Mike Shedlock
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French President Nicolas Sarkozy delivered an ultimatum to the EU on immigration, complete with a "Buy European Act" and a threat to suspend the Schengen Agreement that allows passport-free travel among 25 European nations.

Hollow Threat for Political Reasons or the Real Deal?

Given how badly Sarkozy trails in recent polls to challenger Fran├žois Hollande, it's difficult to know for sure if this is some political stunt to revitalize his sinking chances, or if he has really turned isolationist.

Please consider Sarkozy Threatens to Exit Schengen Agreement.

French President Nicolas Sarkozy delivered a stern ultimatum to the European Union at an election rally Sunday, saying he will withdraw France from the Schengen accords, which allow free circulation within most of the bloc's borders, unless the E.U. hardens its immigration policy.

The incumbent president, who is trailing Socialist rival Fran├žois Hollande in polls, also said that if re-elected he will demand EU partners pass a "Buy European Act" similar to the "Buy American Act" adopted by the U.S. in 1933, which required the government to prefer U.S.-made products in its purchases. Failing significant progress within the year, France will apply the rule unilaterally, he said.

"I want a political Europe that protects its citizens," Mr. Sarkozy said in the largest rally to date of his campaign, with an estimated 50,000 gathered in a hangar at the Paris fair, close to the city's airport.

The French president, who is hoping to kickstart his flagging re-election campaign, said that unless significant progress is made within twelve months to cut the number of foreigners allowed to enter EU borders, France will leave the Schengen area, a move that would deal a blow to the free circulation of people within the union.

"At a time of economic crisis, if Europe doesn't pick those who can enter its borders, it won't be able to finance its welfare state any longer," he told the rally. "We need a common discipline in border controls...We can't leave the management of migration flows to technocrats and tribunals."

To help translate what Sarkozy is really saying, please consider the following map of the Schengen Agreement area.

Schengen Agreement Countries



"Buy France"

That pretty much looks like Europe to me, minus the UK, Ireland, and trade-insignificant Eastern Europe. Thus, my take is Sarkozy is really saying is "Buy France".

How well does that bode for the survival of the Eurozone?

One of the major weaknesses of the EMU, aside from the all-important lack of a fiscal union is language barriers. To help understand the significance, compare California to Greece.

In the United States, someone in California can easily move and take a job in Texas or seek better opportunities in any of 50 states.

However, it's safe to say the average Greek does not speak Finnish, German, and French even if the average person is multilingual. For someone in Greece seeking better opportunities elsewhere in the Eurozone, linguistic barriers are monumental. So are cultural barriers, and so are issues related to national pride.

Help Wanted, French Citizens Only

Sarkozy, has now threatened to take those already huge difficulties one step further with a policy that is tantamount to "Help Wanted, French Citizens Only".

These are exactly the kinds of disputes that ensure that the eurozone as constructed cannot possibly survive.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com


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Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.