Admin wrote:
Heard in the news the other day that Britain has followed Germany by becoming a place where investors are now effectively PAYING for the privilege of lending the government money, because the interest they receive will be less than inflation. That must be good.
Because we have our own currency as in Sterling we also have the ability to QE it otherwise known as 'print up some more money' and drop it into the economy to drive activity. They hope this will be enough to keep the UK's head above water until things turn around.
On that note be under no illusion, things in the UK are as bad if not worse than France, the only difference is we have a Government who are trying to address the deficit (with the austerity measures) and the markets
currently trust them. Market sentiment has been proven can turn on a sixpence.
UK PLC can set its own policies - and they're ones that suit the UK. Even the Labour Party (in the news today) has a (probably temporary) conversion to the idea that we need austerity and a rebalancing of our economy. Our policies wouldn't necessarily suit some members of the Euro zone - there's an element of beggar my neighbour in them - but there are tentative signs that UK PLC is starting to sort itself out.
The Euro zone can't set an optimum policy to save itself because it has to satisfy 17 different national governments. So any policy is going to be a compromise/fudge. Some things have become very clear over the last year.
1) Austerity is being imposed on far too quick a time scale. Its needed to address the lack of competitiveness of the PIIGS, but the pace at which is being imposed is tipping the PIGGS into recession rather than enabling a rebalancing of their economies.
2) Governments in a better financial position within the Euro zone probably need to boost domestic consumption to stimulate demand in the EU. There is no sign of Germany (in particular) doing this. Instead, Germany is intent on sorting out its own specific concerns, rather than the broader ones of the Euro zone.
3) The markets have increasingly realised that the political problems within the EU are going to prevent the financial problems being sorted out. Greece is heading for either an orderly or disorderly default from its debts (and possibly the euro zone). When this happens, the dominoes will continue to topple, with pressure coming onto Portugal next, then feeding through to Italy and Spain. (Ireland could go either way)
4) We are heading for a number of elections that will cause further political uncertainly in the Euro zone. For example, Sarkozy's actions between now and April/May will be with an eye to salvaging his fast disappearing re-election chances. And if the socialist candidate (Hollande) gets in, he and Merkel are far less likely to agree.
So yes, the euro zone does make a good cover for the UK while we try and sort out our problems. But at least we have a hope of sorting them out. The Greek, Portuguese and Irish economies have been wrecked as a consequence of their membership of the Euro, with Italy and Spain poised at the top of that slippery slope.
And most importantly, we have a chance of coming through this in relatively good shape if the euro zone delays its implosion for a year or two. Greece and Portugal in particular can only stand and watch as their economies are destroyed to suit French and German interests.
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