By Ambrose Evans-Pritchard
We have a minor earthquake in France. A party committed to withdrawal from the euro, the restoration of French franc, and the complete destruction of monetary union has just defeated the establishment in the Brignoles run-off election.
It is threatening Frexit as well, which rather alters the political chemistry of Britain's EU referendum.
Marine Le Pen's Front National won 54pc of the vote. It was a bad defeat for the Gaulliste UMP, a party at risk of disintegration unless it can find a leader in short order.
President Hollande's Socialists were knocked out in the first round, due to mass defection to the Front National by the working-class Socialist base. The Socialists thought the Front worked to their advantage by splitting the Right. They have at last woken up to the enormous political danger.
The Front National is now the most popular party in France with 24pc according to a new Ifop poll. Both the two great governing parties of the post-War era have fallen behind for the first time ever. The Gaullistes (UMP) are at 22pc, and the Socialists at 21pc.
I am watching this with curiosity, since Marine Le Pen told me in June that her first order of business on setting foot in the Elysee Palace (if elected) would be to announce a referendum on membership of the European Union, with a "rendez-vous" one year later:
I will negotiate over the points on which there can be no compromise. If the result is inadequate, I will call for withdrawal. Europe is just a great bluff. On one side there is the immense power of sovereign peoples, and on the other side are a few technocrats.
Asked if she intended to pull France of the euro immediately, she hesitated for a second or two and then said: "Yes, because the euro blocks all economic decisions. France is not a country that can accept tutelage from Brussels."
Officials will be told to draw up plans for the restoration of the franc. Eurozone leaders will face a stark choice: either work with France for a "sortie concerted" or coordinated EMU break-up: or await their fate in a disorderly collapse.
"We cannot be seduced. The euro ceases to exist the moment that France leaves, and that is our incredible strength. What are they going to do, send in tanks?"
Her four sticking points on EU membership are withdrawal from the currency, the restoration of French border control, the primacy of French law, and what she calls "economic patriotism", the power for France to pursue "intelligent protectionism" and safeguard its social model. "I cannot imagine running economic policy without full control over our own money," she said.
As I wrote in June, the Front has been scoring highest in core Socialist cantons, clear evidence that it is breaking out of its Right-wing enclaves to become the mass movement of the white working class.
Hence the new term in the French press "Left-Le-Penism". She is outflanking the Socialists with attacks on banks and cross-border capitalism. The party recently recruited Anna Rosso-Roig, a candidate for the Communists in the 2012 elections.
Mrs Le Pen's EMU withdrawal plan is based on a study by economists from l'École des Hautes Études in Paris led by Professor Jacques Sapir. It concludes that France, Italy, and Spain would all benefit from EMU-exit, restoring lost labour competitiveness at a stroke without years of depression.
Their working assumption is that the eurozone's North-South imbalances have already gone beyond the point of no return. Attempts to reverse this by deflation and wage cuts must entail mass unemployment and loss of the industrial core.
Prof Sapir said the gains are greatest in a coordinated break-up with capital controls where central bank intervention steers the new currencies to target levels. The model assumes that the D-mark and guilder are held to a 15pc rise against the old euro, while the franc falls 20pc.
The gains are less if EMU collapses in acrimony and currencies overshoot. This would inflict a violent deflation shock on Germany, but would still be strongly positive for the Latin bloc.
I don't wish to get into a debate about whether or not the Front National has genuinely purged its anti-Semites, or whether its immigration and culture policies must inevitably lead to a drastic showdown with France's 5m-plus Muslims. This is a finance blog.
My own impression is that she is more relaxed about gay rights and abortion than she lets on, closer in some ways to the assassinated Dutch populist Pim Fortuyn than to her father Jean-Marie Le Pen, who in turn complains that she picked up "petit bourgeois" views in Paris schools.
The fact is that her campaign of "dédiabolisation" or image detox seems to have worked. Only a minority of voters still thinks the Front is a "threat to democracy". Mrs Le Pen is winning over white working-class women in droves. The feminised Front is no longer the party of the angry white male.
While her father called the Holocaust an historical "detail", she calls it the "pinnacle of human barbarism". I can understand why a lot of people disregard this as cynical repackaging. Parties don't change their character so quickly. But as Socialist advisers have warned Mr Hollande, the game has changed. It is no longer enough to keep insisting that the Front is beyond the pale. There is a new fact on the ground.
I might add that the Front is nothing like Ukip, a mostly pro-American, Right-leaning, libertarian, anti-welfare, free-market party. Marine Le Pen is an ardent defender of the French welfare model. Her critique of capitalism gives her a Leftist hue. Some call it 1930s national socialism, and here we are starting to touch on the populist appeal.
She fulminates against Washington and Nato, calling for France to retake its place as "non-aligned" voice in a multipolar world, and lashing out at the Gaulliste UMP for selling its soul to Europe and the Anglo-Saxon order. "There was a de Gaulle of the Left, and a de Gaulle of the Right. There were two de Gaulles. We stand for both," she said.
The rise of the Front National is yet another reminder that the slow-burn political crisis in Europe has yet to reach its climax. Mass unemployment and the gruelling effects of debt deflation are chipping away at the foundations of the establishment, just as they did in the early 1930s under the Gold Standard, so like EMU today.
France endured the same slow torture then, stoically accepting the "500 deflation decrees" of premier Pierre Laval. That dispensation seemed stable for a while. It was not. The dam broke in 1936 with the once unthinkable of the Leftist Front Populaire, with Communist support. The Gold Standard collapsed.
Angela's Merkel's Fiscal Compact (to use the term broadly) is really just a modern version of Laval deflation. There was no good macroeconomic reason for forcing France to squeeze fiscal policy so violently over the last two years, tipping the economy back in recession. The measures were shoved down France's throat done because austerity for its own sake (without offsetting monetary stimulus) is EMU doctrine, and because France has allowed Germany to call the shots.
We can argue over whether the policy has been counterproductive in economic terms. What is crystal clear is that it has shattered the mould of French politics, opening the door to the Front National.
It is now highly likely that the Front will sweep the European elections next May, a vote perfectly suited to their agenda. It will not be alone. Euro-sceptics look poised to storm the Strasbourg Hemicycle. That will be another fact on the ground.
The worst fears of the EU elites are starting to come true. It is entirely their own fault.