Compiled and edited by Yuliya, PANews Maelstrom Chief Investment Officer Arthur Hayes once again delivered a striking statement at the TOKEN2049 conference. In his speech, titled "Bastille Day: Celebrating France's Exit from the Eurozone," he boldly predicted that France would eventually leave the Eurozone due to irreconcilable internal economic pressures and continued capital flight, potentially triggering a global banking crisis. PANews compiled and edited the speech; the following is the full text: Since Trump ascended to the throne of "American hegemony" in 2016, his core policy has always revolved around "America First." What does this mean? It means reversing the pattern of surpluses and deficits among countries. The Trump administration has long grown weary of the US model whereby the rest of the world provides financing for the US, which in turn holds assets in the US. It believes that US companies should be able to export their products and profitably compete with countries like Germany and Japan. Therefore, the implementation of the "America First" policy effectively closes off this vast US export market. This shift has forced traditionally export-oriented countries like Germany and Japan to adopt corresponding "Germany First" and "Japan First" policies in response. They need to repatriate their overseas savings and capital to counter the closure of the US market. The direct consequence of this move is that these countries will no longer be able to provide financing to deficit countries like France or even the United States as they did in the past. The French crisis: The truth about capital flight In the European financial system, there's a key indicator: the Target Balance. The European Central Bank publishes the net balance of the Target System monthly, reflecting capital flows within the eurozone. For example, France still had a surplus at the beginning of 2021, indicating capital inflows. However, a comparison of the changes between 2021 and now reveals a massive outflow of capital from the French banking system. Data shows that France is experiencing the most severe capital outflows in the eurozone. French depositors and capital holders have clearly lost confidence in their country's financial system and are reluctant to deposit their funds in French banks. Instead, they are transferring euros to locations like Germany and Luxembourg. As this situation worsens, France may be forced to implement measures such as capital controls to address the imbalances. So, what exactly are Target Balances? It's essentially a centralized clearing system operated by the ECB, designed to allow the Eurozone, which consists of around 17-18 different central banks, to function smoothly. Through this system, countries like Germany and France can run surpluses and deficits with each other without requiring each country's central bank to have bilateral accounts with all the others. To understand the essence of the Target system, consider this: If a Eurozone country exits the Eurozone and redenominates its currency to its own, such as the franc or the Deutsche Mark, would investors be willing to hold that currency? If a country runs a deficit and gradually loses its ability to raise funds, it may impose capital controls. Rational investors would choose to shift funds to a strong country like Germany while the Euro remains freely circulated, as Germany is the wealthiest and most stable country in the Eurozone. The deterioration of the Target balance is the "canary in the coal mine," demonstrating the unease of French domestic capital about the system. By transferring funds, the French public has expressed their distrust in the most direct way. *Note: Target Balances in the financial field specifically refer to the balance of claims or liabilities formed by the central banks of Eurozone countries in cross-border payments within the Eurosystem through the pan-European Real-time Gross Automated Clearing System (TARGET2). The ECB's Dilemma and Lagarde's Role Christine Lagarde, the President of the European Central Bank, is nicknamed the "Crocodile Countess." A French-born lawyer, she ultimately rose to the top position at the European Central Bank. Her role is not to respect the will of the people of the eurozone, but to maintain the ECB's control over its member states. Looking back at the Greek debt crisis of 2011-2012 and other Eurozone elections, we can see the ECB's consistent approach: it presents an ultimatum to governments: "If you don't do what we say, we will stop printing money to buy your bonds." This leads directly to government bankruptcy, currency devaluation, and an inability to buy oil, food, and medicine. The subtext is: "Shut up and vote for the party that complies, and we'll keep financing you." Lagarde achieves this control precisely by controlling the printing press. Since the COVID-19 pandemic, the European Central Bank has maintained a relatively tight monetary policy, setting rules such as "fiscal deficits must not exceed 3% of GDP." If a country's spending exceeds this limit, the ECB threatens to withhold support for its bond market until it passes an "acceptable" budget. This presents a significant dilemma for domestic politicians, particularly Macron of France. Macron's desperate situation and the government's inevitable choice French President Emmanuel Macron is caught in a dilemma. On the one hand, the French people want more social welfare and demand increased government spending. On the other hand, the European Central Bank is adamantly opposed, demanding fiscal austerity or threatening to cut off financial support. This conflict has degenerated into a constitutional crisis. In the past year, two French prime ministers have resigned for failing to pass budgets. Every hint of austerity measures and spending cuts from the government has been met with widespread street protests and strikes. The public's message is clear: "We don't want austerity. We want to print money for France and for ourselves. We don't care what the ECB or Brussels says." This puts Macron in an unresolvable dilemma. When a government is under pressure to fill a fiscal hole, what does it do first? The answer is: steal foreign assets. This isn't an exaggeration. Although France prides itself on being a capitalist nation that respects property rights, when national solvency is threatened, the first option is to plunder foreign wealth. Data shows that 53% of French stocks and bonds are held by foreigners. As a leading Communist Party member of the French parliament put it a few months ago, "Don't worry about raising taxes on the French people. All our debts are owed abroad; we just need to take their money first." This action would trigger a chain reaction. First, the plundering of foreign assets would scare away domestic capital, forcing the government to implement stricter domestic capital controls. Ultimately, private capital remaining in France would be forced to purchase government bonds at interest rates the government could afford, which is far from optimal for capital holders. Systemic Risk and the Future of Global Money Printing Any move by France to seize foreign assets or impose capital controls would have disastrous consequences. First, it would directly lead to the insolvency of the entire EU banking system. Since EU banks hold significant French assets, a French default would trigger a systemic collapse. It is estimated that the European Central Bank would need to provide a massive bailout of approximately €5 trillion to ensure the solvency of the EU banking system. Second, the crisis would quickly spread globally. What would the Bank of Japan do if it found hundreds of billions of dollars in investments trapped in France? What would the Federal Reserve do if the US faced the same situation? They would all be forced to print money to bail out their financial institutions that had lent money to France. Thus, this localized crisis in Europe would become the catalyst for a new round of massive money printing worldwide. To understand how this will play out, we must continue to monitor the evolution of the Target 2 system. Once France sets a precedent for capital controls, all investors will ask, "Who's next?" Capital will flee from all other vulnerable eurozone countries. No country's citizens will accept a fiscal deficit cap of just 3% when they crave more, not less, government spending. Ultimately, the question falls on Germany. What will it choose? Stay in the eurozone and pay for all this, or leave? This is a political decision fraught with uncertainty, and investors hate this kind of binary political game. For the European Central Bank, the so-called "choice" it faces is actually a false proposition: Printing money now : accepting fiscal expansion in various countries, restarting quantitative easing (QE), and buying bonds in various countries. This means returning power to national politicians and the ECB losing control. Print money later : Wait for France to threaten to leave the EU and seize foreign assets, then be forced to print 5 trillion euros for bailouts and restart QE for the remaining countries. The result is also out of control. The conclusion is obvious: the euro is fundamentally a failure, a fact that has taken us 30 years to recognize. The ECB has no choice but to print money. Without it, the euro is doomed; by printing money, Lagarde and her successors might be able to maintain their grip on Europe. Investment Lesson: Escape Europe and Embrace Real Assets From an investment perspective, historical data clearly illustrates the plight of European assets. Since the COVID-19 pandemic, the Euro Stoxx Index has not only underperformed the MSCI World Equity Index, but has also performed miserably compared to real hard assets like gold and Bitcoin. Given this information, and the fact that capital is fleeing France, it's hard to justify holding onto European assets. The conclusion is clear: get out while you still can. The most important monitoring tool remains the Target system balance. It is the core indicator for determining when the ECB is forced to print money. Simply checking the Target balances of various countries each month on the ECB website or Bloomberg provides a true insight into fund flows. With France's funding gap widening, the ECB has no way out. In reality, the ECB has exhausted all its options. France is too large to be rescued, yet it is also impossible not to rescue it. Once capital flight from France reaches a critical point, local measures will no longer be sufficient to maintain stability. The only response will be massive money printing. Whether or not France actually leaves the euro, the outcome will be the same: trillions of euros will be created out of thin air. This is particularly important for cryptocurrency investors. The United States is reshaping the global order, reversing the pattern of surpluses and deficits. Deficit countries will shift to surpluses, and surplus countries will shift to deficits. Countries like France, which lack reserve currencies, face a lack of buyers for their bonds, forcing them to rely on central bank money printing. For investors, this means European assets will remain unattractive for a long time, further emphasizing the importance of Bitcoin and other decentralized assets. Compiled and edited by Yuliya, PANews Maelstrom Chief Investment Officer Arthur Hayes once again delivered a striking statement at the TOKEN2049 conference. In his speech, titled "Bastille Day: Celebrating France's Exit from the Eurozone," he boldly predicted that France would eventually leave the Eurozone due to irreconcilable internal economic pressures and continued capital flight, potentially triggering a global banking crisis. PANews compiled and edited the speech; the following is the full text: Since Trump ascended to the throne of "American hegemony" in 2016, his core policy has always revolved around "America First." What does this mean? It means reversing the pattern of surpluses and deficits among countries. The Trump administration has long grown weary of the US model whereby the rest of the world provides financing for the US, which in turn holds assets in the US. It believes that US companies should be able to export their products and profitably compete with countries like Germany and Japan. Therefore, the implementation of the "America First" policy effectively closes off this vast US export market. This shift has forced traditionally export-oriented countries like Germany and Japan to adopt corresponding "Germany First" and "Japan First" policies in response. They need to repatriate their overseas savings and capital to counter the closure of the US market. The direct consequence of this move is that these countries will no longer be able to provide financing to deficit countries like France or even the United States as they did in the past. The French crisis: The truth about capital flight In the European financial system, there's a key indicator: the Target Balance. The European Central Bank publishes the net balance of the Target System monthly, reflecting capital flows within the eurozone. For example, France still had a surplus at the beginning of 2021, indicating capital inflows. However, a comparison of the changes between 2021 and now reveals a massive outflow of capital from the French banking system. Data shows that France is experiencing the most severe capital outflows in the eurozone. French depositors and capital holders have clearly lost confidence in their country's financial system and are reluctant to deposit their funds in French banks. Instead, they are transferring euros to locations like Germany and Luxembourg. As this situation worsens, France may be forced to implement measures such as capital controls to address the imbalances. So, what exactly are Target Balances? It's essentially a centralized clearing system operated by the ECB, designed to allow the Eurozone, which consists of around 17-18 different central banks, to function smoothly. Through this system, countries like Germany and France can run surpluses and deficits with each other without requiring each country's central bank to have bilateral accounts with all the others. To understand the essence of the Target system, consider this: If a Eurozone country exits the Eurozone and redenominates its currency to its own, such as the franc or the Deutsche Mark, would investors be willing to hold that currency? If a country runs a deficit and gradually loses its ability to raise funds, it may impose capital controls. Rational investors would choose to shift funds to a strong country like Germany while the Euro remains freely circulated, as Germany is the wealthiest and most stable country in the Eurozone. The deterioration of the Target balance is the "canary in the coal mine," demonstrating the unease of French domestic capital about the system. By transferring funds, the French public has expressed their distrust in the most direct way. *Note: Target Balances in the financial field specifically refer to the balance of claims or liabilities formed by the central banks of Eurozone countries in cross-border payments within the Eurosystem through the pan-European Real-time Gross Automated Clearing System (TARGET2). The ECB's Dilemma and Lagarde's Role Christine Lagarde, the President of the European Central Bank, is nicknamed the "Crocodile Countess." A French-born lawyer, she ultimately rose to the top position at the European Central Bank. Her role is not to respect the will of the people of the eurozone, but to maintain the ECB's control over its member states. Looking back at the Greek debt crisis of 2011-2012 and other Eurozone elections, we can see the ECB's consistent approach: it presents an ultimatum to governments: "If you don't do what we say, we will stop printing money to buy your bonds." This leads directly to government bankruptcy, currency devaluation, and an inability to buy oil, food, and medicine. The subtext is: "Shut up and vote for the party that complies, and we'll keep financing you." Lagarde achieves this control precisely by controlling the printing press. Since the COVID-19 pandemic, the European Central Bank has maintained a relatively tight monetary policy, setting rules such as "fiscal deficits must not exceed 3% of GDP." If a country's spending exceeds this limit, the ECB threatens to withhold support for its bond market until it passes an "acceptable" budget. This presents a significant dilemma for domestic politicians, particularly Macron of France. Macron's desperate situation and the government's inevitable choice French President Emmanuel Macron is caught in a dilemma. On the one hand, the French people want more social welfare and demand increased government spending. On the other hand, the European Central Bank is adamantly opposed, demanding fiscal austerity or threatening to cut off financial support. This conflict has degenerated into a constitutional crisis. In the past year, two French prime ministers have resigned for failing to pass budgets. Every hint of austerity measures and spending cuts from the government has been met with widespread street protests and strikes. The public's message is clear: "We don't want austerity. We want to print money for France and for ourselves. We don't care what the ECB or Brussels says." This puts Macron in an unresolvable dilemma. When a government is under pressure to fill a fiscal hole, what does it do first? The answer is: steal foreign assets. This isn't an exaggeration. Although France prides itself on being a capitalist nation that respects property rights, when national solvency is threatened, the first option is to plunder foreign wealth. Data shows that 53% of French stocks and bonds are held by foreigners. As a leading Communist Party member of the French parliament put it a few months ago, "Don't worry about raising taxes on the French people. All our debts are owed abroad; we just need to take their money first." This action would trigger a chain reaction. First, the plundering of foreign assets would scare away domestic capital, forcing the government to implement stricter domestic capital controls. Ultimately, private capital remaining in France would be forced to purchase government bonds at interest rates the government could afford, which is far from optimal for capital holders. Systemic Risk and the Future of Global Money Printing Any move by France to seize foreign assets or impose capital controls would have disastrous consequences. First, it would directly lead to the insolvency of the entire EU banking system. Since EU banks hold significant French assets, a French default would trigger a systemic collapse. It is estimated that the European Central Bank would need to provide a massive bailout of approximately €5 trillion to ensure the solvency of the EU banking system. Second, the crisis would quickly spread globally. What would the Bank of Japan do if it found hundreds of billions of dollars in investments trapped in France? What would the Federal Reserve do if the US faced the same situation? They would all be forced to print money to bail out their financial institutions that had lent money to France. Thus, this localized crisis in Europe would become the catalyst for a new round of massive money printing worldwide. To understand how this will play out, we must continue to monitor the evolution of the Target 2 system. Once France sets a precedent for capital controls, all investors will ask, "Who's next?" Capital will flee from all other vulnerable eurozone countries. No country's citizens will accept a fiscal deficit cap of just 3% when they crave more, not less, government spending. Ultimately, the question falls on Germany. What will it choose? Stay in the eurozone and pay for all this, or leave? This is a political decision fraught with uncertainty, and investors hate this kind of binary political game. For the European Central Bank, the so-called "choice" it faces is actually a false proposition: Printing money now : accepting fiscal expansion in various countries, restarting quantitative easing (QE), and buying bonds in various countries. This means returning power to national politicians and the ECB losing control. Print money later : Wait for France to threaten to leave the EU and seize foreign assets, then be forced to print 5 trillion euros for bailouts and restart QE for the remaining countries. The result is also out of control. The conclusion is obvious: the euro is fundamentally a failure, a fact that has taken us 30 years to recognize. The ECB has no choice but to print money. Without it, the euro is doomed; by printing money, Lagarde and her successors might be able to maintain their grip on Europe. Investment Lesson: Escape Europe and Embrace Real Assets From an investment perspective, historical data clearly illustrates the plight of European assets. Since the COVID-19 pandemic, the Euro Stoxx Index has not only underperformed the MSCI World Equity Index, but has also performed miserably compared to real hard assets like gold and Bitcoin. Given this information, and the fact that capital is fleeing France, it's hard to justify holding onto European assets. The conclusion is clear: get out while you still can. The most important monitoring tool remains the Target system balance. It is the core indicator for determining when the ECB is forced to print money. Simply checking the Target balances of various countries each month on the ECB website or Bloomberg provides a true insight into fund flows. With France's funding gap widening, the ECB has no way out. In reality, the ECB has exhausted all its options. France is too large to be rescued, yet it is also impossible not to rescue it. Once capital flight from France reaches a critical point, local measures will no longer be sufficient to maintain stability. The only response will be massive money printing. Whether or not France actually leaves the euro, the outcome will be the same: trillions of euros will be created out of thin air. This is particularly important for cryptocurrency investors. The United States is reshaping the global order, reversing the pattern of surpluses and deficits. Deficit countries will shift to surpluses, and surplus countries will shift to deficits. Countries like France, which lack reserve currencies, face a lack of buyers for their bonds, forcing them to rely on central bank money printing. For investors, this means European assets will remain unattractive for a long time, further emphasizing the importance of Bitcoin and other decentralized assets.