If the World goes into a nose dive there will still be top dog countries or
safer heavens. The time to worry is when people start to starve then civil war
breaks out. AS long as they can keep bellies full then civil unrest will be held
at bay.
Back in the 1970s, the eurozone economies, then among the most dynamic on
earth, generated 20pc of global growth. Over the past decade, this growth share
has fallen to 5pc. Yet the single currency area still accounts for more than a
fifth of the global economy. More fundamentally, the region’s banking sector is
so distressed, and many of its governments so close to insolvency, that
“eurogeddon” could spark a worldwide shockwave every bit as damaging as Lehman.
And this time, of course, there is far less scope for fiscal and monetary
bail-outs – not only in Europe, but in the US and elsewhere, too. Of course,
the UK, already in recession and reliant on the eurozone to buy more than half
its exports, is among the most seriously exposed. In May, Britain’s
manufacturing PMI index nosedive to 45.9, the weakest reading since May 2009,
down from 50.2 the month before. This marked the second biggest one-month drop
in 20 years. Global markets are clearly skittish. The only thing that has
stopped asset prices falling further, perhaps, is the belief that escalating
market turmoil could push central banks into action – not just the ECB, but the
Bank of England and Federal Reserve, too. That’s why gold prices are firming up
once again. It’s also why the dollar index, typically inversely correlated with
investor risk appetite, has lately shown signs of reversal.... - Well, the week
past, brought worrying signs, though, that while the eurozone’s woes are not
easing, ongoing concerns about monetary union are now having an impact on
alternative growth centers, too, imposing real damage on commercial activity in
other parts of the globe.....There is no talk of firewalls, or of simply letting Spain go, or of the European banking system being re-capitalised to compensate for the losses that it would suffer. Nope. This is it. The cancer has now spread to the vital organs of the EU. Spain is not a peripheral Mediterranean country. It is not an insignificant player in the political project. It is not a marginal going-along-for-the-ride-and-the-free-money passenger on the euro train. Not only is its economy so large as to be indispensable, but its ties with Italy mean that the Italian economy (which is the third largest in the EU) would be fatally compromised by its fall. “Itexit” is almost unpronounceable, so perhaps it’s fortunate that it will never be required: after Spexit, there would be nothing left to exit from.
5 comments:
It is said that the greatest chess games in history were never played, because the opponent didn't respond as expected. I suspect that the same will be true of the Euro.
No matter how emotionally satisfying the cataclysmic collapse of the Euro would be (and it would be fun to watch from the outside), firstly I'm sure the reality would not be fun in the longer term, and those who expect the Brussels Euro/Technocrats to suddenly say “Oh, sorry, we were completely wrong about a single currency being a good idea. Let's just let it collapse.“ are sadly delusional.
The Euro will not "muddle through" in its present form unless the Germans agree to monetise Eurozone debt through a form of Eurobond.
In order to do this, or to provide any form of bailout other than within the existing, already failing structures, Germany has to change its constitution. The Constitutional Court made that very clear last year.
To change the constitution, Merkel will have to win a referendum, persuading a already hostile electorate that it is a good idea to sacrifice their pensions and savings to rescue the Euro periphery. PIIGS might also fly.
To do the above in any sort of time frame that will help the Club Med, Merkel will have to hold the referendum before 2013. She won't because she has an election to try to win in 2013.
The Euro may not disappear - ultimately a Franco-German rump currency might remain, with a few hangers-on like Austria, Finland, Netherlands and one or two others, but the Euro in its existing form is dead on its feet.
Oppenheimer is not alone in referring to a "cycle" in business and economic affairs. He should talk about times of boom and times of weakness.
To refer to a "cycle" is to propose that there is something pre-ordained and that ups and downs are out of the hands of governments and others. If there were a "cycle" as such, it would at any time be possible to say where the economy is on the cycle - clearly this is wrong.
If events since 2007 ought to have taught us one thing, it is that there is no "cycle" - just events.
Booms and busts occur for differing reasons and the periods involved also differ.
A very specific point, perhaps but the use of the word "cycle" is so often a refuge for those who do not wish to, or cannot, identify causes. It is much the same as saying "mistakes were made" without saying who they were made by and what they were.
Anyone who thinks they can predict what will happen after 17 June and who is making guesses about the solvency of Spanish banks is deluding themselves. Politicians in Brussels will try to muddle through but electorates & markets and newly discovered matters may decide otherwise
I'm fustrated with how this is being handled. Consider banks in Spain: The ECB or the EU (with its ESM) could put up 100bn euro right now, or wait a few months when the price will likely be more than double. The longer they longer they wait, the more it will cost. We've see this time and time again for the past few years. If the eventual cost becomes too great, it will be too late; Individual countries will go back to their own currencies and sovereign debt will be paid back with toilet paper. And if that happened, the amount of collateral damage would be in the tens of millions of lives. People's life savings will be wiped out overnight, and hardships will remain for an entire generation.
How much collateral damage is the Brussels Euro/Technocrats willing to accept?
The single currency was a great idea. But something was missing. Now we all know what is missing; so will the EU take the next step. All parties are responsible for implementing something that was incomplete and now obviously destructive. The world is watching
It's not just in the relationship with the EU that Britain should aim to emulate Switzerland.
Beyond the gnomes of Zurich, the mountains and the cheese lie a host of small family manufacturing and engineering businesses. This Mittelstand is the strength of the country just as it is in Germany.
With all due respect to Roger Bootle, Capital Economics and the rest of the financial elite I'm afraid Britain will remain broken until our country's Mittelstand become appreciated, respected and no longer treated with contempt.
Gated communities, private schools, exclusive clubs and island paradises allow separate development whilst the "one nation" aspiration fades in the distance. It won't last for ever. You don't have to go back to the downfall of the Austro-Hungarian empire for your example. It wasn't so long ago that apartheid collapsed in South Africa.
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