Why French people will be better-off stopping to worry about consequences of an Euro exit

Note kindly translated by Anne-Marie de Grazia

Dumbfounded by the extent of ignorance, but also sometimes of the bad faith, of journalists and politicians expressing themselves on an exit from the Euro, I have decided to gather here some of the main questions arising. It is perfectly understandable that our compatriots ask themselves questions about a a possible exit from the Euro and a return to the Franc, the more so that now 5 candidates to the Presidential Election of May 2017 (i.e. Asselineau, Cheminade, Dupont-Aignan, Le Pen et Mélenchon) are considering it. These are legitimate questions. What isn’t, is the wind of panic which some seek to raise in French opinion on this subject. Journalists and politicians (at least some of them) should consider it their responsibility not to seek to unduly worry the French. Considering that this is not the case, that very often a discourse is being held which is in contradiction with the official texts of the European Union, I have decided to publish the following series of Q&As in order to contribute some light to the debate.

How will the passage from the Euro to the Franc occurs?

Nothing could be more simple ; all the accounts and contracts in France will be re-denominated from euros to francs at the rate of 1 to 1. Let’s suppose that a household has 1,200 euros on its current account, a life-insurance of 50,000 euros, pays a rent amounting to 800 euros, and has a debt of 3,000 euros on their car. From the day on which the conversion takes place, it will have 1,200 francs on its current account, 50,000 francs on its life-insurance account, the rent for its apartment will amount to 800 francs and its debt on the car to 3,000 francs. On the day of conversion, the rules will apply to all accounts, all contracts and all debts in France.

There will be applied the rules established at the occasion of the passage of the franc to the l’euro, except for the value of the conversion, such as they are stipulated in the rules of the European Union Ruling (CE) nº 1103/97 of the Counsel of June 17th, 1997 establishing some dispositions relative to the introduction of the Euro [1], a ruling which states in its points n°8 and n°9 :

  • (8) Whereas the introduction of the euro constitutes a change in the monetary law of each participating Member State; whereas the recognition of the monetary law of a State is a universally accepted principle; whereas the explicit confirmation of the principle of continuity should lead to the recognition of continuity of contracts and other legal instruments in the jurisdictions of third countries;
  • (9) Whereas the term ‘contract used for the definition of legal instruments is meant to include all types of contracts, irrespective of the way in which they are concluded;

Here is the text of the regulation  nº 1103/97

EM-Monetary Law 1997 Angl

Will French savers be ruined by the passage from the Euro to the Franc ?

As explained above, the totality of banking accounts and insurance contracts will be re-denominated from euros into francs at the rate of 1 to 1. Assets, if they are quoted at the Paris stock-exchange, will also have their values automatically re-denominated. As for real-estate, it will depend on the evolution of the real-estate market ; but there are reasons to think that the passage from the euro to the franc will tend to increase the prices of real-estate. Generally, savings will not be affected by this re-denomination. Later on, it must be considered in what country they will be used, which will mean considering the impact of an exit of the euro onto the exchange rates.

Will the exit from the Euro provoke an explosion of public debt ?

Negotiable debts emitted by the French government were emitted to 97% under French law. This means that 97% of the amounts will be integrally re-denominated from euros to francs, and for the same value. This corresponds to the principle of international law called the « monetary law », a principle which is recognized by the totality of French as well as of foreigns courts. I am reminding that this principle was explicitely mentioned in the Ruling nº 1103/97 of th Counsel of June 17 1997, mentioned above, and that it was used without any problem at the occasion of the replacement of the franc by the euro. The euro had by the way strongly depreciated during the first years (from 1999 to 2003). There occured no protests from the American holders of French (or Italian, or German) debt.

It is Nicolas Sarkozy who first spoke about this « explosion of the debt » an exit from the euro was supposed to bring about, and on this point, he either didn’t know the law (strangely… ?) or he lied.


Let’s admit that on the stock of existing debt nothing happens. But the State will continue emitting debt, be it only in order to repay part of the existing debt. This borrowing need is estimated at 200 billions a year. Would not an exit from the euro entail a sharp rise in interest rates ?

It is true that the borrowing needs for France amount to about 200 billions (« new » and « old » debts combined). Foreign operators will penalize French debt in comparison with German debt. But they are doing so already ! It must be known that rates at which France is borrowing are higher by 0,50% to 0,75% than those of Germany. Could this gap widen ? Not in a significant way, because the need for investors to invest money is very high and the volume of emission of German debt is low. A rise in rates would be the result of a competition between French, Italian and Spanish rates. And investors would trust the Franc more than the Lira…

But these 200 billions can be underwritten by banks operating in France (be they French or not) if we reestablish the law making it mandatory for these banks to hold a certain percentage of their balance sheets in French public debt. Such a mechanism has existed and has functioned well from the 1950s to the 1980s. It allows the government to redirect the investments of French banks, as well as those of foreign banks operating in France. With such a mechanism in place, the rates would not increase more than what the government in fact authorizes.

This is why catatrophist announcements about a « sharp » rise of rates are unrealistic and irresponsible [2].

For the rest, I am addressing my readers to a study written by Cédric Durand and Sébastien Villemot on the consequences of an exit from the Euro for French companies and banks [3]. In this study one can find the following table of « financial risks » of an exit from the Euro.

Source : Durand C. et Villemot S., Balance Sheets Effects of an Euro Break-Up, OFCE, http://www.ofce.sciences-po.fr/blog/balance-sheets-effects-of-a-euro-break-up/


What will happen with the exchange rate of the (new) Franc once an exit from the Euro has taken effect ?

The (new) Franc will see its exchange rate decided by the markets, reservations made for conservatory measures which the government would (and ought to) take, such a control of capitals. Following numerous discussions with traders operating on exchange rates, one can make the following prognostications :

  • The exchange rate of the Franc in relation to a « maintained-euro » (i.e. Germany and the countries which were in the Mark-zone) would go down. More precisely, the exit of France from the Eurozone would provoke a movement of appreciation of the Euro-Mark, which one can estimate at between 20% et 30%.
  • The exchange-rate of the Franc in relation to the US Dollar (and to the « Dollar Zone ») would go down by between -5% and -10%. Let’s remember that the « Dollar zone » includes China, South Korea and Taiwan.
  • In relation to other European countries, which one might expect to follow France rapidly (within a time span of 3 to 6 months), such as Spain, Greece , Italy and Portugal, the Franc would appreciate by some +3%-+5% in relation to Italy and Spain, +10% in relation to Portugal, +20%-+30% in relation to Greece.

An exit from the Euro, and the de facto dissolution of the Eurozone which would result from it, would bring about a redistribution of monetary parities, not only a devaluation of the Franc. Let’s remember that the French government could control this process by the means of control mechanisms of short-term capital movements.


What would be the consequences for consumers? Wouldn’t prices suddenly increase sharply ?

First, we must remember that in the budget of a household, a large part of expenses occurs for products or services made in France. The part of imported products in our expenses is inferior to 40% on average. In this part, the prices of products made in Germany would strongly increase (+20% to +30%). The prices of products coming from the Dollar Zone would lightly increase (+3% to +5%), the prices of products imported from Italy, Spain, Greece and Portugal would decrease.

Let’s take the case of fuel. Oil is bought in dollars, then refined in France. But the price of gasoline (or gazole) such as we pay it at the pump, includes a very high amount of taxes, to the order of 60% to 75%. Therefore, the price-increase at the pump induced by the depreciation of the Franc to the Dollar would be minimal.


But hasn’t a devulation always provoked an increase in prices ?

As a matter of fact, the present situation is very different from the one of the years 1960 or 1970. Rather then a « devaluation, » an exit from the Euro would entail a movement of redistribution of the parities of various currencies in relation to the Franc. If we are cumulating the most negative hypotheses, we arrive at an increase of 3% of prices during the year following the exit from the Euro. But one must also take into account the increase in activity which such an exit would imply, an increase which would be felt for at least 3 years, and which would bring employment for 1.5 to 2.5 million people. This return to employment would allow to pay for the deficits in social programs accounts and to decrease social costs, bringing back some pruchasing power to the salaried workers.


But, this capitals controls you are mentioning, that’s like an Inquisition ! The government will want to know how much money we are taking when we go abroad ?[4]

Capital controls will essentially be applied to financial companies who either want to invest money in the short term in France, or – in the short term – abroad. Such movements are speculation which can be damageable to the economy. These are the movements which the government will need to control by the means of a tax paid (in part) at the time of the operation and reimbursable after a certain amount of time. Expenses corresponding to commercial operations and long-term investments would be exempted of this tax.

As for you and me, there will be a franchise of 15,000 euros on accounts. Documents (bills, hotel bills) will be asked only if your expenses abroad go beyond this sum.


I have during these past weeks published several notes on the question of the euro. Here is a list with the exact addresses on my carnet of RussEurope.

  1. A note specifically concerning the legal status of debts in the case of an exit from the euro shows that this exit would certainly not be assimilable to a default, contrarily to what is being said (there is a European Ruling recognizing the Lex Monetae).

Lex Monetae et droit européen



  1. Two notes are answers to the Institut Montaigne and criticize the « catastrophist » description made of an exit from the Euro :

Les cauchemars idéologiques de l’Institut Montaigne et la sortie de l’Euro


Une sortie de l’Euro



  1. One note examines the accompanying measures which would be necessary in the case of an exit from the Euro

Un sortie de l’Euro (suite)



  1. One note about the international status of the Euro (as a reserve currency)

L’échec international de l’Euro



  1. One note on the historical origins of the Euro

Les origines de l’Euro



  1. One note on the impact of the Euro on Italy

L’Italie, l’Euro et Berlusconi




[1] http://eur-lex.europa.eu/legal-content/FR/TXT/?uri=celex:31997R1103

[2] Response to M. Delhommais, in Le Point, http://www.lepoint.fr/economie/delhommais-les-aberrations-monetaires-de-marine-le-pen-24-03-2017-2114445_28.php

[3] http://www.ofce.sciences-po.fr/blog/balance-sheets-effects-of-a-euro-break-up/

[4] http://www.boursorama.com/actualites/l-etat-regardera-sur-notre-compte-en-banque-quand-on-partira-en-voyage-en-cas-de-sortie-de-l-euro-selon-l-economiste-jacques-sapir-59a17e401d93e4d9c7de00ca147cdf6e



Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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