Category Archives: Euro


David Cameron used the diplomatic equivalent of the nuclear deterrent in his negotiations with the Euro zone nations, yet the results were less than impressive.

There has been a lot of hot air floating around the commons and else where over the last few days, however, as usual Ed Miliband is failing to make any headway over the issue.  His beloved brother however hit the nail on the head.

“This is the first veto in history not to stop something. The plans are going right ahead. It was a phantom veto against a phantom threat”

What has been revealed over the last few days is just how naive, inadequate and unbelievable has been the stance by David Cameron over the Euro zone issue.

It now transpires that there was little if any networking or laying the groundwork before the summit took place.  Indeed even up until the final moments before David Cameron had his fateful meeting, his European “partners” knew very little about the demands he was about to make.

The UK, it turns out were isolated and out of the loop before the summit even started.  There is little wonder, that the other European member states were not in a listening mood.

It appears either David Cameron and his advisers were completely incompetent, or a decision had already been made that a deal could not be brought back to the House of Commons no matter what.

What David Miliband got exactly right, is that you do not “use” your veto unless you will gain an advantage in doing so.  You can “threaten” a veto, but it is something you should not use, if you want it’s effect to benefit you.

In this case we can see exactly why the veto was so badly used.  The other 26 countries will do exactly what they like in any case.  The UK now has fewer friends or allies and very little influence on the way ahead.


EURO ZONE DEBT – are we looking at this from the wrong perspective?

The Eurozone has many problems which appear to be further highlighted with every day that passes.  The markets are getting themselves into a tizzy at every rumour or politician’s sweaty brow, while the car crash which is the Euro zone crisis continues to play out.

The problems are familiar now.  We have:

  1. Countries who should never have been allowed to join the Euro in the first place
  2. A lack of a decision making framework that would encourage financial stability
  3. 17 different economic policies
  4. 17 central banks
  5. 17 finance ministers
  6. 17 heads of government, many of which lead and have to satisfy an array of coalition partners
  7. A bureaucratic and long winded European decision making process
  8. One interest rate set for 17 different economic regions
  9. No convergence of economic indicators
  10. Fiscal divergence
  11. Different tax regimes
  12. Cultural differences regarding the role of the state
The list could go on, but really it doesn’t need to.
My opinion on the outcome of the Euro is based on all of these factors and there are 3 main options
  • Jettison the weaker economies often referred to as the “southern economies”, leaving a core Euro zone of a few northern European countries and continue tightening fiscal and political union.
  • Split the Euro into 2 currencies – a northern Euro and a Southern Euro if you like
  • Quick decision making bringing rapid convergence of fiscal, tax and political union, taking economic decisions away from the peripheral economic zones and a larger role for the President of Europe and the European Central Bank (ECB) – ensuring the knowledge that there will always be enough money to keep the Euro going
The first option appears to be by far the most likely at the moment, but is still unthinkable although the rumour went round earlier this week that Angela Merkel and Nicolas Sarkozy were considering just that.
However, maybe we have all got it wrong.
The Euro is meant to be one currency with the benefits and flaws that this entails.  When we look at the USA, we never really look at the micro economic factors of each state, only the USA as a whole, over 300 million people making a whole.
The Euro zone has 317 million people and 17 countries.  Our fixation has been on the debts of particular nation states, but is this the way we should be looking at it?
If we take deficit levels, they are rising out of control in Greece and Spain, but as a whole, the Euro zone has almost half the deficit that the UK  has. The UK has a deficit of 10.4% of GDP, while Greece  has a deficit of  10.5% and Spain 9.2%.  But  the Eurozone has a deficit as a whole at 6% of GDP.
If we look around the world we can see that the USA has a deficit of around 1.3 trillion $ which is about 8.6% of GDP.
Debt is the next problem which contributes to the instability of the economy. Japan has an enormous debt at over 220% of GDP. The USA has 94.3% debt, Greece 142% and Italy 119%.
Crucially the Euro zone has a debt of  85.1%. (source)
If we were looking at the Euro zone as a whole entity rather than it’s individual parts, a bit like looking at the USA as a whole rather than it’s states, or the UK rather than it’s regions, would we be so worried?
This perhaps indicates just how important it is to show the markets and onlookers that the Euro zone is one economic and political entity, and if people had confidence in the model of governance, then the crisis would never have got this far.
Maybe for the sake of our sanity, we have to look at the Euro zone as a whole rather than at it’s constituent parts, or face the economic Armageddon that is surely to follow.


Today is D Day for the Euro.  The deadline all in Europe are talking about. Yet denial is still at the forefront of European politics.

The other evening I listened in to a radio interview between commentators from Germany, France and the UK.  It was interesting in the mentality that was on show.  The French and German contributers were accusing the UK of having a “Daily Mail mentality” and saying this Wednesday is not really a deadline and everything will be fine.  They further stated that there was no way Greece would leave the Euro and the Euro will go from strength to strength even predicting that the UK would join within the next 50 years.

"I don't have a clue either Angela"

The UK contributers however, predictably had a rather different view.  Admittedly one of which was Norman Tebbit so we can guess his general view point.

However, what was quite clear from the exchange was the way the Europeans see the crisis and how “deadlines” and the word “crisis” has not really computed.

Having been through the crisis of October 2008 and the rapid re capitalisation that took place, the UK, the markets and the IMF seem to take the view that rapid action will be needed.  The European leaders within the Euro zone however, seem to see their antiquated way of long drawn out discussions eventually leading to some sort of a policy that will be ratified at some time in the future as perfectly adequate.

History however tells us something quite different.

Every time the Euro zone heads of state announce a new strategy, or policy it is quickly superseded by another crisis, or the markets take against it.  Even policies that they actually agree on take 18 months to implement like the recent 440 billion Euro bail out fund which when it was agreed was thought to be inadequate and was only passed recently into law and is out of date as a solution to an ever growing debt crisis.

It does not help that even when an agreement has been made, each finance minister for each country says something slightly different causing confusion and causing concerns in the markets.

The type of solutions now being talked about is a 2 trillion Euro bail out fund to replace the woefully inadequate  previous 440 billion Euro fund.  In addition a writing down of Greek debt, with banks taking a significant amount of the hit; re-capitalisation of the banking sector and yet more austerity for Greece.

The problem as ever will be IF this is agreed, how long will it take to pass into law and for the funds to be available.  The funds are needed NOW, but it will take a significant time to sort out.

In addition, this is just another, rather large, sticking plaster.  Systemically the Euro is failing.

The Euro needs restructuring with a much more streamlined way of taking decisions.  The simple way would be much more political union, one finance minister, and one economic policy with integrated tax and fiscal arrangements.  The chances of this happening are pretty slim, and if it was on the cards would anyone in Europe really have the appetite to do it?

The prospect of a German dominated Euro zone where everyone will have to play by their tune, fiscally, and politically will not go down well especially with the southern nations.

It is either systemic change or the splitting away of the weaker members who are debt ridden so that they can default, devalue and restructure.  This would surely help the Greeks who have no prospect of growth in their economy for a decade or more.  They do not have stagnation to worry about like the UK, but a continual downward spiral of negative growth that shows no sign of abating.

Even if this were to happen then a more streamlined system will be inevitable for the Euro zone if the Euro is to continue.

Would more pain now be better than prolonged pain for the next 10 years?  Greeks needs hope and a way forward.  The prospect of Austerity programmes on top of austerity programmes will not provide a future for new generations.

I seriously doubt that the Euro leaders can pull this one off, and the chances of the Euro zone staying in the form it is now are ridiculously slim.

What no one seems to understand is that with the debt in Europe and elsewhere that someone needs to be allowed to fail, but no one seems to get it.  Passing debt from one place to another will eventually catch up with us, and rather than sinking a few small boats we are determined to take down the entire fleet.

Passing the buck from financial institutions to states – from states to overseeing financial bodies (IMF) or larger political bodies (Euro zone) and then where?

The further problems of economic orthodoxy have also not been addressed which means that even if we do get through this crisis it will almost certainly happen again – the prospects for the Euro are . . . . bleak.


We have so many Deja vu moments with the current government, however, last night was perhaps one that David Cameron would have preferred had not have happened.

Cameron has nothing to hide over Europe?

The spectre that is Europe on the shoulders of any Tory leader is a heavy burden.  Sadly for the British people, it has again weighed heavily on the shoulders of yet another Tory leader.  David Cameron, known for his clever political manoeuvres in the corridors of the Tory party and Westminster decided to politically take on a fight which has left him embarrassed, undermined and left his own power within in his party dented.

Instead of allowing a free vote and playing down the significance of the outcome of any vote, he decided to take on the euro sceptics and in the process has lost two ministerial aids; suffered the biggest backbench rebellion in 30 years and opened up old festering wounds that the Tories have been trying to heal for 13 years.

It reminded everyone of the catastrophic Major years –  81 voting against the government (half of the back benchers) not counting those that abstained and has prompted the euro sceptics to ask – Is Cameron one of them?

The longer the Euro sceptics look at David Cameron and his rhetoric the more they feel that actually he will dither and give bluster, but in the end is unlikely to repatriate much power back to the UK Parliament and certainly not in this parliament.

What could force his hand however, is a) that the back benchers will now put far more pressure on him and to placate them he will have to act to stop the inevitable split and back biting that will occur and b) Any systemic Euro zone restructuring to solve the ever growing crisis WILL inevitably require changes to the European treaties.

What is curious is why Cameron bothered to risk the stoking up of the hornets nest in the guise of Tory Euro sceptics?  He showed is political manoeuvres with the Liam Fox issue, delaying taking action so he was seen to be giving him every chance so as not to anger the right wing.  He could have done the same this time but decided not to.

The art of being a leader in politics is knowing the fights to take on and when to do it.  The judgement on this occasion was most certainly wrong.

David Cameron’s position is now clear, his problems of keeping his coalition together has just taken a turn for the worse.  He has been concentrating on keeping his coalition with the Lib Dems on track, but in doing so has angered the right of his party AND the Euro sceptic wing.

He has clearly damaged himself and will find going tougher in the months ahead and the coalition has suddenly been made harder to keep together.

EURO CRISIS: Slovakia vote against Eurozone Bail Out Fund

The chaos surrounding the Euro zone was brought into focus yet again last night as Slovakia voted against increasing the Eurozone Bail out fund.

This latest episode may not be a definitive block on the expansion of the fund, but Slovakia have become a thorn in the side of the Euro and shows why the Euro zone is in such disarray.

The Euro zone has become the model by which no sane organisation should be run.  It’s decision making process is slow, unwieldy, and lacking focus.

Even now, the Euro zone is fighting a phoney war with itself, having problems obtaining a consensus on an increase in the bail out fund that we all know will be inadequate anyway.

The slow motion car crash that is the Euro debt crisis has fundamental problems that the leaders of Europe seem unable to grasp.

It is surely only a matter of time before the next shock appears, and the markets react.

The project for monetary union can now be seen to have been ill conceived and without the sound foundations any economy needs.  Without fiscal and political union, the currency cannot survive, and is unlikely to survive with the weaker economies largely in the south of the zone remaining a part of it.

It s no wonder that Slovakia is reticent to help fund the bail out of countries that are richer than they are, even though the posturing may well be for a domestic audience.

It is still unbelievable that with all that has happened, the leaders within the Euro zone still appear to have their heads in the sand.


Economic woes – “it never rains but it pours” – can be the only description of the world economy right now.  The UK specifically is fully into its 3rd quarter of stagnation.

Yesterday the National Office of Statistics revised its growth for the 3 months to June down to 0.1%.  Down 50% from its previous statistics.  Confirming what everyone pretty much already knows (except George Osborne) that the UK economy is flat lining.

In addition IMF growth forecasts for 2011 have been downgraded to 1.1% from 2% 9 months ago, and for 2012 down to 1.6% from 2.3% and even this looks highly optimistic.  The IMF is clearly opening the door for a squirming back track by the UK government to reduce its deficit reduction plan. 

No growth = very little chance of cutting the deficit by the amount the chancellor would like.  No growth means continual falling standards of living in the UK.

Today the Bank of England kept interest rates at 0.5%.  Not unexpected, but even those on the right are now resisting calls to hike interest rates in the way they were calling for it a year ago.  The opportunity has been missed they say.

In addition they have announced a further round of Quantitative Easing.  The electronic version of printing money.  This was not altogether surprising, as it has been signposted by Goerge Osborne over the past few days.  However, the amount is far more than originally forecast, signalling that the financial crisis is still getting worse and not better.

The penny is beginning to drop for the coalition.  Growth is becoming far harder to come by, and the cuts are only just beginning to bite.  The chances of a double dip recession are massively increased with the continuing problems in the Euro Zone that does not look like ending any time soon. Yet, still no growth strategy except, cut and hope for the best.

I predict that sooner or later the UK government will HAVE to slow its deficit reduction plan, and a new banking crisis to ensue in the Euro zone leading to frozen liquidity in the world banking system.  Watch this space!


WORLD ECONOMIC CRISIS: The Austerity Policy begins to Crack

The narrative of the great and the not so good in World Economics is well established.  Forget the lessons of the past, and take no notice of the specific circumstances of the hour, massive reductions in public spending is the name of the game.

The whole world economy has been following the same well worn path of tackling the deficit problem by cutting public spending and satisfying the markets.  Each austerity package has been followed by another, and then another.

Each Euro zone country that fails to reduce the deficit enough gets a bail out of sorts, at the last minute.

Yet the elephant in the room keeps trumpeting loudly.


The truth about the deficit is that without growth the deficit will remain or get progressively worse. Yet the austerity rhetoric has continued unabated.

Yet in the last few weeks, new noises are being made by those who have been the ones leading the Austerity approach.

The IMF and World Bank have both been making noises about the lack of growth.  As the bad economic news continues to grow with each passing week, in the US, the Euro Zone and in the world at large, the penny is beginning to drop.

Spooked by the recent turmoil in the markets, Christine Lagarde has intimated that austerity alone will not sort out the problems.

The markets will never be satisfied as the last months effective crash of share prices has shown.  The markets want both deficit reduction, cuts in public spending and growth.  This, sadly is not possible.

The spectre of a “double dip recession” is causing everyone to panic regardless of the economic realities.  Having had 9 months of economic stagnation, we are, as far as the general public is concerned, still in/or have gone back into recession.

We are staring a great recession or depression in the face.  A decade of stagnation.  Some economists are now suggesting the a Japanese style stagnation of two decades or more is now a real possibility.

The problem we face is that the rhetoric of austerity has altered and depressed consumer feeling throughout Europe and elsewhere, especially in the UK.  In addition, suppressed wages and the decline of standards of living over a protracted period of years is making everyone below the extreme higher incomes, less well off and gradually getting poorer.  Our high streets are turning into ghost towns.  Something last talked about in the early 1980’s.

In the UK, some departments within government are using rhetoric to justify policy options which the treasury would not dare to utter.  To justify interfering in the housing market and to build  a new high speed rail line.

The warnings from predictable circles like  Ed Balls, the shadow chancellor, now include others less used to such associations like Christine Lagarde, of the International Monetary Fund, John Cridland, director general of the CBI, and Bill Gross, head of the world’s largest bond fund, Pimco.

The head of the world bank Robert Zoellick, does not think current austerity measures and short term liquidity measures will be enough to save the Euro zone calling for what he calls “decision time”.  Namely, split the Euro zone, or fiscal union.

Meanwhile the UK’s growth forecasts have been downgraded err . . .. yep again.  When this government first came to power, forecasts were in the region of 2.7% annual growth for 2011.  The British Chambers of Commerce has downgraded its forecast from 1.9% in January of this year to 1.1% now. The Bank of England last month cut it’s growth forecast from 1.75% earlier in the year to 1.4% now.

Today the OECD announced its fear of the world economy grinding to a halt, and although maintained it’s support for cutting public expenditure and fiscal tightening, expressed a view that this should be eased at every opportunity.

What is apparent is that the Austerity machine along with the world economy is grinding to a halt.   Fiscal tightening will just slow growth further causing more difficulties.  Options though are now limited and world action is becoming fragmented as countries begin to focus on their own positions.

For George Osborne, the political game may well be slipping him by.  Clearly a calculation was made when the current government came to power that we would have cuts before a recovery took hold and a recovery to be acclaimed before going to the country at the next general election.  This is looking rather optimistic.

However, entrenched positions are backing him into a corner on fiscal tightening.  The talk of a plan B would no doubt spook the markets even more, and make his and David Cameron’s credibility suffer.  Perhaps they can save face by taking a “common sense” or “flexible” approach and doing more to support infrastructure projects and housing, and thus investing for the future.  A little loosening of the clenched fist of fiscal policy rather than reverting to a full blown “deficit denier”.

Maybe George Osborne knows something we do not, that he is holding back, waiting for the calamitous collapse of the Euro zone before altering course?

What is clear is that austerity alone will not sort out the world economic problems  and those with the unelected power are beginning to realise this.