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UPDATE 3-France's Le Pen proposes return to ECU-style system to replace euro
January 4, 2017 / 1:03 PM / in a year

UPDATE 3-France's Le Pen proposes return to ECU-style system to replace euro

(Adds quotes, analysts)

By Ingrid Melander

PARIS, Jan 4 (Reuters) - French far-right party leader Marine Le Pen said on Wednesday that France should leave the euro but the shift to a new national currency could be accompanied by a framework similar to the pre-euro era of the ECU.

Speaking to Reuters after a New Year news conference, the National Front leader, who is a candidate in the presidential election in spring, said France’s national debt would be denominated in the new national currency under her administration.

Le Pen is alone among top presidential candidates in favouring leaving the euro, which France adopted in 1999 after ditching the franc along with other European countries who abandoned their national currencies. But she has offered little detail about how the departure could happen until now.

With just a few months left to the first round of the election in late April, mentioning the framework of the ECU could be a move by Le Pen to reassure voters worried over a euro exit.

Elderly people are particularly concerned over the impact on their pensions of any big currency reform.

“The ECU existed alongside a national currency,” Le Pen said. “A national currency co-existing with a common currency would not have any consequences for French daily life,” she added.

“A ‘monetary snake’ is something that appears reasonable,” she said - a reference to the ‘snake in the tunnel’ system introduced in the 1970s to limit fluctuations between European currencies.

The ECU was a basket of European currencies used as a unit of account by members of the bloc in the two decades leading up to the introduction of the single currency in 1999.

It existed in parallel with the European Exchange Rate Mechanism (ERM) which attempted to narrow fluctuations between the currencies of member states.

Le Pen reiterated her party’s stance that leaving the euro would be a major step to recovering sovereignty, something she said she would seek to achieve in negotiations with other EU countries.

She said that economic difficulties in other euro zone countries led her to believe she could find allies in such talks. She reaffirmed she would put the result of these talks to a referendum.

Opinion polls have consistently shown Le Pen making it to the second round of the presidential election, to be held in May, but losing that run-off to a mainstream candidate, likely to be conservative Francois Fillon.

Surveys also show that despite strong misgivings about the EU and the euro, the French want to remain members of both groups.

“All this (Le Pen’s comments) probably reflects a reluctance to openly advocate a full retreat from the monetary union,” said Bank of America Merrill Lynch chief European economist Gilles Moec.

“NOT IN YOUR WALLET”?

Nicolas Bay, a senior National Front official, said the party had stated the euro did not work and now it was engaged in a “second phase” of explaining how a new system could function.

Le Pen’s deputy Florian Philippot said some degree of monetary cooperation with other European countries did not represent a change in the leader’s view that France should leave the euro.

“A currency following the ECU model is not a currency you have in your wallet or your bank account. It’s an accounting currency between countries,” he said.

“It could be a model, maybe even a transitory one,” he added.

National Front economist Jean-Richard Sulzer said the new system the party advocated would have fixed exchange rates but allow “rare” adjustments. “Rates should be fixed but adjustable,” he said.

“The exchange rate would not float every morning like before the ECU because it created huge instability for our exporters.” He however said the French could, under such a system, have two credit cards, one in francs and one in ECU.

“It’s not that complicated, is it?,” he said.

Bank of New York Mellon currency strategist Neil Mellor said Le Pen’s comments on swapping the euro for an ECU system raised many questions.

“There are a whole host of practical problems with this, but I suspect that her statement isn’t designed to be overly bothered with the nitty gritty - it’s designed to make a statement,” he said.

“This is an issue for France but if Le Pen were to win, then it’s an issue for the concept of the euro zone as a whole,” said Patrick O‘Donnell, investment manager, Aberdeen Asset Management. “I think the markets would vote with their feet first of all and spreads would widen significantly.” (Additional reporting by Jemima Kelly, Dhara Ranasinghe, Jamie McGeever and Marc Jones; Writing by Michel Rose; Editing by Richard Balmforth)

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