages of 15 to 24. The majority will have the vote. Only Germany (7.2%) has a youth unemployment rate below 10%.  In the UK, we measure youth unemployment between 16 and 17 then 18 to 24.  In the last release from the Office for National Statistics on 19 October 2016 for June-August 2016, those rates were 32.8%, broadly the same as the same period in 2015 for what is likely to be a small pool in the younger category and 12.8% for the same period for the 18-24 year olds; a larger pool and down 1% from the same quarter in 2015.

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