The Euro Zone is brand new. Anything could shake it apart. Everybody’s looking for the trigger. They watch with intense scrutiny as Sarkozy meets on Wednesday morning in Paris with his advisors to discuss austerity and pledge that they will propose a constitutional amendment that they must always balance their budget. The French budget hasn’t been in balance for three decades! But more importantly France has a history of political instability. I can remember being in Paris in 1968. Ours was the first tour group allowed into Paris after the student protests on the Left Bank. We were escorted by police. Le Figaro headlines proclaimed, “AZZEZZ DE GAULLE.” And not many years before that it had been Vichy France.
Everyone is piling into treasuries this week as a safe haven for money. It wouldn’t matter if Standard and Poors had lowered the United States rating to junk like Greece. People would do so. For several centuries now the United States has been the place immigrants have fled from political oppression. And since World War II, America has taken Britain’s place as the top dog. Somebody has to be the standard, and we are it. Until that changes, people will react more to France’s credit score than ours. It’s political and historic. It’s not a game of numbers.