Today’s briefing:
— Welcome to Euro fall
— Separatists win in Canada
— (Wild)life imitates art
Your Insider’s briefing:
— Welcome to Euro fall
— Separatists win in Canada
— (Wild)life imitates art
Good morning {{first_name | Intriguer}}. If you’ve ever tried to split the bill after three folks ordered martinis, two just sat on soup, and another had to leave the restaurant early, you’re already half way to understanding eurozone fiscal policy.
So with the euro now getting weaker and eurozone bond yields spiking higher, shall we read on?
 | Managing Editor Jeremy Dicker |
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Quote of the day
“I prefer the world of disruption to the peaceful world”
That’s the CEO of France’s booming TotalEnergies, Patrick Pouyanné, speaking at the Energy Intelligence Forum in London on Monday. He went on to explain that in a disruptive world, “there are more opportunities, but you need to have the assets.”
The perma-crisis.
After Euro-summer comes the Euro-fall, and we mean that literally.
On Monday, the euro dropped ~1% (vs USD) to its lowest level in a year and a half.
That’s not a particularly dramatic timeframe. We’ve held grudges longer than that. We’ve been stuck transiting LAX longer than that. We’ve seen cross-departmental tweet approvals take longer than that.
But it’s the underlying drivers that really piqued 🥐 our interest, starting with…
Spain’s political upheaval
On Monday, Spain’s (how to describe him…🤔) prime minister put on a grey suit, paired it with a blue tie, and told his nation they’re heading to the polls in November.
It’s another high-stakes gamble for Sánchez, whose wife, brother, and various advisors have now faced probes for alleged influence peddling, while his former transport minister is now doing 24 years (!) for taking kickbacks during Covid!
Sánchez is also still recovering from the Ceuta border crisis, when ~80,000 mostly Moroccan nationals (again) suddenly rushed into Spain’s enclave, itself only home to ~80,000 folks. He eventually apologised to the people of Ceuta, though only after blaming anyone (political rivals, EU partners) other than the Moroccan authorities the migrants themselves said had openly encouraged the dash.
The last straw seems to have been Friday’s failure to pass an emergency housing package amid widespread protests triggered by the forced eviction of an 87-year-old.
So… why call an election? It’s partly a recognition that his position is now untenable, made clear by Friday’s sheer inability to pass legislation (his job). But it’s also a dare for folks to choose between the Sánchez they know, and the conservative opposition that just blocked his popular (if supply-squeezing) housing package.
It might work, too — in addition to framing this election as a referendum on tenant rights, he’s now framing it as Spain’s last chance to halt the hard-right Vox party, which the centre-right opposition will likely need in any coalition government.
Then what’s the euro link? Nothing rattles currency markets quite like Europe’s fourth-largest and fastest-growing economy sliding into political gridlock, amid…
France’s fiscal deadlock
France hasn’t posted a balanced budget since 1974, but current talks have become more toxic than a Parisian waiter’s attitude when you misconjugate a verb.
Last week, Macron’s latest prime minister (Lecornu) unveiled an ambitious $60B austerity squeeze aimed at bringing Paris back within EU guardrails. But with the left (“just tax the rich”), the right (“just cut spending”), and the populist-right (“don’t touch working-class pensions”) all equally appalled, his budget is doomed.
Meanwhile, the ✌️student protests✌️ continue. Those sassy air-quotes are because clearly, student and teacher unions are angry at the crumbling buildings and missing teachers, but things have escalated since that initial mid-September spark: it’s hard to believe crowds just torched a firefighter because they want more math teachers.
All the while, France is racing against two clocks. The first is political: just months out from the next presidential election, there’s now no real incentive to compromise.
And the second is economic: France’s budget deficit is projected to increase this year, while its public debt hits a new record of 119% of GDP. And if there’s one thing investors hate more than political upheaval, it’s the associated fiscal indiscipline.
Which gets us to…
Echoes of past crises
Throwbacks are cute when we’re talking about low-rise jeans or film reboots, but less so when it comes to debt crises.
Last week, the risk premiums on bonds issued by heavy debtor countries such as France, Italy, and Belgium (plus beyond the EU, there’s Japan*) all spiked.
While eurozone countries share a currency and interest rate, they don’t share a treasury: each still sells its own bonds, which investors price per each capital’s ability to pay. The gap between (say) a French yield and a German one reflects the extra return investors demand for the risk of parking €100 in Paris, not Berlin.
And that gap (or spread) blew out last week to levels not seen since the 2010-12 crisis, as investors dumped French bonds for German bunds. Other “weaker” EU names (Italy, Belgium) then got hit by a similar trade amid fears the trouble might spread.
So, back to that depreciating euro.
The European Central Bank (ECB) is now caught in quite the jam:
ease rates to curb that debt burden, and you risk exacerbating inflation
hike rates to curb inflation or stabilise your currency, and you risk tipping heavily-indebted members closer towards a sovereign debt death spiral.
The ECB can itself also buy a member’s bonds if the sell-off is disorderly and the capital is behaving, but that brings its own jam:
step in, and all Berlin hears is monetary financing (printing money)
stay out, and Rome becomes convinced the ‘backstop’ is just a slogan.
That’s why the ECB’s Christine Lagarde pockets $800k per year to own the eventual decisions, though maybe even $800k looks slim for the headache ahead.
Intrigue’s Take
One way to think about the entire European project is like a…
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Intrigue’s Take
One way to think about the entire European project is like a synergy machine to pool each member’s best attributes: you blend German industry, French diplomacy, Italian design, and Spanish infrastructure, and you get a single market of 450 million wealthy Europeans big enough to stare down Washington or Beijing.
But it’s moments like these that remind you the machine can work both ways: when crisis hits, the bloc risks pooling its weaknesses instead, blending German de-industrialisation with French deficits, Italian debt, and Spanish gridlock.
At its best, of course, Europe is none of these things. But this isn’t a story about Europe at its best; it’s now entering a crucial election cycle with wheels wobbling.
So the real danger here is less the occasional bad quarter for the single currency, and more the way the single currency now risks becoming a lightning rod for pre-existing forces of political polarisation: frugal northerners again asking why they should backstop southern debt, while southern voters ask why EU fiscal rules should dictate whether their grandma gets evicted. It’s that resentment which (in addition to local grievances) can quickly fill the sails of Spain’s Vox or France’s National Rally.
Sure, currency unions need political solidarity to survive. But when central banks get forced to choose between stoking inflation or triggering sovereign defaults, maybe it’s because our leaders just spent decades kicking the hard choices down the road.
Sound even smarter:
The euro has depreciated ~5% against the US dollar this year.
Germany’s Merz and France’s Macron just sent a joint letter to the EU’s von der Leyen urging radical new second strike powers to block distorted imports (from China) and protect European industries (from China). It’s a recognition Europe’s industrial heartlands might be bleeding out faster than the bloc’s decision-making procedures can handle.
*Japan’s Takaichi has told investors to “rest assured” after her country’s 30-year bond yield hit a new high on concerns around her stimulus plans.
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Meanwhile, elsewhere…
🇳🇬 NIGERIA — Crash.
President Bola Tinubu has declared three days of national mourning after a military aircraft reportedly crashed, killing 32 passengers and crew. Authorities have launched an investigation. (Punch)
Comment: Coming after the 2021 crash that killed Nigeria’s army chief, it’s another wobble for a military that really needs to inspire national confidence as it grapples with Islamist insurgencies and kidnapping gangs.
🇺🇸 UNITED STATES — Firing squad?
Following presidential approval, the US is now preparing its first military firing squad execution since WWII. The inmate is Nidal Hasan, the US Army major and physician who shot dead 13 unarmed US soldiers at Fort Hood in 2009. (NBC)
🇨🇦 CANADA — Referendum, rebooted.
The pro-independence Parti Québécois has finished Monday’s Quebec provincial election in first place, returning the separatists to power for the first time in over a decade. (Le Monde)
Comment: The party leader (rocking the incredibly French name of St-Pierre) is pledging to hold an independence referendum after Trump 2.0, reopening the constitutional headache Ottawa thought it’d buried back in 1995. Courtesy of a fragmented opposition, the PQ only needed a record-low ~28% of the vote to secure a minority government, but (together with Alberta’s own sovereignty vote later this month) it still presents a multi-front threat to Canadian unity amid unprecedented challenges from south of the border.
🇦🇺 AUSTRALIA — Unfriendly skies.
Australian counter-terrorism police have confirmed they’re now investigating amid word the Omani co-pilot who tried to hijack last week’s FlyDubai flight to Israel actually studied in Melbourne, attended a hardline mosque, and might’ve even had a local intelligence file on him. (DW)
Comment: Not only do the Emiratis now need to explain how an extremist barred from his own country’s national carrier instead ended up flying for a UAE state airline, but now Australia (already managing rocky Israel ties) needs to examine whether the same radicalisation problem that culminated in last year’s Bondi massacre might’ve also had a hand in this FlyDubai near-miss. It comes just as Australia’s conservative opposition pledges Australia’s biggest migration cut in history.
🇹🇼 TAIWAN — Crossing the line.
The presidential office in Taipei has condemned what it’s calling a “typical case of transnational repression” after the FBI arrested California real-estate agent Heather Zhang at LAX, about to depart for Shanghai. The US indictment accuses her of travelling to Seattle — at Beijing’s direction — to follow and surveil the US-based son of Taiwan’s president. (Taipei Times)
Comment: Coming soon after the US indictments against Russian intelligence officers seeking to assassinate a dissident in DC, it all hints at a blurring of what long seemed to be red lines.
🇱🇰 SRI LANKA — Death row diplomacy.
Colombo has sent an urgent delegation to Saudi Arabia seeking clemency for a 24-year-old migrant worker now facing the death penalty for blasphemy over something he wrote on Facebook. (BBC)
Comment: Aside from the horror of beheading someone over a tweet, there’s the delicate balancing acts at play: Sri Lanka needs to be seen defending its citizens abroad, without jeopardising foreign remittances from the Gulf. Meanwhile, Riyadh’s ruling Saud family seeks religious cred to maintain its legitimacy both as a monarchy but also more broadly as the custodian of Islam’s Two Holy Mosques, even as it requests international help against the Houthis and relies on 10 million foreign workers back home. The new Mecca Alliance (Saudi Arabia, Pakistan, Turkey) did just agree to “immediately implement” its collective defence commitments amid Houthi hits, but it’s still unclear if this entails anything beyond a few deployments within Saudi borders.
🇫🇮 FINLAND — Vladimir poopin’.
Finnish authorities are investigating mysterious break-ins at the homes of around 20 lawmakers, with nothing stolen, but the occasional unflushed “deposit” left in the toilet. (The Telegraph)
Comment: We have (Western diplomat) friends who’ve returned home to their Moscow pad to find a steaming turd on their couch or dining table. It’s a classic Cold War intimidation tactic (operational psychology) aimed at proving they can breach your space at will.
Extra Intrigue
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Pic of the day
That’s ‘Spicy Orangutan’ by Tanner Mansell
The annual Nikon Comedy Wildlife Photography Awards just dropped and — as usual — they’re pure gold.
Most legacy outlets might see wholesome natural antics in each finalist, but we see nothing but diplomatic hijinks, like…
The two brown bears (snapped by Charles Janson) somehow laughing conspiratorially in the Alaskan wilderness, but looking more to us like mid-level embassy staffers whispering in the breakroom after the ambassador and attractive ‘chief of staff’ again disappeared into a secure room with door locked
Or the other bear snapped (by Rosie Barrett) mid-climb in the forests of Finland, looking more like that jaded 1st-sec caught stealing a slice of Jenny-from-HR’s carrot cake despite (or entirely because of) the pass-ag laminated note labelling it exclusively as the property of the HR team.
But our undisputed favourite is the above orangutan in the wilds of Borneo (by Tanner Mansell), calmly finishing a snack then flipping the bird right at us. Hard to blame him given what all the palm oil plantations and logging have done to his habitat, though also shout-out to his blunt, Zuckerberg-fringe.
Today’s poll
How do you feel about the EU's prospects?
Yesterday’s poll: Bolsonaro Jr's first round win mostly came down to…
➡️ Conservative swing among voters (46%)
⚡ Anti-incumbency among voters (48%)
🏁 Better campaign by Bolsonaro Jr (5%)
✍️ Other (write in!) (1%)
Your two cents:
⚡R.L: “Anti-incumbency has been the global trend in recent years. In the past decade, Brazil has tended to follow the US's political swings.”
✍️ P.C: “This was the poorest campaign in terms of proposals since the redemocratization of Brazil in 1985. None of the top candidates was discussing ideas and proposals; it was just about discussing the accusations against the other side, and I'm afraid the runoff will be more of the same.”
✍️ C: “The Biden Effect. i.e., Lula’s too old and out of it, and people have a short memory of how bad it got with Bolsonaro running the show.”