In today’s issue:

  • Don’t laugh at the French – you’re next
  • Bond markets rule Europe. But who governs the bond market?
  • Don’t panic about Europe’s latest political panic – buy the dips

The always excellent Bloomberg columnist John Authers has finally figured it out: “fears of a Liz Truss-style meltdown could keep a far-right government from going off the rails.” He was referring to the French. But who else might that apply to?

The US’ Congressional Budget Office made the same warning about its own elections a few months ago.

And the French finance minister did the same a few days ago.

Heck, the Bank of England even implied a French election upset could cause financial trouble in the UK.

In fact, the global media is flooded with the same headline: “Don’t vote for the right or you’ll have a Liz Truss moment.” It’s the new “despite Brexit”.

But what does it mean when democratically elected governments can’t deliver on their mandate from voters without the bond market pulling the rug out from under them?

It means democracy died.

And, each time elected politicians tried to deliver on their campaign promises, the bond market yanked them back into line.

But who controls the bond market?

Unlike in the UK, the bond market only had to fire Greece’s finance minister, not the prime minister, for politicians to get the message and toe the line since.

The Italian politicians set of a proper crash in financial markets in 2018, before they got the message too.

But did you get the message at the time?

Then you weren’t surprised when Liz Truss was booted out in the same way that Southern European nations were controlled for the last decade: via the bond market.

Or are you like John Authers, and have only recently realised how the masters of the bond markets are running countries these days?

Usually, the populists cower at the altar of the bond market as soon as they get into government, no market meltdown needed. And that is precisely what Macron is betting will happen in France too…

Macron has a plan for Le Pen

There’s a clever little conspiracy circulating about the French elections…

The first round of voting in France went according to the polls. So, it must be more or less what President Macron expected when he called the surprise election.

What is he really up to?

I think it’s a rerun of the Salvini-Tsipras Plan. Allow the upstarts into government. And then…

Actually, that’s pretty much it, really.

All you need to do to populists is allow them into government. Then they discover the trappings of power are called “trappings” for a reason.

Salvini, Trump, Tsipras, Meloni, Wilders, Varoufakis, Truss and countless others have discovered being in government is not what they thought. The greasy pole has something you can’t see from the bottom: a pointy tip. Only when it’s your turn to sit on it do you discover the pole is in charge, not you. And you can’t do what you promised your voters.

This makes populists very unpopular with the mob below. That’s why populist governments don’t seem to last. Their voters are invariably disappointed when their dear leader freezes in inaction.

That is Macron’s plan for Le Pen too. There’s nothing like a few years in government to get you voted out again. Le Pen’s party’s performance in parliament will undermine her run at the presidency in 2027. That’s what’s really going on.

And even if Le Pen succeeds, there are more direct ways to bring populists to heel. The one John Authers referenced is the bond market that fired Liz Truss. The same play could be used against Le Pen’s policies this year. Who would vote for a president who spiked the bond market?

It’s a good reminder that your vote only counts if it’s endorsed by whoever controls the bond market.

Of course, what applies in France applies in the UK too.

In debentured servitude

Starmer may not be a far-right renegade. But why isn’t he a left-wing loon? Why won’t the Labour Party attempt to impose the long list of semi-secret policies it has always dreamed of, now that their majority is unassailable?

Because the bond market would do to them what it did to Liz Truss. Just you watch. The slightest hint of wealth taxes or net zero spending surges and the bond market will make its presence known.

Unless, of course, the Bank of England intervenes to prevent it…

Remember, climate change spending is on the list of central banks’ priorities these days. Perhaps printing money to save the planet will be on the agenda.

Cue the Financial Times: “Labour could borrow more without UK bond market backlash.” And by “more” it means more than the last government planned to borrow. Which is already the highest on record.

So, whether or not your government is allowed to borrow depends on their ideological bent. Something that’s supposed to be in the remit of voters, not the unelected institutions fiddling with bond markets.

Cut taxes and you’re in trouble. Increase spending and you’ll be fine.

Threaten to reform the Bank of England as Liz Truss did and you’re toast.

There is no question the UK has joined the list of countries in debtor’s prison. They are fed the scraps that their jailors deem fit, depending on the inmate’s behaviour.

But who are the jailors?

Until next time,

Nick Hubble
Editor, Fortune & Freedom