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Economics vs politics in the eurozone

Stephanie Flanders | 16:30 UK time, Thursday, 7 April 2011

The basic laws of economics are threatening to pull the eurozone apart, just as politicians are trying to pull it together. As usual, the ECB is stuck in the middle of the mess, and it doesn't like it one bit.

For two and a half years, interest rates in the big industrial economies have only gone one way - down. Central banks slashed rates to historic lows in the wake of the financial crisis and then left them there. But not any more. Now the ECB has broken ranks, with today's long-anticipated quarter point rise.

Jean-Claude Trichet says not to assume it's the first of many. Unlike Mervyn King, he seems to think that a single rate rise can improve your anti-inflationary credentials, without endangering the recovery. But, today of all days, you have to consider which eurozone recovery he's talking about.

Germany grew by 3.6% in 2010 - and the forecast for 2011 is 2.5%. We found out today that German industrial production in February was nearly 15% higher than a year ago. That is what you call a recovery. And crucially, Germany accounts for 28% of eurozone GDP. Spain, Portugal, Greece and the Republic of Ireland between them only account for 17% of eurozone GDP.

The single largest reason why Portugal is now requesting a European bail-out is that it's no longer enjoying any recovery at all. Independent forecasters now expect the Portuguese economy to shrink by over 1% in 2011, after growing by 1.4% in 2010. The consensus for Spain is for growth of 0.6% this year - the first positive annual growth since 2008. The forecast for the Irish Republic is for growth of 0.4%. Greece is expected to shrink again, by 2.9%.

As I've discussed before, the shoe was on the other foot in the first years of the eurozone - when the "one-size-fits-none" nature of eurozone monetary policy delivered an interest rate that was probably too low for Spain and the Irish Republic, and too high for Germany. And back then, inflation was also higher in the periphery, meaning that real rates were even higher in Germany, and even lower in Spain.

The sad thing for Portugal is that it did not even get the boom that other "Club Med" (or Celtic Tiger) countries got. Growth between 2001 and 2007 averaged only 1.1%, making it the slowest growing country in the entire Eurozone during this period. Growth in Portugal's GDP per head was even slower - only 0.6% a year.

But that was then and this is now. The problem for Portugal and the rest - in many ways the root cause of the entire crisis - is not that these countries are insignificant. It's that they're different.

The Netherlands only accounts for around 6% of eurozone GDP, but it does just fine. Why? Because, to all intents and purposes, it's just like Germany. Ditto Austria. Even, to some extent, France. That is why these economies have always been considered the Eurozone's "hard core".

The reason we still talk about the "periphery" is that Portugal, Spain and Ireland are still quite different. One difference we all know about is that they are less competitive. Another, which adds insult to the injury of the ECB's rate increase, is that their economies are much more dependent on variable rate debt.

It's a sad feature of the conflicting economics and politics of the Eurozone today that the countries which least need an interest rate rise are going to be most affected by it. The majority of mortgages in Spain, Portugal and Ireland have floating rates. Germany, as we know, has less debt to begin with, and most of it is fixed rate.

All of which might lead you to wonder why - oh why - the ECB feels it necessary to torture the periphery, if a rate rise will have so little impact on the countries where inflation is now picking up? But of course, that is precisely the point. It is because rate rises are likely to have relatively less impact that the ECB feels a greater need to start the tightening cycle early.

Ever since the ECB began, critics - especially American ones - have complained that it is too focussed on inflation and not focussed enough on growth. That debate, I'm sure, will continue in the months ahead. But there is academic research suggesting that a given interest rate change in the eurozone will have less impact on inflation than it would in the US. There is also - the MPC might be interested to hear - some evidence suggesting that inflation "shocks" like the oil and food price rises of the past year or two tend to stay in the system for longer in the eurozone, and have greater "second round" effects.

The ECB has had to do a lot of things that it didn't want to do in the past two years, providing vast amounts of financial support to banks and - indirectly - governments in trouble, in effect substituting for a fiscal union that does not exist. It is still providing that support today. But the lesson of today is that it is not going to put its entire monetary policy framework at the service of Europe's politicians. And rightly or wrongly, that framework says that rates have to go up.

Comments

  • Comment number 1.

    Maybe the answer is to have 2 Euros, a hard Euro for those countries with similar economies to Germany, and a soft Euro for the 'PIGS'.

    The hard Euro can have higher interest rates to control inflation.

    The soft Euro can have lower interest rates and will devalue, to improve competitiveness...

  • Comment number 2.

    And again we say, one monetary policy and many fiscal policies simply don't work.

  • Comment number 3.

    As well as the issues posed within the Euro zone yesterdays move by the European Central Bank posed a question for the Bank of England's policy. It was put well here.

    "A Conundrum for you

    The European Central Bank faces inflation of 2.6% and responds by raising its interest-rate from 1% to 1.25%. The Bank of England faces inflation of 4.4% on the same measure but leaves its official interest-rate alone at 0.5%….Furthermore many of its members tell us that raising interest-rates will not help reduce inflation."
    http://t.co/a6nPrVe

    So they now offer radically different views on what is going to happen next.If the ECB is even partly right the Bank of England is going to look very foolish..



  • Comment number 4.

    Good article and spot on.
    The other problem affecting the Eurozone is that the base rate has little to do with what the Piigs have to pay for their loans.
    Germany has unlimited access to the European market, and despite its own economy growing at a rate of knots, because it is in the Eurozone its currency does not appreciate in the way a successful economy normally would.Thus the normal corrective mechanism does not apply.
    And Germany's access to cheaper money than Portugal's is in effect a subsidy to Germany which needs it least.
    Uniformity,with Pan-Eurozone sovereign,corporate, and private lending rates, though expensive to Germany and FrAusBeNeLux would level the playing field, bringing interest rate rises to those economies which are booming and cuts to those most in need.

  • Comment number 5.

    Good Afternoon Stephanie,
    Another excellent blog, what is patently clear is that the Eurozone is not working for the minor countries and being locked into an uncompetitive exchange rate does not work. The only answer is to split up to Eurozone, leave core countries such as Germany, France and the Benelux countries in and other countries such as the PIIGS should stay out. Thank goodness that UK is not involved.

  • Comment number 6.

    I think that this move in rates is totally consistent with the 'It's time for a futile gesture .. " as discussed by Mervyn King. This has been the pattern of of the EU and ECB since the crisis occurred. Over the recent past we have had a series of High-Level meetings on support structures for the Euro followed by staggering inactivity.

    I am surprised that the European Banks are being allowed to ignore the fact that their investments and loans in all these countries are now worth much less than the face value. What happened to "mark to market" rules or is this just being expedient?

    No doubt the EU and ECB are being guided by the need to show some action to the markets regardless of the benefits or downsides rather than to admit that the fundamentals of the Eurozone are really so bad. My worry is that this process of obfuscation is merely postponing another huge bubble.

  • Comment number 7.

    Europe needed to be one country for the Euro to work.

    This 'little bit of financial difficulty' may be teething troubles in that eventual aim or it may prove that a single currency has to be an all or nothing affair from day one.

    Behind all the numbers on the market traders screens there has to be real people producing the GDP - and the two never tied up.
    Yes, theory suggests that if you increase the incentive to save then spending will reduce, but that's not the will of the people at the moment.

    Consumerism is the political power now, People & Govt want to spend and not produce - so we see these big gaps in who is producing (China, Germany) and those who spend (Italy, UK under Labour, Portugal).

    My concern is that the masses no longer getting the money poured upon them will revert to empty polical promises. We will see more extemist parties elected.

    Portugal has already gone inwards and ejected the political party who tried to invoke austerity. The UK is likely to do the same in 2015.
    What if the Germans decide to vote for looking after number one after a decade of bailouts to forigners and bringin their equivilent of UKIP?

    The days of the Euro may be very short.

  • Comment number 8.

    The fundamental problem which the nations in the periphery must face is not high interest rates, it's too much debt and a failure to reform. While it's true that the cure may kill the patient, these countries are in this mess after a decade of being treated as Germany's siblings and enjoying cheap money. The market, not the ECB, has learned to differentiate now and is teaching a hard lesson.

    In the UK, we're managing to get away with low interest rates - I agree that high energy prices are both contributing to inflation and exercising a depressing fiscal effect - but we shouldn't think for a moment that this is an opportunity to binge more.

  • Comment number 9.

    #6 kingholly,

    "I am surprised that the European Banks are being allowed to ignore the fact that their investments and loans in all these countries are now worth much less than the face value."

    Here you have highlighted the achllies-heel of both the French and German banks. Their possible exposure to foreign debt is truly frightening.

  • Comment number 10.

    Ah! System chaos cleared, Stephanie, so I can comment with a suggestion in reply to:

    'All of which might lead you to wonder why - oh why - the ECB feels it necessary to torture the periphery, if a rate rise will have so little impact on the countries where inflation is now picking up? But of course, that is precisely the point. It is because rate rises are likely to have relatively less impact that the ECB feels a greater need to start the tightening cycle early.'
    -------------------------------------------------------------------------------
    Stephanie,
    The money has to be raised in a market. Did not that market send a distinct message to Portugal at the end of last week? No money. Well OK, some money. But only a billion. And it's gonna cost ya. 5.5% Deal?

    Assuming that is a punitive rate in Portugal's case (and I think it was) was not the market suggesting that loans ought to be at around 2% plus base of, say 2 to 2.5%?

    Eventually rates are going to go up. Europe. US. Here.

    What everyone would like to know is (i) when, (ii) for how long, and (iii) how much?

    And almost certainly: Will it stop at 2 to 2.5 or 3% or could it go to 5? 7? 10%?

  • Comment number 11.

    Paul Krugman blog, March 4, 2011, 'The Madness of Jean-Claude Trichet':

    "The European Central Bank is strongly hinting that it will raise interest rates at its next meeting, in response to rising headline inflation — even though this rise is the result of rising food and oil prices, which are not the results of ECB policy. Let me try a different take on why this is such a bad idea. Suppose that we focus on wage rates, which are often seen as the stickiest, most inertia-driven prices. The eurozone, like the United States, has seen wage growth slump in the face of high unemployment. So what the ECB is saying, in effect, is that Europe should drive down nominal wages — which can only be done by raising the unemployment rate — in order to offset the effect of oil and food on headline inflation. (Real wages will fall in any case). Is this really a policy that the ECB would defend in so many words? I doubt it. But however sober and dignified talk of price stability may sound, that’s what the proposed policy amounts to."

  • Comment number 12.

    Stephanie
    Only 2 months ago you told us this.

    "In Beijing they have been celebrating for a while, but today it's official: China has overtaken Japan as the second largest economy in the world."

    But today you tell us this.

    "For two and a half years, interest rates in the big industrial economies have only gone one way - down"

    China has raised interest-rates four times over the past 6 months with the latest being this week, do you now think it is not a big industrial economy?

  • Comment number 13.

    The fear that a rise in short-term euro rates to 1.25% will do the periphery countries harm is overdone. The hard truth is that if there were some mechanism to exit the euro, of if they had never joined it, they would have much higher interest rates now and be devalued with massive loss of purchasing power. The yield on long-term Portuguese or Irish government bonds and the recent yield on the short term Portuguese debt auction show that with a normal yield curve a Bank of Portugal base rate would be over 7% and possibly higher to prevent capital flight. The Portguese economy needs base rates of 7% like a hole in the head; painful as the bail-out and deflation will be, there is no easy option outside the euro. In the long-term, the Irish certainly, the Portuguese maybe, but the Greeks almost certainly not, will have been right in anchoring themselves to the disciplines required by monetary policy and an external exchange rate level predominantly determined by the economic engines of lutheran Northern Europe. What the Portuguese and to a lesser extent the Spanish are now painfully discovering that there was no "free lunch" with low euro interest rates and the fiscal discipline required by poorer, less productive Mediterranean nations to keep up with the Germans and Dutch is far more demanding than they obviously thought. But the world economy has been to hell and back in the last three years after the bursting of the sub-prime bubble and the unlucky Portuguese are scarcely to blamed for failing to see this coming.

  • Comment number 14.

    re #3

    There is something else. If rates start to increase around the world and we keep ours low then, if normal rules and behaviour apply, our currency will devalue and imports will cost more. Inflation will increase.

    At that point, bearing in mind we are already at 5% inflation, the MPC become all of the problem not the solution.

    (Then there is another question that has just popped into my mind. If we keep our rates low - exporters will love it - will it cause problems for our Banks if world-wide liquidity problems occur again and they cannot get hold of cash?)

  • Comment number 15.

    If only the Germans had a word for the malicious enjoyment of another's downfall.

  • Comment number 16.

    re #9
    You raise an interesting point. And a frightening prospect. Could the world get into another perfect storm situation where curing the econo-financial problems in one place tips another (or more) into default or, at least, some sort of chaos?

    A bit like the UK economy but scaled up worldwide?

  • Comment number 17.

    I think it is clearer when you compare Wales and London with Portugal and Germany.

    Clearly the UK policies are really all about London's success. And the Euro policies are all about Germany.

    Unfortunately we are led by Politicians, who are a particularly poor type of human being. Only able to make decisions that cause them as little pain as possible in the short term, and using the ignorance of the masses to get away with terrible policies, but ones that give them the best hope of retaining power.

    Everything that is happening has been completely predictable by anyone with half a brain for several years. I hope our children forgive us, as it will be them who have to take the pain of all these short term decisions (more debt ontop of debt) yet they had absolutely nothing to do with voting the despicable (supposed) leaders into their positions.



  • Comment number 18.

    13. At 13:24pm 8th Apr 2011, TomSW5 wrote:

    “The fear that a rise in short-term euro rates to 1.25% will do the periphery countries harm is overdone. The hard truth is that if there were some mechanism to exit the euro, of if they had never joined it, they would have much higher interest rates now and be devalued with massive loss of purchasing power”.

    IF the PIGS had never joined the Euro, they would not be in this mess. Take Ireland, for example. Interest rates would have been far higher during the building/credit boom and this would have choked off the building/credit boom long before it got to the height it reached under the ECB “one size fits all” rate.

    “The yield on long-term Portuguese or Irish government bonds and the recent yield on the short term Portuguese debt auction show that with a normal yield curve a Bank of Portugal base rate would be over 7% and possibly higher to prevent capital flight. The Portguese economy needs base rates of 7% like a hole in the head; painful as the bail-out and deflation will be, there is no easy option outside the euro”.

    But it will be even worse if they remain in the Euro! Membership of the Euro makes no economic sense for the PIGS. As Stephanie said in her blog. “The basic laws of economics are threatening to pull the eurozone apart, just as politicians are trying to pull it together”. That is the problem: the economics of the eurozone will always act to pull it apart and there is nothing the politicians can do except waste more money trying to save a hopeless cause.

    “In the long-term, the Irish certainly, the Portuguese maybe, but the Greeks almost certainly not, will have been right in anchoring themselves to the disciplines required by monetary policy and an external exchange rate level predominantly determined by the economic engines of lutheran Northern Europe”.

    That is wishful thinking and patently not true! How can economies so obviously different to those of “Lutheran Northern Europe” benefit from economic policies designed only for those Lutheran Northern European economies?

    “ What the Portuguese and to a lesser extent the Spanish are now painfully discovering that there was no "free lunch" with low euro interest rates and the fiscal discipline required by poorer, less productive Mediterranean nations to keep up with the Germans and Dutch is far more demanding than they obviously thought. But the world economy has been to hell and back%2

  • Comment number 19.

    If interest rates in the eurozone have less of an effect on inflation than in the USA then why did they not cut the interest rate more fiercely when the magnitude of the 'credit crisis' became clear?
    It's easy to point to academic research which make the point on the effectiveness of interest rates in the eurozone, but the truth is that the ECB is highly inflation averse and not flexible enough for a modern central bank.
    Too used to fighting the extreme inflation experienced throughout europe in times gone by, the central bankers of the ECB have made little attempt to adapt to an age of low inflation.
    They have ignored the second pillars set out in the Maastrcht treaty and in turn are unsupportive of growth. Over influenced by the Bundesbank ECB's policy may suit Germans, but it is not suitable for the rest of the eurozone.
    Flexibility and transparency in policy making is needed to allow for a prosperous eurozone which may help fight the stubborn unemployment rate.

  • Comment number 20.

    "The basic laws of economics are threatening to pull the eurozone apart, just as politicians are trying to pull it together. "

    I read the whole article twice - which basic law of economics is Stephanie Flanders talking about?

    There is two basic law of economics I can think of:

    1) People invest where most money can be made. That happens to be speculation against Eurocountries, where hedgefunds bet with Credit Default Swaps against the Europeripherie. that is much more remunerative than buying their bonds, and lots more moeny flows into it.

    2) In the long term the eurozone can only function if current account deficits are equal. That is the sum of all goods and services bought by each country and sold by each country to its European partners (as a whole) is equal.

    So the solution to this Eurocrisis is always two fold

    1) Ban Credit Default Swaps and spculation against Eurocountries

    2) Put measures in place to equalise the current accounts in the Eurozone.

    Neither of these points were discussed by Ms. Flanders. Why not?

    Especially the continued ignorance of CDS in this Eurocrisis by BBC staff is not only intriguing, but also highly worrying!

  • Comment number 21.

    @MyVoiceinYourHead
    "What if the Germans decide to vote for looking after number one after a decade of bailouts to forigners and bringin their equivilent of UKIP?"

    Which foreigners have the Germans bailed out? None so far. However, they know they can look to their British friends to finance the cost of the bail -out if it came to it. Why?

    London, that is where the hedgefunds sit, which deal with CDS and speculate against the Eurocountries. That is where the MEP's come from which make it easier for hedgefunds to speculate against the Euro, by softening up legislation which is supposed to put an end to this speculation. (Sally Bowles - MEP for SE England).

    The Germans know where to come for the money if the proverbial hits the fan!

  • Comment number 22.

    A general point about this post.

    Ms Flanders worries us here, as it is now the center of the Eurozone which is now economically strong, whereas previously it was the peripherie countries, and especially Germany was suffering.

    This is therefore one of the great strenghts of the Eurozone, which contains many different countries and financing systems under one currency. It enables countries to pull themselves out of a spot of economic bother. As Greece, Ireland and Portugal, will do, in due course, too.

    Compare and contrast that to the UK, where for the last 30 years or more, the South-East (around London) has benefited, at the expense of the North and the West. That will continue to be the case, until different economic policies are pursued, with different tax rates, across the country, under one currency.

    Something to learn from Europe!

  • Comment number 23.

    'All of which might lead you to wonder why - oh why - the ECB feels it necessary to torture the periphery'
    ..................
    How can a so called economic community have a 'periphery' of members and still call it itself the EU?
    The EU is itself wanting to break itself up, as the EU and ECB will not do what is really required ... slash VAT across the EU and apply suitable tariffs to the inflationary excess imports.
    Many of the EU's problems are of its own making ... VAT is one of those economic ideas that does not work in any kind of major economic difficulty... it is just an extra tax on the peasants while the business community avoid most of their own VAT.
    The root cause of this is the failure of the EU to apply suitable import tariffs that would boost the domestic economies of the PIIGS and the UK ... and spread the prosperity across all of its members.
    This is being driven by the Benelux countries... as not wanting to subsidise and guarantee the debts of the 'periphery'.
    Maybe also, VAT is a bigger issue on the 'periphery' (as including the UK) than it is in the Benelux countries?

  • Comment number 24.

    #16 Up2snuff,

    Snuffy,

    This prospect has concerned me for a long time.

    Now Merkle can talk glibly about banks (investors) taking haircuts. Up to now the pain would be shared equally amongst French, German and UK banks. She can say so on the basis of a strong German economy.

    If the dominoes fall as predicted ie Spain, Belgium and then Italy, then German banks can consol themselves that France's level of exposure racks-up to a more significant level. However, there appears to be a conspiricy of silence on the true financial health of Eastern Europe. If they slip into the same state as Portugal then the German banks take a massive financial hit and Austria is massacred. What kind of tune will Merkle be singing then.

    If the German banks go down what will the true effect be upon the German economy? Our so called experts always point to Germany's manufacturing power base and in particular to its high value-added engineering. However, when you look more closely at the fundementals of the German economy a very different picture emerges. Germany relies very heavily upon processing (particularly food processing) and trans-shippment. Very little of this industry is safe from off-shoring (in EU terms). remove the bank wealth and the whole German economy starts to look very vunerable.

    Now, some will say that this analysis is just jealousy. Believe me it isn't. I do not wish the demise of the German economy. If the banks fail in our modern economies they will take the rest of the economy down with them. I sincerely believe that there is a possibility that the above scenario could come about.

    What happens to the UK in such circumstances? Well, if for no other reason than the fact that over 50% of our export trade is with other EU States, then we crash and burn to irrispective of our non-membership of the Euro.

    Greece said it did not need a bail-out, Ireland said the same and so did Portugal. Spain is saying that it will never need a bail-out yet the Cajas are to all intent and purpose bankrupt and they underpin their major banks (including Santander). Who even knows what the true state of Italy's finances are. But if either or both fall then there is not sufficient finance within the ECB or EU to cover it. At which point the debacle which I believe exists in Eastern Europe explodes. This then goes beyong the remit of the World Bank and IMF and the whole global financial system collapses.

    Look at the time gaps between Greece and Ireland and then Ireland and Portugal - they are getting shorter. If any or all of what I fear happens then we are not looking at years (thereby offering the chance of recovery) but in terms of 12 - 18 months!

    Now that is really scary.

    Call me a doom-merchant if you want but that is what I believe is on our horizon.

  • Comment number 25.

    I don't know why my reply (No 1) still hasn't appeared, but will try again!

    My suggestion, was that Europe needs 2 Euros, the existing strong one (with tight controls on inflation) is fine for Germany and other such countries, while the 'weak one' (for the 'PIGS' etc) can have lower interest rates and naturally devalue to a more realistic level, as the likes od Portugal will never be competitive against Germany with the current 1:1 exchange rate.

  • Comment number 26.

    Maybe I rely too much on BBC, but this is from Rob Young's report for BBC Business:

    "Opinion polls have suggested about half of Germans don't want their country to hand over any more money to bail out indebted nations.

    As Europe's richest country, Germany is the biggest guarantor of the massive programme to lend money to European states that run out of cash."

  • Comment number 27.


    There is only one way to end this "Eurocrisis"

    Make Hedgefunds pay - ban Credit Default Swaps, which they use to speculate against euro counry defaults!

    Benefits: Does not cost anything - will be effective immediately!


  • Comment number 28.

    #27 this would have to be done worldwide otherwise all that will happen is the market moves from EU somewhere else

    Presumeably you will next be suggesting that credit insurance is banned (CDS is just a form of insurance) in case people trade that.

    This solution is basically one of "shoot the messenger" and hope problem goes away. Except it will not. Ban this and all that will happen is fewer and fewer people will trade with Portugese companies or people which will make their economic situation worse.

  • Comment number 29.

    24. At 15:55pm 8th Apr 2011, foredeckdave

    This is a scary outlook but plausible.

    Going on your time scale, it will happen in 2012. Illuminati anyone? New world order...

  • Comment number 30.

    The rise in the Eurozone interest rate is THE key feature in the short term.

    WE'll now see whether such an increase - with possibly more to follow - halts the EU inflationary tendencies, as a standard economic model would predict.

    We'll also see how this increase affects the strength of the Euro. If the Euro does indeed strengthen, then their imports will be cheaper and their exports more expensive.

    And the UK, assuming the MPC's perseverance with 'no change' in our interest rates, will find itself on the other side of the economic divide, ergo devaluing £ (again), cheaper exports and more expensive imports.

    Now we have two opposing monetary policies with which we can compare the relative success - or otherwise - of each.

  • Comment number 31.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 32.

    The Bank of England will soon discover, when it does start increaing interest rates, that the increase has no effect. Until base rate gets above 2% or so it will remain disconnected from the markets. Perhaps the Bank of England do not want to discover that they are powerless.

  • Comment number 33.

    @Justin150
    "Presumeably you will next be suggesting that credit insurance is banned (CDS is just a form of insurance) in case people trade that. - This solution is basically one of 'shoot the messenger'"

    - Tradeable credit insurance does not exist

    - Credit insurance without credit does not exist

    - Credit insurance where you can make more money than you lose on the credit does not exist

    If they did, they would work like Credit Defauls Swaps, and I would also call for a ban.

    And the messenger should be shot, it he has bought a fire insurance, and then does everything in his power, to burn the house down. That is what CDS investors are doing to Eurocountries!

    Nobody who trades with Portuguese companies buys CDS for Protugal!

    The world would be a better place without CDS - its cheap to ban them - and very effective - and does not have any nasty side effects as other solutions!

    A ban would end the crisis tomorrow!

  • Comment number 34.

    Why dont we just ask the rating agencies who and what is OK in the financial markets?

    You know, the guys that told us all sovereign debt was AAA and that if you packaged up 100% self certified mortgages you could also have a AAA security. Yeh, those guys, the experts.

  • Comment number 35.

    The BoE have made it pretty clear they're not going to follow this rise and I doubt the producer prices released today will make a difference either.

    The MPC (or most of them anyway) have only one thing in mind at the moment and that is preventing a banking meltdown a la Ireland. And the key to that is propping up the housing market.

    All the banks that are now reporting healthy profits again would look somewhat different if their enormous mortgage exposure suddenly became a liability instead of an asset. If all those properties that they have lent 90%+ against suddenly halved in value they would be sitting on losses that would make the Irish situation look like a tea party.

    A bit of inflation, whether it includes wages or not, is actually helpful to them as it will reduce their exposure in real terms. Personally I don't see any rate rises happening until official inflation touches 6%. At that point the political pressure will be overwhelming.

  • Comment number 36.

    33 matt_us
    Well said.

    Derivatives are designed in principle to ensure the investment market and help to manage risk. Beyond that we enter the murky world of moral hazard - something all types of insurance tries to steer well clear of.

    Spectacular failure for derivatives - time to call for full disclosure. There are already examples where material derivative positions need to be disclosed to ensure not being used inappropriately (Life insurance companies).

    Time to stop the free market abusing the word 'free'.

  • Comment number 37.

    17. At 14:23pm 8th Apr 2011, jonearle wrote:
    “Everything that is happening has been completely predictable by anyone with half a brain for several years. I hope our children forgive us, as it will be them who have to take the pain of all these short term decisions (more debt on top of debt) yet they had absolutely nothing to do with voting the despicable (supposed) leaders into their positions.”

    23. At 15:50pm 8th Apr 2011, nautonier wrote:
    “How can a so called economic community have a 'periphery' of members and still call it itself the EU?
    The EU is itself wanting to break itself up, as the EU and ECB will not do what is really required ... slash VAT across the EU and apply suitable tariffs to the inflationary excess imports.
    Many of the EU's problems are of its own making ... “

    24. At 15:55pm 8th Apr 2011, foredeckdave wrote:
    “Look at the time gaps between Greece and Ireland and then Ireland and Portugal - they are getting shorter. If any or all of what I fear happens then we are not looking at years (thereby offering the chance of recovery) but in terms of 12 - 18 months!

    Now that is really scary.”

    You 3 have been 3 of my favourite reads over the past 3 years. I hope there is no Mayan read into 3s

    Stop scaring people. What have they done to you? For those that have not started to take remedial action for what is about to happen; you should take heed and do so. Disaster is imminent. For all of you that think disaster isn’t imminent please provide evidence to convince me so…

  • Comment number 38.

    The solution for Europe is, the PIIGS sell off their land to Germany in return for the cash to eliminate their debt, then eventually Germany will own all of Europe, once they own a country, they can dismantle the national government and make it a state government, then 'bingo', we have another Federal State in the German Republic, and there will eventually be one fiscal policy for the one currency. Simples

  • Comment number 39.

    24. At 15:55pm 8th Apr 2011, foredeckdave wrote:

    If the German banks go down what will the true effect be upon the German economy? Our so called experts always point to Germany's manufacturing power base and in particular to its high value-added engineering. However, when you look more closely at the fundementals of the German economy a very different picture emerges. Germany relies very heavily upon processing (particularly food processing) and trans-shippment. Very little of this industry is safe from off-shoring (in EU terms). remove the bank wealth and the whole German economy starts to look very vunerable.

    Now, some will say that this analysis is just jealousy. Believe me it isn't. I do not wish the demise of the German economy.

    LOL

    Believe me it is.

    Can you provide evidence (some numbers) of German banks exposure to Euro meltdown; I think you will find it is less than the UK.

    As for German vaunted economic power being a mirage, again look at the fundamentals. A recommended source is the WTO ( I won't do your spadework for you).

    Anyway congratulations, your membership of the Little Englander Club is guaranteed.

    The fascinating thing about the Euro saga is that it is associated with Germany. If it fails, egg on faces of Germany and all those humiliations on the football pitch and the economic arena made more bearable.

    The Euro is currently at 1.1310 to £1.

    Not a jot of evidence that any of the PIIGS want out; no chance of the Germany wanting out.

    Time for the UK to join ?

  • Comment number 40.

    38. At 21:45pm 8th Apr 2011, DevilsAdvocate wrote:
    The solution for Europe is, the PIIGS sell off their land to Germany in return for the cash to eliminate their debt, then eventually Germany will own all of Europe, once they own a country, they can dismantle the national government and make it a state government, then 'bingo', we have another Federal State in the German Republic, and there will eventually be one fiscal policy for the one currency. Simples

    I like it.

    The point is it is happening. Germany is to the UK what USA is to Canada. You have a divergence in economic power that writes its own rules and has its own agenda.




  • Comment number 41.

    @39

    Bravo. Actual facts are secondary when it come to a bit of jingoism.

    As an aside if you took comments on BBC blogs as representative of the UK you would think that everyone voted UKIP and lived in the home counties. Funny cos most of them are actually oxbridge students on internships at party HQ.

  • Comment number 42.

    FDD, I have to agree with TCS

    It has to be said that the mix of spite and jealousy in your posts vis-a-vis the Germany does mark you out as a closet jingoist, if not a full blown Little Englander.

  • Comment number 43.

    The crux of the argument is this, would any of the PIIGs sit in a better place now if they had never joined the Euro in the first place.

    I think not.

    Divergence is a chimera; the Eurozone was never meant to achieve that goal. What it has provided is a large internal market that has obviously benefitted the stronger economies. In the end all of Europe will benefit.

  • Comment number 44.

    #39 The Coming Storm,

    I suggest that you do a little homework yourself before making silly statements. Try looking at the German government statistics on the nature, volume and value of economic activity - it's freely avaiable. As for german investments in eastern Europe then the same source plus a review of German commercial bank reports. However, if you don't believe those figures then look at the international investment reports from Goldman Sachs, JP Morgan and Morgan Stanley. If after looking at them you still believe that UK banks are anywhere near as exposed in eastern Europe then you are a very very confused individual.

    As for being a "Little Englander" then you have a very poor understanding of the drift of my posts. It appears that you have a fixation upon the Euro - you will find that it was not mentioned in my post or the intention of any of the nations that have requested or are likely to request bail-outs.

  • Comment number 45.

    #42, Richard Dingle,

    You are as deluded as The Coming Storm. I meant what I said about the German economy in my post #24 and I am not in the habit of telling lies. If you let your own bias rest for a while you would also have noticed that I said that the consequences for the UK would also be disasterous.

    Hence - not guilty as charged. Grow Up!!

  • Comment number 46.

    All of the economic problems result from defective regulation which resulted in uncontrolled, but protected bankers. Regulation failed because they did not see asset price inflation as a bad thing at all. The most likely for this (deliberate) blindness is the way that countries keep their accounts. Nations concentrate almost completely on revenues and costs by exclude assets and liabilities. If you fail to keep the complete accounting picture in view quite often decisions become defective. If a nations assets are not valued for example they are/can be sold off without considering the long term consequences. This is then reflected in the political direction of regualtors when it comes to asset price inflation - and this is precisely what created the false market in housing 'assets' which collapsed so disastrously. This is THE catastrophic failure in economic management.

    So what does this mean for the Euro Zone and indeed the UK.

    The UK has the most over priced property in Europe far worse that Ireland or Spain. But both Spain and Ireland have suffered egregiously from 'Anglo Saxon' accounting and economic management. The 'wonderful' (sarcastic!) British banks were substantially active in exporting asset price inflation to both countries (see above for an explanation why). This has nothing to do with these countries being inside or outside the Euro Zone.

    For those extremely foolish and short-sighted people that see advantage to be gained (for themselves!) through the collapse of the Euro - they should ask themselves why the North of the UK should not, on the same basis as the arguments they use, have its own currency. Undoubtedly the North is a radically different economy to the City of London, indeed more different than any of the PIGS are to Germany.

    The Eurozone is working and this is what the City of London and its tame economic commentators, neither understand or like. What the City is unable to understand is that the developed World is at the start of a Long Depression caused by the City's deliberate inflation of asset prices - they destroyed money under the supervision and direction of the Bank of England as regulator. They still haven't a clue! This is in all probability caused by their entirely defective education and training in Economics. (See my paragraph 1 above).

  • Comment number 47.

    I have this depressing thought:

    "Greece, Ireland and Portugal are unable to grow and prosper in the global economy.
    They are unable to meet their debt servicing costs in the bond markets and also in the lender of last resort markets (EU, ECB, IMF). They seek to restructure/renegotiate their sovereign debt rather than face austerity last seen in the Great Depression. They look to Iceland and hold referendums on default and naturally they default."

    Is there any alternative I ask the reader?

    "The repayment demands from the EU, ECB and IMF become so difficult to supply that the situation for Greece, Ireland and Portugal is similar to that of Germany post WW1 when France was demanding 16,000 Ton of gold in reparations and like the Germans they feel this is unfair. And like Ireland they vote for the party promising renegotiation."

    "How far do we go in carrying them? Isn't it time to start talking about collateral?"

  • Comment number 48.

    The financial argument back in the day was that the currency spot value within European Markets was no match for the GBP and USD who both have trading supremacy on the world exchange markets. Along comes the Euro and all of Europes money problems are solved overnight apart from the French who always complain about the cost of farm subsidies and the Italians upon the cost of a loaf of bread giving rise to a more dominant socialist presence in Europe that at present is controlled through a German economic policy which is up for renewal any day soon.

  • Comment number 49.

    Anyone who thinks this is the fault of the euro and not a result of criminally unregulated global financial markets in a vicious combination of personal greed is completely bonkers.

    As is anyone who thinks there is an economic model out there anywhere with the answers on this 3 year global crisis which was 30-40 years in the making.

  • Comment number 50.

    #49 TheGingerF,

    The crisis may have been 30-40 years in the making but its going to take much longer than 3 years to rectify.

    The Euro is a bit part player in this debacle as is £. The real financial culprit is the US$. However, the continuing problems within the Eurozone maybe the catalyst that finally exposes the $'s true weakness. The events that I set out above would put far too much pressure on the whole financial structure.

  • Comment number 51.

    In the end, I am tempted to adopt English soccer player Paul Gascoigne’s pledge: “I never make predictions and I never will.”


    The above was a quote from a review of a new book called 'future babble' I have not read the the book yet, but the book, according to the reviewer, points out the bunkum of trying to predict future trends. I thought it might be a good read for economists, politicians and racing tipsters.....

  • Comment number 52.

    what are the basic laws of economics? tell me, because i didnt think there were any,or at best its.. rip off the next bloke until he shouts his mouth off.

  • Comment number 53.

    39. At 21:54pm 8th Apr 2011, TheComingStorm wrote:
    24. At 15:55pm 8th Apr 2011, foredeckdave wrote:

    Not a jot of evidence that any of the PIIGS want out; no chance of the Germany wanting out.
    ==============

    put the telescope to your good eye.

  • Comment number 54.

    46. At 23:08pm 8th Apr 2011, John_from_Hendon wrote:
    All of the economic problems result from defective regulation which resulted in uncontrolled, but protected bankers. Regulation failed because they did not see asset price inflation as a bad thing at all. The most likely for this (deliberate) blindness is the way that countries keep their accounts. Nations concentrate almost completely on revenues and costs by exclude assets and liabilities. If you fail to keep the complete accounting picture in view quite often decisions become defective. If a nations assets are not valued for example they are/can be sold off without considering the long term consequences. This is then reflected in the political direction of regualtors when it comes to asset price inflation - and this is precisely what created the false market in housing 'assets' which collapsed so disastrously. This is THE catastrophic failure in economic management.

    ========

    So it was the Politicians wot dunnit?

  • Comment number 55.

    45. At 23:03pm 8th Apr 2011, foredeckdave wrote:
    #42, Richard Dingle,

    Western European bank exposure to eastern Europe is an old story.

    Which country had you in mind. Poland, Russia, Latvia. Do tell.

    Take Latvia - total exposure $10BN - peanuts. Poland is doing fine. Russia is ok.

    The most exposed western European country to loans in eastern Europe happens to be Austria.

    German investment in eastern Europe is massive and a nice problem to have. UK investment in eastern Europe NOT massive but not for want of trying. They just can't cut it.

    The fact of the matter is that eastern Europe is more receptive and appreciative of German management style and also a historical connection that goes back centuries and is not just focussed / obsessed with the Nazi era.

    Now I could do with a laugh. Your response should contain some sort of conspiracy theory - the eastern European countries want Germany to become massively over exposed and then go for coordinated default - some sort of revenge for historical events.

    The German economy is fine. Of course there are potential downsides but that is life.

    The UK economy is going round in circles.

    Note that Germany does not invest too heavily in the UK, just buys the best bits like the Mini and make them even better.

    Meanwhile back to the Euro (the current thread)... 1.1310 to £1. I look back fondly to 2005 when I could get 1.45 for my Pound. Damn.

    I am not insensitive to to the problems facing the countries to the south and Ireland in the west, but still maintain they are in a better place than they were before they joined the Euro.

    If there is one thing that marks these countries (and I would include the UK here) from Germany it is consistently BAD GOVERNMENT.



  • Comment number 56.

    54. At 08:46am 9th Apr 2011, DevilsAdvocate wrote:
    So it was the Politicians wot dunnit?

    Yes.

    Western Central Bankers and governments were incompetent over a critical period.

    Management of the money supply and lack of legislation.

    No Central Bank (apart from the ECB) is truly independent from political influence. Politicians look to the short term.


  • Comment number 57.

    Isn't it strange that none of the left wing deficit deniers who frequent this blog have recommended that Portugal increase their deficit to "invest for growth". I also haven't seen any of them criticising the Spanish approach to slashing their deficit with severe austerity (and public sector pay cuts) even though they are only expected to grow 1.3% this year.

  • Comment number 58.

    I note the attention now turning to whether Spain is next in line.

    The head of the IMF, France's Dominique Strauss-Kahn, said in an interview published Wednesday in Spanish daily El Pais that Madrid has taken the correct financial steps and had no need for international aid.
    "I don't believe that the Spanish government needs any type of financial aid," he said.


    I enjoy the occasional watching of late night TV poker. Whenever I read comments like this, said with a poker face by the Politician, IMF or whoever, it makes me laugh. As they forget that just like with TV poker we can all see the cards they are holding face down!!!

  • Comment number 59.

    55. At 09:48am 9th Apr 2011, You wrote:

    ... adding to my own post.

    Divest yourself from the notion that the German and UK economies are a bit of a muchness. Not really too different, just need a tinker here and an adjustment there, to be going in the same direction.

    Wrong. The German economy is to the UK economy what the USA is to Mexico (no disrespect to any Mexicans on this thread).

    This divergence is bad for liong term European stability.

    After 1945 the German economy took the route marked success; this route was characterised by a good state education system, high R&D, high investment and a Social Market framework (usual health warning applies: 'Social 'Socialism').

    After 1945 the UK economy took the route marked decline (almost there); this route was characterised by status quo in education (public school for the bosses), bolshie unions, low R&D, poor investment, and probably because it failed to deliver artificially created property and consumer booms.

    I accept the usual caveat that it is easier for the 'defeated' to start again.

    The previous blog on Social Mobility was flippantly handled by Stefanie but is key to any renaissance in the UK economy. A situation where even trades people (plumbers, electricians, etc) scrimp and save to send their offspring to a private school because they see it as the only hope is rather telling (though a tribute to their value set). The rest go to state schools and then get employed (if they are lucky) by firms trying to compete with the best world-wide.

    Clegg, Cameron Osborne all went to public school. Charming, well mannered, articulate chaps but unfortunately under the wrapping 'mediocre'. So it has always been in the UK (Harold Wilson and Maggie Thatcher were the two exceptions).

  • Comment number 60.

    57. At 10:28am 9th Apr 2011, jonearle wrote:
    Isn't it strange that none of the left wing deficit deniers who frequent this blog have recommended that Portugal increase their deficit to "invest for growth". I also haven't seen any of them criticising the Spanish approach to slashing their deficit with severe austerity (and public sector pay cuts) even though they are only expected to grow 1.3% this year.

    Most people accept cuts are necessary.

    However it is the speed that concerns; the cheers from teh government benches in the House at every cut and closure point to the rampant 'idealogy' at work.

    Interesting headline in one of the Saturday broadsheets...

    'Business chiefs who backed cuts raise fears for economy'.

    'Business chiefs' do however manage to have it both ways most of the time :)


  • Comment number 61.

    foredeckdave@50

    Agree on time to get out of this mess. We've seen it now for 3 years (although problems obviously there for a lot longer) but prob at least 10-20 years to sort out and achieve any sort of balance in global debts.

    Its depressing that vested interests across the globe will always dominate and those who have any economic power tend not to let any of that go.

    The $ situation is simply bamboozling - the economic stats of US look totally out of control even to a layman and yet the US and the world seem to think that cos its the $ we can take the 3 monkeys approach.

  • Comment number 62.

    The cause of all these problems for Greece Ireland Portugal and (soon) Spain and Italy are clearly the Euro. It is only the vaunting ambition of the politicians and the loss of faith implied that keeps it all going at enormous cost. Common sense says - EJECT THEM FROM THE EURO - Nothing personal, but if these countries had their own currency then it would depreciate and the result would be a massive boost to their economy. Having recently been to all three of these countries in trouble, I can confirm that if anything they are more expensive for the tourist than ever before.....So they have no chance of escaping this debt trap.

  • Comment number 63.

    "The single largest reason why Portugal is now requesting a European bail-out is that it's no longer enjoying any recovery at all."
    Has anyone explained this fact to George Osborne?

  • Comment number 64.

    #s 42,55&59 Richard Dingle,

    I care not a jot what you believe my attitudes towards Germany may or may not be. I do however object to your misrepresentation of my post # 24.

    In that post I made no comment on the Euro itself or the impact of membership on those countries that have applied for bail-outs. The whole thrust of the post was that the collapse of Stage 2 of the Western EU states (Spain, Belgium and Italy) along with an Eastern European collapse would be beyond the capability of the ECB and the EU. It would also have major consequences for the world's fractured financial institutions (World Bank, IMF, WTO). For differing reasons neither the US or Chinese could even consider stepping in to 'save the day'.

    Stage 2 collapse would arguably leave French banks even more exposed than German ones. However, the strain upon both the ECB and EU would be too large. From my standpoint that would fundamentally undermine the eastern European economies. The ramifications of that would be potentially fatal for the German banks.

    On a point of fact, in my #24 you will find that I clearly stated these events would be a massacre for the Austrian position and that the UK would "crash and burn". At no point in my post was there even an attempt to compare or contrast the UK and German economies - that is down to your misreading, deliberate or otherwise.

    Strategically, the German economy is not as strong as the so called experts would have us believe. The shock of the Credit Crunch (2007/8) clearly showed the effects upon an an economy that is reliant upon running export surpluses. Add to that the latent inability of the German authorities to increase domestic consumption significantly and the large social cost bill (in-line with most Westrn European countries). Within the terms of the scenario given in my #24 the German economy has some major strategic flaws. The fact that they can be identified has nothing whatsoever to do with any other economy.

  • Comment number 65.

    #62. DemoDave wrote:

    "Common sense says - EJECT THEM FROM THE EURO - Nothing personal, but if these countries had their own currency then it would depreciate and the result would be a massive boost to their economy."

    I don't think you have really thought this through....

    In or out of the Euro the same debts would need to be refinanced and the same European solidarity would compel the rest of Europe to continue to bail them out.

    If the new currency depreciated the historic debts in Euro would be even more expensive and to repay so how would this help?

    It is in fact less expensive to both the PIGS and to the non-PIGS to keep the PIGS in the Euro.

    The way ahead for the European states is the issue longer dated bonds (without any threat to withdraw from the Euro) to refinance the short dated bonds and at the same time to get the private economy's debts sorted out by using the well established methods (which already exist in the systems) of bankruptcy. This will hit the private banks and they will need further bailouts where necessary. But what this will do is free the overpriced and consequentially non-productive, assets to return to the market at more sensible and rational price levels so that business can once again make these assets work.

    The problem at present is that there are economic cretins running the show (and these are NOT mainly the politicians as they are all clueless and rely on the professional economists). These guys need to be removed from office ASAP, before we can see a return to an active functioning economy (which they singled handedly destroyed by not understanding that ALL inflation is equally bad.)

  • Comment number 66.

    64. At 14:25pm 9th Apr 2011, foredeckdave wrote:

    #s 42,55&59 Richard Dingle,

    The whole thrust of the post was that the collapse of Stage 2 of the Western EU states (Spain, Belgium and Italy) along with an Eastern European collapse would be beyond the capability of the ECB and the EU. It would also have major consequences for the world's fractured financial institutions (World Bank, IMF, WTO). For differing reasons neither the US or Chinese could even consider stepping in to 'save the day'.

    This is obvious. A given. Not worth commenting on.


    Strategically, the German economy is not as strong as the so called experts would have us believe. The shock of the Credit Crunch (2007/8) clearly showed the effects upon an an economy that is reliant upon running export surpluses. Add to that the latent inability of the German authorities to increase domestic consumption significantly and the large social cost bill (in-line with most Westrn European countries). Within the terms of the scenario given in my #24 the German economy has some major strategic flaws. The fact that they can be identified has nothing whatsoever to do with any other economy.

    I have trouble with this. True, the German economy is exposed to a slowdown or cessation in world trade. The chances of cessation are slightly less than the Earth colliding with the moon so I shall worry about that a tad more.

    German society is more cohesive, motivated, better educated, has more financial muscle, less debt (especially if you take into account personal debt) than the UK, so it is well placed to meet threats and challenges.

    The burden of welfare costs have been rolled back in the last 10 years and together with the gradual 'renewal' of the eastern sector this bodes well. The point is they are competitive; unit labour costs are low and investment is high.

  • Comment number 67.

    63. At 13:35pm 9th Apr 2011, sivwebb wrote:
    "The single largest reason why Portugal is now requesting a European bail-out is that it's no longer enjoying any recovery at all."
    Has anyone explained this fact to George Osborne?

    Yes.

    But Boy George is not listening. Probably to intent on the ideological pleasure of closing libraries and day-centres.

  • Comment number 68.

    #66 Richard Dingle,

    "This is obvious. A given. Not worth commenting on."

    Then why did you?

    As for the rest I would expect nothing less from the myopic musing of a confiirmed Germanophile. That you continue to missread points that don't fit your own fixed position is merely par for the course. End of

  • Comment number 69.

    68. At 17:20pm 9th Apr 2011, foredeckdave wrote:
    #66 Richard Dingle,

    End of

    Lets hope so. :)


  • Comment number 70.

    Would the BBC please consider cutting posting on these blogs so that the endlessly repeating names would have time to do something of worth in the real world!
    You don't have to post 30 times on one subject!

  • Comment number 71.

    First the failure in the Cricket World Cup now this. Poor ECB :-(

  • Comment number 72.

    Has the Euro, as an unelected and dictated currency, failed all Nation Members of the European Union? Absolutely, YES.

    All European Member Nations who have been 'forced' , 'encouraged' or manipulated by their politicians to adopt the Euro as a currency should re-consider their position and the wishes of their own populations.

    The tragic loss of any Nation's sovereign currency, just by being a member of an over-priced club, is destructive to the unique strengths that reflects that Nation's ability to emphasise it's historical strengths and ability to adapt it's own sovereign currency to reflect what their own people excel in to benefit their own country.

    The Euro, as a currency has removed autonomy from all people across many countries across the European Union. No ordinary citizen of any EU country asked for it, nor were asked by their politicians.

    Therefore, the Euro, as a currency, never had any validity democratically, nor morally, nor financially. The Euro, as a currency was imposed dictatorially.

  • Comment number 73.

    What happened to the PIIGS?
    If you look long and hard, you will find some intervention by a huge investment bank (normally American) in either a consultative capacity, or actual accounting capacity.
    Some of the investment bank-activity was not exactly legal (like bundled, complex derivatives or negative credit default swaps). Most of the PIIGS should be in a "holding" position while their debts are audited, segregated, and those that are doubtful ot downright illegal taken to court.

  • Comment number 74.

    Joseph Foster, Author, ‘’Destruction of America", subtitled "Stand up for America’ ’Release date May 2012
    My blog: http://boblupoli.blogspot.com/

    Britain wisest decision was not to join the euro currency, with many EU
    Countries not exercising fiscal responsibility, in time the Euro will be abandoned.

  • Comment number 75.

    I recently had a little reminder of the unanticipated benefits/unintended consequences of not cutting/cutting spending and other stuff too.

    I own a small stone cottage in a terrace of similars.

    I decided to repair, carefully, the mortarwork in the basement kitchen a few years back, even though there was no immediate obvious need. I just can't help making everything over which I have any say as good as it reasonably can be, I suppose must be the explanation.

    When I returned after a Christmas break, I noticed my neighbours either side had piles of carpet, flooring and all sorts dumped outside at the rear.

    It turns out that an empty house some doors away had a pipe burst in the freezing weather, and it had gushed full-on for days, flooding its cellar (with its original decrepit mortarwork) to a depth of some feet.

    The water easily found its way into the wall cavities and flowed along the terrace, similarly flooding all basements, except mine...

    Now, that wasn't something I had in mind when I got the work done, but that's just it, isn't it?

    Let's try to make sure our financial regulation is future leak-proof too.

  • Comment number 76.

    72. At 18:02pm 10th Apr 2011, corum-populo-2010 wrote:

    "...The Euro, as a currency has removed autonomy from all people across many countries across the European Union. No ordinary citizen of any EU country asked for it..."

    ++++++++++++++++++++++++++++++++++++++

    Wrong.

    I am an ordinary citizen of an EU country.

    I wrote to my MP and asked for it.


  • Comment number 77.

    76. At 21:31pm 10th Apr 2011, Eddy from Waring wrote:

    72. At 18:02pm 10th Apr 2011, corum-populo-2010 wrote:

    "...The Euro, as a currency has removed autonomy from all people across many countries across the European Union. No ordinary citizen of any EU country asked for it..."

    ++++++++++++++++++++++++++++++++++++++

    Wrong.

    I am an ordinary citizen of an EU country.

    I wrote to my MP and asked for it.
    ------------------------------------------------------------------------------

    Well thank God he didn't take you seriously!

  • Comment number 78.

    77. At 23:06pm 10th Apr 2011, Crystal Ball wrote:

    "...Well thank God he didn't take you seriously!..."

    +++++++++++++++++++++++++++++++++++++++++++++

    *She* did, actually, like many others.

    Those pensioners paid in GBP returning from Spain etc., as their £ pensions no longer cut it over there, are coming round too, unsurprisingly, but too late.

  • Comment number 79.

    re #70
    Welcome to the community. However much you wish to participate.

    There are times when multiple postings from the smae participant are part of a very worthwhile debate. Stephanie's Blog has had some high quality stuff in recent days.

    Even the (less) good tempered spats can be quite entertaining when conducted with wit and humour!

  • Comment number 80.

    So the PIIGS are not significant - GDP-wise, economically?
    There is an expression that says:
    "Give a man a fish, feed him for a day.
    Teach a man to fish and feed him for a lifetime."
    These countries are finding it difficult to play on the same field as the richer EU countries; some of these PIIGS were taken to the cleaners by nefarious American investment products. I'm not even sure that they should be repaying on their original debt. e.g. Greece consulted Goldman Sachs; it acted on the advice of Goldman Sachs to defer debt (hide debt) so that it could join the union. Greece may have been stupid, but who was the real culprit?
    Case belongs in court.

  • Comment number 81.

    @post 77 @ 23:06pm on 10 April 2011 - 'Crystal Ball'.

    Thank you for seeing and appreciating the bigger picture of the damage of the Euro and European Nations losing their sovereign currency and loss of their population's autonomy of their own historical economies. One currency clearly does not fit all and the Euro has clearly caused destruction from beginning to right now and the unstable future to come.

    Some must be benefiting from the Euro as a currency - but they are in a minority - so who are they?

  • Comment number 82.

    re #81
    Not Forex traders. I am sure they would love to see the end of the Euro!

  • Comment number 83.

    81. At 13:25pm 11th Apr 2011, corum-populo-2010 wrote:

    "...@post 77 @ 23:06pm on 10 April 2011 - 'Crystal Ball'.

    Thank you for seeing and appreciating the bigger picture of the damage of the Euro and European Nations losing their sovereign currency and loss of their population's autonomy of their own historical economies..."

    ++++++++++++++++++++++++++++++++++++++++++

    What evidence have you that "Crystal Ball" does any of these things, from a single remark, the likes of which I can hear from the average uninformed propping up a bar in any pub?

    Perhaps you should ask CB for the copyright on the nic...

  • Comment number 84.

    Response to post 83 @ 14:46pm on 11 April 2011 - 'Eddy from Waring'.

    Well, that's interesting that you regard any comment or post that disagrees with you must be .... "uninformed and propping up a bar in any pub"?

    Perhaps you 'Eddy from Waring' must be propping up a bar in a pub to justify your research?

  • Comment number 85.

    @84.

    No, there you go again. How did you arrrive at the conclusion in your 2nd para? By inductive reasoning based on one instance, apparently. Not the strongest, it's generally agreed.

    I travel about the EU and elsewhere in my work, and so I think the benefits of the single currency to someone in my position would be understandable to anyone.

    CB's remark contained no information or reasoning, but an expression of emotion. There was, to me, an apparent presumption to speak for others, and therefore an implicit claim to belong to a group. Perhaps CB thinks that the fact that an opinion is shared by a group of people, especially perhaps a majority, makes it more likely to be correct or wise. (E.g. at one time, that the Earth is flat and the Sun goes round it, and innumerable others revealed with time as rubbish). However, the latter point's speculation on my part.

    No rational one would deny that there are problems in trying to operate a single currency across different tax and social entitlement regimes, but I and many others believe these problems are worth solving in the interests of peace, freedom and prosperity.

  • Comment number 86.

    I just don't see where this bickering about the Eurozone gets one. Where is the alternative strategy which has a shred of credibility? The "old system" of freely floating exchange rates with each country setting its base rate and competitive devaluations is so discredited. Huge "counter-intuitive" swings causing massive economic harm and spectacular profits for speculators is what I remember. John Kay wrote an excellent article in the FT a few years back explaining why a currency's "performance" was only at best loosely related to it's actual economic performance. And while it might be "nice" to able to engineer currency movements which in some sense reflect economic realities (whatever that might mean), that would require concensus by the central banks. Every now and again the G7 or whoever get concerned e.g. by the level of the Chinese Yuan, or the dollar or the Japanese Yen etc. but there just isn't the political will to really intervene in the exchange rate markets over a long period of time. If we can't get the big things right, what chance have we of micro-managing Portugal's exchange rate or Greece's or even Sterling to stop them going into free-fall (for example). So Stephanie - or indeed any of the anti-Euro readers, please put your money where your mouth is (figuratively), tell us what you think nice sovereign independent Sterling's exchange rate should be against the dollar, the Yen and the Euro in 12 months' time. I'll bet that you are not right within 5% on any of them and more than 10% out on at least one of them. (P.S. Does anyone remember the forecasts not so long ago that it was inevitable Sterling was going to touch parity with the Euro?)

  • Comment number 87.

    86. At 21:13pm 11th Apr 2011, leboucher wrote:
    I just don't see where this bickering about the Eurozone gets one.

    Everytime there is a 'little trouble in Euroland' the Little Englanders have orgasms.

    You see, it is seen (probably rightly) as a German project and the slightest problem has the same balming effect on UK inferiority complex as a 5 - 1 victory to the Engerlund on the footie pitch.

    Parity (sterling) with the Euro will happen within 18 months.

  • Comment number 88.

    85. At 16:58pm 11th Apr 2011, Eddy from Waring wrote:
    @84.

    No rational one would deny that there are problems in trying to operate a single currency across different tax and social entitlement regimes, but I and many others believe these problems are worth solving in the interests of peace, freedom and prosperity.

    Bravo.

    1.1324 to £1

  • Comment number 89.

    88. At 21:52pm 11th Apr 2011, Richard Dingle wrote:

    "...1.1324 to £1..."

    +++++++++++++++++++++++++++++++++++++++

    Well we could, (and should in my view) have joined in 1997 when TB was electorally untouchable and the Euro worth about 59p. We'd have been rich. Lots of us would now be residing in Italy, France etc., and living off our spare equity. Unthinkable, thanks to some.


  • Comment number 90.

    85. At 16:58pm 11th Apr 2011, Eddy from Waring wrote:

    I travel about the EU and elsewhere in my work, and so I think the benefits of the single currency to someone in my position would be understandable to anyone.
    -------------------------------------------------------------------------------
    Yes Eddy, so do I and it is so wonderfully convenient and I understand your point perfectly. However, it is built on the suffering of the PIGS, who should never have been fed the story that it would work for them. People always talk in terms of figures and take no account that humans have different attitudes to life around Europe and the World. Siesta was a necessary way of life for the Spanish. To the Germans it would seem lazy and unproductive. The Greeks have little regard for authority and could be described as freedom lovers! Why the EU leaders ever imagined that was going to change shows the severe limitations of their understanding.
    Yes Eddy, the Euro is convenient and nice....but its also convenient and nice to be one of the 1% owning 40% of the worlds wealth while a child dies of malnutrition and curable disease every few seconds! It's nice to be successful, but that surely isn't right?

    I hate the EU and the Euro! The gradual enslavement of the people through a united Europe was planned back in the 40's. Even the name, the European Economic Community came from Hitler's lips! Do you think it gave us prosperity, unity or peace? Look around you my friend, it's bloody chaos! Why do you think the EU turns out so many meaningless laws each year, or why it was forbidden to put the Lisbon Treaty and it's annexes together in one readable document, or why the first building block of the EU (The Council of Europe) was conceived and executed by the same man (Josef Retinger) who conceived and built the secretive Bilderberg Group! The same group that believes in a one world government! You are not meant to understand it, just enjoy the convenience. For those that want to laugh, please go right ahead, but remember the saying......The greatest trick the Devil ever pulled was convincing the world he didn't exist!

  • Comment number 91.

    90. At 00:06am 12th Apr 2011, Crystal Ball wrote:

    "...I hate the EU and the Euro! The gradual enslavement of the people through a united Europe was planned back in the 40's..."

    ++++++++++++++++++++++++++++++++++++++

    Oh come on, you're laying it on a bit thick. Enslavement? The Working Time Directive (widely ignored and unenforced in the UK, but not the rest of Europe) is a EU step towards enlightened practice.

    Employers get away with it here because a large part, often a majority of their workforce need all the overtime they can get anyway, to pay their 5 x salary self-certified mortgage-secured debt repayments...

  • Comment number 92.

    91. At 00:37am 12th Apr 2011, Eddy from Waring wrote:

    90. At 00:06am 12th Apr 2011, Crystal Ball wrote:

    "...I hate the EU and the Euro! The gradual enslavement of the people through a united Europe was planned back in the 40's..."

    ++++++++++++++++++++++++++++++++++++++

    Oh come on, you're laying it on a bit thick. Enslavement? The Working Time Directive (widely ignored and unenforced in the UK, but not the rest of Europe) is a EU step towards enlightened practice.
    -------------------------------------------------------------------------------
    Well Eddy, that's fine if you have a job. Let's look at their other decisions though.
    The Common Fisheries Policy - 1 million tons of dead fish a year are thrown back into the sea because of the idiotic quota system!
    The Land Fill Directive - Farmers now being paid to spread shredded toxic waste on their fields so the local councils don't have to pay a fine for burying it in land fills!
    Energy - Wind farms (30% efficient max), delivering energy to the power grid at twice the cost the privatized power stations charge for their energy production. (Germany's 19000 wind turbines haven't led to a single closure of any existing power stations.)
    Bio Fuel - The area of land required to produce enough fuel to fill the tank of a Land Rover just once, can supply a family with enough wheat for one year!
    etc,etc,etc.
    So, apart from the silent Van Rompuy earning more than Obama, the ex marxist Barosso believing he is the Emperor of an Empire and the totally unelected by the people, Cathy Aston, busy buying 150 bullet proof limousines for her new diplomatic core (an indication of her expectations of trouble to come perhaps?) what else are they doing for the unemployed and wage cut people of Europe.
    Giving themselves a wage rise and increasing their entertainment expenses dramatically. That's the way to show your leadership and unity qualities!
    Eddy, they don't give a damn about you or the other 1/2 billion souls that once believed it was a good thing! I believe they are, and have always been working toward a one world government. The EU is the prototype and will be extended to other continents if the EU is successful. As it is, our children will be paying for the result of this Frankenstein experiment for years to come. I call that enslavement!
    And remember, unlike your sovereign government, you can't vote them out!

  • Comment number 93.

    Perhaps a different perspective may assist. Germany's Banks are undercapitalised. This is particularly true of the Landerbanks. The reason for the shortage of working capital in Europe, pushing up rates for lesser borrowers with different economies may be the heavy financing needed by Germany to refinance its reintegration, which incidentally Europe refused point blank to fund, and now to fund its expansion into the Eastern part of Europe which the Soviet Union was unable to sustain.
    The target for working capital has now moved from Spain and Portugal to refinancing the East, which the Soviets were unable, or raher unwilling to do. The Russians may wish to review their position, now they have their hands on the Gas taps, once Europe has done the hard work.
    The ranting of the Germans and the French over tax avidance and tax evasion has enabled both these Member States to surreptitiously reverse the freedom of movement of capital to the disadvantage of Greece Ireland Portugal and Spain, using the fiscal exception, not as an exception to that Freedom but now as a hidden principle, to require repatriation of Germany savings into the German and Eastern European economies, rather than it going to the IGPS. Is it not an easy and inefficient thing to be able to borrow money cheaply, on the basis of being 'low risk', and then lend it out at frankly usurious rates to countries whose systems are in a form of bondholder indebtedness?
    Look at the manner in which Spain's tax administration is having to clean out the bottom of the fiscal barrel by fiscal "landgrabs". Sp&in was perecviouslm the beneficiary of Heavy French and German industrial investment, and Portugal and Spain were encouraged to build holiday and retirement homes, which tertiary sector economics are now no longer required.
    Add that to the current intentions of Germany to increase its stock market stature and bring in third country finances through the recently rehabilitated Liechtenstein and Switzerland, and I think that life takes on another aspect. Perhaps Germany should now be forced to rectify the balance in accordance with EU principles, and lend at a lower rate to those countries whose capital availability it has "filched" to achieve a different end.
    Not bad for a country that didn’t exist until Bismark assembled it.
    But then, the Treaty of Rome was designed to ensure that Germany and France became so integrated that there would never be a European war again. Add Schuman and Talleyrand to Bismark and make four.

  • Comment number 94.

    apologies. should have read:
    "Spain was previously the beneficiary of heavy French and German industrial investment"

 

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