Vraiment, quelle surprise!

Traditionally, this is a time of year when all we pundits try to garner headlines by setting out a list of ‘surprises’ for the coming months. At root, it is not hard to recognise this as an exercise in self-contradiction since a surprise you can predict is obviously not one worthy of the name. What we, as a class, therefore tend to produce is either a set of low-conviction forecasts which we prognosticators fear to issue on their own merits lest we incur the derision of our peers, or a catalogue of cod attempts at trying to escape briefly from a consensus to which we still hew.

The one advantage of this latter effort is that it does at least offer even the basest slave to Groupthink a long shot at post hoc superstardom should one of his alternative realities actually make it, blinking into the daylight of our version of the quantum Multiverse.

In that spirit – and since your author has already been offered a beer or two by a friend of long standing in the market in exchange for his attempt at the genre – we shall devote a little bandwidth to playing the game, too.

In truth, the kernel of the first surprise could already be said to have moved up the scale of likelihood to where it has reached the realm of probability rather than that of mere possibility. This is the idea that when President Napolitano of Italy steps down – as he has just told us he is about to do – Mario Draghi cedes the field of conflict to Jens Weidmann and his allies in the counsels of the ECB, and completes his apotheosis by becoming the supreme (if, of course, entirely unelected) power broker of his native land.

Personal ambition aside – and Mario is an honourable man, so are they all, honourable men – the establishment might calculate that our hero would be better placed to do ‘whatever it takes’ to save the Grand Project not by flooding the Zone with more unwanted base money, but by helping shore up PM Renzi’s forces in their struggle with Beppe Grillo’s dangerously popular M5S. That way, the reckoning might run, Mario could assist in trying so forestall the latter’s move to force a plebiscite on the vexed issue of Italy’s continued membership of the euro with all that would entail for the entire Tower of Babel founded upon it.

Stripped of the reassurance offered by the most vocal proponent of blunt monetary carpet bombing, markets would presumably first take fright, covering euro shorts, selling long dated bonds, and widening spreads, once more. Given the inverse impact of the dollar on its price, this might provide a brief reprieve for gold from the consequences of what looks like yet another failed rally and yet another weak close to the year. Whether it would also be enough to brake crude oil’s descent or to spare copper the plunge into the abyss with which it, too, seems threatened is another matter entirely.

The question then would be, if not Mario, then who?

Here the thing we could most probably rule out is the appointment of a replacement from within the ranks of the Bundesbank – surely a promotion which would seem to signal too wrenching a repudiation of all that has gone before. Michael Fuchs and other leading lights of Frau Merkel’s coalition (not to mention the members of the nascent AfD) might well have tired of the endless machinations of those who seek to use the central bank as a means to impose another round of swingeing reparations on their nation, but one would have to count upon some gesture being made to avoid the overt appearance of having successfully staged a putsch of the Partito di Trasferimento.

Given his supposed sympathies for Weidmann’s stance as well as his frequent, laudable insistence that the central bank can only ‘buy time’ for governments to do what only they can do to tackle the underlying problems of the economy, Yves Mersch might seem an ideal candidate were it not for the fact that the average EU member state’s greed for patronage would hardly allow a second Luxemburger to occupy such high office while his fellow countryman, Jean-Claude Juncker, is President of the Commission. Belgian Ubertaube, Peter Praet, meanwhile, would not just represent a maintenance of the status quo ante, but its continuation a fortiori.

Beyond that, it would be highly contentious to install a new head from one of the crisis nations, which means we must rule out not just a Greek or a Spaniard but arguably – with a weather eye on the storm lowering over the continent’s eastern marches – an Austrian, too.

The wearisome principal of Buggins’ Turn might also be felt to rule out another Frenchman so soon after Trichet’s long reign as pecuniary pope (one, dare we say, which was matched in its combination of irritable self-satisfaction and disastrous complacency only by that of Britain’s utterly deplorable Gordon Brown).

That aside, if the white smoke were to go up the chimney at the mention of Benoît Coeuré’s name, it would offer several intriguing possibilities. Firstly, it would entail a step back to the middle where our man might straddle both the Teuton-Latin divide and bridge the yawning schism between the QEaser radicals and the Old School monetary minimalists.

There could even be further ramifications pursuant to such an appointment for, under cover of having restored a little la gloire and of assuaging French sensitivities about its present helplessness in its dealings with what it regards as its over-mighty and largely unsympathetic German partner, Hollande and Valls might actually then steel themselves to make some genuine progress in their woefully belated recognition that the Left must wheel sharply to the right and slough off its carapace of Mitterand dirigsime if it is to salvage its electoral chances, much less contribute something positive at last to the voters’ future well-being.

Certainly, for the present inhabitants of the Elysée and the Matignon, to do nothing in the face of the twin threats posed by a rampant FN and a gradually revivifying UMP would be tantamount to assisted suicide. Out of desperation, therefore, might emerge some much needed resolve, giving the leadership the will to see off the opposition of the party’s destructive Red-Green atavists.

If any of this imagining were to play out, the long-awaited process of ‘structural reform’- rather than today’s blind belief in market hocus pocus, competitive devaluation, and bridge-to-nowhere fiscalism – might find its first expression in that most unlikely of Charlemagne’s legacy kingdoms, West Francia. Truly, that would be a surprise!


NB The foregoing is for educative and entertainment purposes only. Nothing herein should be construed as constituting investment advice. All rights reserved. ©True Sinews