Redwood on the Eurozone

[CliveH]

Redwood: Euro break-up is still a possibility

 

13 Nov 2012 | 13:51 Investment Week

 

Hannah Smith

 

Categories: Economics / Markets | Europe Topics: Europe | Euro | Germany

 

As Greece finds itself making headlines once more, eurosceptic John Redwood has warned a euro break-up is still on the cards.

 

Redwood, chairman of the investment committee at Evercore Pan-Asset, said he is willing to miss out on near-term upside in European markets because he sees greater risks on the downside.

 

“We are cautious euroland may see another nasty flare-up. We are prepared to miss out on a short-term rally because we think there are still deep-rooted problems there. There could be another lurch downwards,” he said.

 

“I think a euro break-up could still happen – you cannot rule it out. Scandinavian and Latin American currency unions have broken up in the last century, and we saw the break-up of the ruble. There are the same tensions, but different politics, in Europe.

 

At the moment, the Greek, Spanish and Portuguese economies are suffering very badly because of all this and are finding it hard to adjust.”

 

Redwood said German bunds would be a good asset to back for investors expecting a collapse in the single currency, although they are potentially a very volatile asset.

 

“A euro break-up would see you making a lot of money in bunds, but if the euro survived you would see Germany shouldering more of the cost,” he added.

 

Meanwhile, the US and UK are better placed than the stressed euroland nations to move towards economic recovery, according to Redwood.

 

The UK’s strengths are the financial centre of the City of London, and the fact it has freedom to set its own currency rate, while the US has the edge in terms of energy, technology, and growth, he said.

 

 

................................

 

Still the debacle rumbles on. :-S

[Dave225]

I believe that there are only 2 options. The euro will survive if all the euro nations accept a common political system and tax regime, that is no more sovereign nationality merely one big state. If that does not happen then the euro will fail inevitably, however a euro(a) and a euro(b) may emerge in certain groups of nations. All that will take many years of argument so I suspect the markets will force the collapse of the euro. At that point the creation of the EU as a sovereign state may come about rapidly as the best option.

 

However, all that does not mean that i feel the EU is necessarily a bad thing. It is a large trading entity and is a very wealthy one, so has the size to be influential in the world. Whether the UK should be in or out is again a matter of discussion and again that leads to the issue of whether an 'independent' Scotland should remain part of the UK, or apply to the EU. One could say the latter is much a case of 'out of frying pan into fire' etc but being a small country as part of the EU could have benefits, which I feel a large country such as the UK will not see. In addition, as a reduced entity the UK would have less impact on the EU and may feel the best option is to leave altogether. The Scots are far more pro Europe than England and bluntly as long as the lights stay on, the pubs have beer, and if we are really lucky, beat England at football then we are probably happy enough. Yes, there are ups and downs and Ireland is often used as an example, but even here the move now is back upwards, albeit slowly and it is not as if the UK has not had hard times itself recently. The Irish Republic is EU and slap bang against Northern Ireland which is UK, so the precedence has been set already. Yes, there are issues but these exist with anything.

 

So, I see several pictures here. The larger ones concerning the UK and the EU and the smaller ones concerning Scotland and the effect that would have on the UK as a EU member. I do not have any answers to these questions, I leave that to others who are purportedly, more qualified than me.

[Brian Kirby]

CliveH - 2012-11-15 10:58 AM..........................The UK’s strengths are the financial centre of the City of London, and the fact it has freedom to set its own currency rate, ................................

 

Still the debacle rumbles on. :-S

Could someone please explain how the UK has this "freedom to set its own currency rate"?

 

Presently, Sterling interst rates are at an all time low, yet Mervyn King is speaking of a need to devalue to stave off a "triple dip". How, then, is the UK succeeding in setting its currency rate to its liking? Seems the opposite is the case to me: we can't even influence the currency rate, let alone set it.

 

Sterling floats on a sea of trader's perceptions, and their collective perception is (rather obviously) that Sterling's present value is about right. It seems to me Redwood is indulging in politically influenced wishful thinking, that suits his particular agenda, rather than observing what actually happens in the currency markets.

[Guest pelmetman]

This slow death of the Euro zone is getting boring *-)....................It's a bit like sitting at the bedside of a distant relative who you hardly knew, waiting for the last gasp 8-)...............

 

 

[antony1969]

I for one have always liked Redwood and thought him to be a good trusted well informed politician . Surely it does not take a politician to see what is happening in big parts of Euroland right now and see how unstable that makes the single currency .

Redwood stands a mile above the likes of shamed thieving , robbing , lying ex Labour MP Margaret Moran who stole sixty thousand pounds of our money through dodgy expenses and then rubs it in even further by faking depression to escape punishment , an utter disgrace of a woman .

[antony1969]

I for one have always liked Redwood and thought him to be a good trusted well informed politician . Surely it does not take a politician to see what is happening in big parts of Euroland right now and see how unstable that makes the single currency .

Redwood stands a mile above the likes of shamed thieving , robbing , lying ex Labour MP Margaret Moran who stole sixty thousand pounds of our money through dodgy expenses and then rubs it in even further by faking depression to escape punishment , an utter disgrace of a woman .

[Guest pelmetman]

CliveH - 2012-11-15 10:58 AM

 

The UK’s strengths are the financial centre of the City of London, and the fact it has freedom to set its own currency rate,

 

Oh that's alright then ;-)..................

 

 

If you thought the age of a gloomy UK economy was coming to an end, think again. A slow and subdued economic recovery was the key message delivered by Bank of England governor Mervyn King when he presented the latest Inflation Report on Wednesday.

 

As King embarks on his last year as governor (he retires next year) he has dropped the niceties and is willing to face the facts straight on. At this press conference he virtually admitted that the UK’s economy is dismal, he doesn’t know when it will get better and the tools the Bank has been using since the financial crisis began four years ago have not been working.

 

The BoE’s growth forecasts for the next two years have been cut dramatically: The original estimate that growth could be as high as 4% next year has been scrapped; it is more likely that growth will expand at a fairly dismal 1% a year for the next two years. However, even that low rate of growth could be optimistic.

 

So why does our economy keep failing to recover? King says that it’s down to the rest of the world also experiencing weak growth making it hard for our famous economic re-balancing act to get started. Now that the financial sector is showing signs of weakening and our export sector is suffering from problems abroad there isn’t much left to fire up our economy.

 

He also laid the blame on sterling. There is one thing that King does not like and that is a strong pound. You have to feel sorry for him - even though he has created £375 billion of extra money over the last three years through the BoE’s quantitative easing programme, it hasn’t had any effect on the pound, which is up nearly 15% on a broad-based basis since the beginning of 2009. This is causing King to lose his patience as the strong pound is making our exports even harder to sell to our neighbours who are ravaged by a sovereign debt crisis.

 

Double trouble

 

The Inflation Report delivered a double whammy: Not only will growth be weak, but our incomes are more than likely to be eroded by persistently higher prices.

 

The BOE now expects inflation to run at 2.5% at the end of next year, a little bit below the current rate of 2.7%. However, price rises won’t fall back to the Bank’s target rate of 2% until 2014. And the Bank can’t even say this will happen with much confidence – instead King said that the risks were broadly balanced that inflation will fall by 2014.

 

Prices remain elevated thanks to high energy and food costs. Since we are unlikely to stop eating or driving any time soon, get ready to feel the pinch. But high inflation doesn’t just hit the bill at the end of a food shop; it has ramifications for savers and debtors alike.

 

High inflation actually erodes our debts in real terms, since money is worth less when inflation is higher. That’s great news – we can borrow our way to recovery? Not that fast, right now banks don’t really want to lend as they concentrate on repairing their own balance sheets, and we are also being told to live within our means. Borrowing our way to recovery seems out of the question.

 

So we should save then? Yes, but with interest rates so low what is the point of putting money in a bank. Interest rates are only 0.5%, and many savings products offer rates lower than that.

 

The end of optimism?

 

King left the optimists clutching at straws. Although unemployment fell further in September to 7.8% from 7.9% in August, we have seen the number of people claiming unemployment benefits rise in October. The pace of job growth has also slowed down over the last three months, which could weigh on October’s unemployment data when it is released in December.

 

Added to that, some people have started to question the UK labour market’s ability to defy gravity. Some argue that companies haven’t been laying people off because they are getting cheap money from the Bank of England and paying extremely low interest rates on their debts. Thus, the private sector is acting a bit like the state – it is keeping people in jobs even if demand is drying up.

 

There is a concern that some companies may be paying people to turn up even though there is not as much work for them as there was pre-2008. This may have kept the unemployment rate down in recent years, but it could have long term negative ramifications for the economy.

 

Firstly, the cheap money may be keeping companies afloat that otherwise should be allowed to go bankrupt and, secondly, if workers have got used to being less productive and the economy does pick up in the future then companies may not be able to get their workers’ to work harder. This will mean that companies need to hire more staff, which could add to their cost base and make them flabby and inefficient in the future.

 

The one piece of good news from this Inflation Report may not be delivered until the 5th December when Chancellor Osborne delivers his Autumn statement. Since the BoE seems out of options to try and boost the economy it makes it more likely that the Government will delay fiscal reform and ease the pressure on public sector spending cuts.

 

Some will argue that is the wrong thing to do, that it delays the inevitable and threatens our triple-A credit rating. But George Osborne better get ready as Mervyn is coming round the bend and is ready to hand the baton to his Chancellor.

[CliveH]

Brian Kirby - 2012-11-15 5:22 PM

 

CliveH - 2012-11-15 10:58 AM..........................The UK’s strengths are the financial centre of the City of London, and the fact it has freedom to set its own currency rate, ................................

 

Still the debacle rumbles on. :-S

Could someone please explain how the UK has this "freedom to set its own currency rate"?

 

Presently, Sterling interst rates are at an all time low, yet Mervyn King is speaking of a need to devalue to stave off a "triple dip". How, then, is the UK succeeding in setting its currency rate to its liking? Seems the opposite is the case to me: we can't even influence the currency rate, let alone set it.

 

Sterling floats on a sea of trader's perceptions, and their collective perception is (rather obviously) that Sterling's present value is about right. It seems to me Redwood is indulging in politically influenced wishful thinking, that suits his particular agenda, rather than observing what actually happens in the currency markets.

 

I read it as that within Europe we are one of the few countries that are not shackled to an artificial exchange rate dictated by another country of group of countries.

 

Yes our exchange rate is dictated by the markets and to a degree our government and the BoE can influence where our £ stands against other currencies. I have no problem with that - it means we can be reactive to remain competitive. In contrast those countries in the Eurozone have their exchange rate dictated to them NOT by the market but by another country or select few countries.

 

This rate is set to be advantageous to those select few - not the majority.

 

I do not agree with all that Redwood says - I would agree that there is a degree of wishful thinking here. But what is interesting is that the concept of a Eurozone breakup just will not go away.

 

The riots in the second tier countries over the last couple of days to many indicate that many are losing patience. God help us if this spills over into some sort of Southern European Spring where people simply say no more and opt out.

 

 

[PeteH]

Hi

 

Am I Totally alone in NOT wanting the be "European"?. And in believing that the whole concept was, in any case, formulated in order to achieve by stealth, that which my fathers generation fought Hitler over? ie European domination?.

 

The concept of "single currency" can never work because the differing States all have a totally different attitude to the work ethos. The balance of which was maintained by the regular flexibility of exchange rates!!!.

 

The euro-zone exists only to make the life of speculators easier by avoiding De-valuation and the then possibility that speculators could catch a (financial) cold!!.

 

It`s only advantage was in the days when I actually went into Europe, In that it meant that I had only to have euro`s and not Franc`s Lira and peso`s etc;. Ie it was a convenience (to me). But as far as the various "euro" countries where concerned the value of the currency was related to GDP. and this is why we are seeing the likes of Greece and Spain having to take severe methods now to avoid defaulting on Debt. In the old days they could keep devaluing until the domestic currency hit a level that reflected the true value of that countries GDP. and the effects upon their trading partners was more marginal.

 

I am extremely bored with the euro-zone, it occupies acres of press/media attention for something that should be allowed to die, and soon! Hope fully to be rapidly followed by the EU itself. Then, maybe we can have back control of OUR country. Which for me cannot happen too soon!

 

Pete

[Dave225]

PeteH - 2012-11-15 8:49 PM

 

Hi

 

Am I Totally alone in NOT wanting the be "European"?. And in believing that the whole concept was, in any case, formulated in order to achieve by stealth, that which my fathers generation fought Hitler over? ie European domination?.

 

The concept of "single currency" can never work because the differing States all have a totally different attitude to the work ethos. The balance of which was maintained by the regular flexibility of exchange rates!!!.

 

The euro-zone exists only to make the life of speculators easier by avoiding De-valuation and the then possibility that speculators could catch a (financial) cold!!.

 

It`s only advantage was in the days when I actually went into Europe, In that it meant that I had only to have euro`s and not Franc`s Lira and peso`s etc;. Ie it was a convenience (to me). But as far as the various "euro" countries where concerned the value of the currency was related to GDP. and this is why we are seeing the likes of Greece and Spain having to take severe methods now to avoid defaulting on Debt. In the old days they could keep devaluing until the domestic currency hit a level that reflected the true value of that countries GDP. and the effects upon their trading partners was more marginal.

 

I am extremely bored with the euro-zone, it occupies acres of press/media attention for something that should be allowed to die, and soon! Hope fully to be rapidly followed by the EU itself. Then, maybe we can have back control of OUR country. Which for me cannot happen too soon!

 

Pete

 

I do not want to upset you but you are European to a degree. From Norman invasions to Dutch kings to whom ever decided to come over the Channel, plus we in turn have invaded various parts of Europe. Even the Queen is descended from German parentage and changed their name to Windsor during the Great War as it would have looked a bit strange.

 

As for different work ethos, well one could say the same even about the UK which is something we all grumble about. Those lazy so and so's from..? You get the drift.

 

Unfortunately for you the EU will not die, it is too far down the line for that. The euro may change but something similar will take its place. Despite the political wrangling the EU is a single trading area and therefore a single currency is logical. Like even our previous Government the EU thought that good times would never end so nobody bothered doing any checks on the actual state of the various nations, and those checks that were done, were ignored. So, now they have to sort it out and it will take time but the eventual outcome is in no doubt. I do believe that the UK's best interest at the moment would be to leave the EU but we may have to consider a halfway membership similar to Norway and Switzerland, if we can get it, to keep the trade we do have. We basicaly should never have joined in the first place and we could have developed our relationship without all the wrangling, but that is too late now.

[nowtelse2do]

Probably out of my depth here, but if we have a mechanism to de-value our £, then it must work the other way also. So therefore we must have some sort of influence on our currency which individual countries in the eurozone haven't. Am I barking up the wrong tree or am I barking? :-D

 

Dave

[CliveH]

Howling at the moon Dave - Howling at the moon.

 

welcome to the club (lol) (lol) (lol)

[Brian Kirby]

nowtelse2do - 2012-11-16 10:50 AM

 

Probably out of my depth here, but if we have a mechanism to de-value our £, then it must work the other way also. So therefore we must have some sort of influence on our currency which individual countries in the eurozone haven't. Am I barking up the wrong tree or am I barking? :-D

 

Dave

Perfectly true Dave, we could probably jack up the value of Sterling by increasing our interest rates.

 

However, a stronger pound would make our imports cheaper and our exports dearer, so further increasing pressures on our exporting industries that we are relying on to try to dig ourselves out of recession. We would reduce the cost of imports, which should be reflected in food and energy costs, with knock on benefits to households - but probably at the cost of increased unemployment as export orders diminished, so increasing the cost of unemployment pay. We should also increase the cost of mortgages, pushing many family budgets over the edge. Every action has its repercussions, some foreseeable, some not. There is more politics and human psychology in economics than there is clear-cut accounting.

 

However, what King was saying was that he thought the present value of Sterling too high, and we needed to reduce it somewhat to choke off some of the imports while giving exports a price edge. This, he thought, was desirable to fend off a triple dip to the recession. It was that ability to influence the value of Sterling down as well as up I was commenting on. Redwood was quoted as saying we had the "freedom to SET (my caps) its own currency rate". I dispute that is meaningful if the freedom is only a one way street. Under different circumstances, with interest rates nearer "normal" levels, we could to some extent manipulate the value of Sterling in both directions, but still not without impact on the wider economy.

 

In reality, Sterling's value is controlled by external factors, over which we have no control, but some modest influence. If to "set" is to mean to control, which is my understanding of its meaning, then I think he is, as I said, indulging in politically influenced wishful thinking, that suits his particular agenda. He has always been a Eurosceptic, and dislikes the EC as well as the Euro. Bad news from Europe suits that agenda, so he massages it for all he can extract from it, in support of his politics. I don't wholly blame him for that, but I think his desire for bad news from Euroland means he is an unreliable witness. Useful as part of a healthy debate, but only so long as one recognises where he stands.

[Tracker]

If we all vote Labour next time we will get ourselves yet another even more inept government, international confidence in the UK's ability to control it's budget deficit will fade, interest rates will rise and the pound will drop in value!

 

Simples!

 

Alternatively we let this government carry on beyond the next election giving them the time to right some of the wrongs that they mainly inherited from dear old Gordon and some of which are self inflicted and some of which are beyond anyone's control in this country - or indeed anywhere in the world I suspect!

 

Which is the lesser of the two evils I wonder?

[Brian Kirby]

You've missed two, Rich. We elect a Conservative government or, following a late surge of popularity, we elect a Lib-Dem government. In either event I doubt the economic out-turn would differ much, except regarding the Conservatives' ability to manage their/our relationship with Europe. I'd guess that in the extremely unlikely event of a Lib-Dem government they would start with a lot of slack internationally, as they would be a relative unknown. So, honeymoon period perhaps a little extended. In the more likely event of a Conservative government, I think the honeymoon period would be shorter, and would probably last until they began scratching each others eyes out over Europe, as is traditional. Thereafter, all bets are off - and I'm not sticking any on in the short term either! :-D

[nowtelse2do]

So I got a bit of it right then :-D.......Ah ! If that's the case then, are the euro-zone countries that are in deep trouble, being held back by those countries in the euro-zone that are not in trouble (yet) ie. Germany, Finland etc. so can't de-value. If that being the case, would it not be the right thing to drastically de-value the euro to kick start their economy, or am I still treading water ? :-S

 

Dave

[Brian Kirby]

PeteH - 2012-11-15 8:49 PM

 

Hi

 

Am I Totally alone in NOT wanting the be "European"?.

No, as you must realise, many think like you.

 

And in believing that the whole concept was, in any case, formulated in order to achieve by stealth, that which my fathers generation fought Hitler over? ie European domination?.

But only by those who look under their beds each night, I think! :-)

 

The concept of "single currency" can never work because the differing States all have a totally different attitude to the work ethos. The balance of which was maintained by the regular flexibility of exchange rates!!!.

I disagree. It is bigotry to allocate a work ethos to a state. The ethos varies within individual states, but also regions, towns and even families - and causes much friction. Italy, with its "mezzogiorno", for example. Even the USA, whose states have considerable autonomy, has widely varying economies within it, yet all use the USD. What all those states who joined the EU came to realise, was that endless devaluation did them no good. That is, in many cases, why they joined.

 

The euro-zone exists only to make the life of speculators easier by avoiding De-valuation and the then possibility that speculators could catch a (financial) cold!!.

No. It exists because a group of politicians view it as the best way to make a disparate trading block function, by creating price transparency. The money markets benefited as you say, but AFAIK, did not drive the politicians: for good or ill, their minds were on altogether higher things.

 

It`s only advantage was in the days when I actually went into Europe, In that it meant that I had only to have euro`s and not Franc`s Lira and peso`s etc;. Ie it was a convenience (to me). But as far as the various "euro" countries where concerned the value of the currency was related to GDP. and this is why we are seeing the likes of Greece and Spain having to take severe methods now to avoid defaulting on Debt. In the old days they could keep devaluing until the domestic currency hit a level that reflected the true value of that countries GDP. and the effects upon their trading partners was more marginal.

But, not just to GDP. The relative value of a currency is also a measure of wealth creation, stability, sound banking, domestic interest rates, and good governance, which do not relate directly to GDP. They combine to give foreigners confidence that investments will be worthwhile, which creates demand for the currency, which causes its value to rise.

 

I am extremely bored with the euro-zone, it occupies acres of press/media attention for something that should be allowed to die, and soon! Hope fully to be rapidly followed by the EU itself. Then, maybe we can have back control of OUR country. Which for me cannot happen too soon!

 

Pete

But, how is boredom a good reason to leave, or join, anything? Be careful what you wish for! What do we suffer now, that we should not suffer were we to leave the EU, and what is it we could then control that we cannot now control? I think you dream of a world that had, in all practical respects, died before you were born, and cannot be reconstructed. That dream is, IMO, for the most part dewy eyed twaddle. We are where we are, and must work with what we have. I tend to agree with Dave that the Euro will probably survive, though with better institutions than it now has. I also think the EU will survive, though it will always remain a work in progress. I think we will remain in the EU, and I suspect that once the Euro problems are fixed, we shall eventually join that.

[CliveH]

Some really good and interesting points raised by all - My take on the EU is that we get a hell of a lot out of it that many do not realise. The one point I always state is the ability to take our politicians as lawmakers to task by way of the European courts.

 

When I look back - at just one example - at the UK legislation we had re women and part-time workers being excluded from pension scheme membership and how manifestly unfair it was - and how the EU bounced our idiot politicians up and down and changed things for the better - I am stunned that anyone would say that EU membership is a bad thing 8-)

 

That said - the Euro is a step too far and was a political ideal that was never going to work.

 

So I am overall - pro Europe - but am appalled at its lack of financial accountability and waste.

 

It's ridiculous concept of having two legislative centres that alternate every six months is TOTALLY barmy.

 

I am also deeply concerned that the current rules allow the EU to put in officials to dictate to a sovereign government what that government can and cannot do. How the Greeks as the historic birthplace of democracy put up with this is beyond me.

 

I am pretty confident that the Euro will fail in some way - I hope it is not a spectacular failure - but seriously - just how much more money can we give to Greece to keep its currency at the artificial level the Euro requires it to be?

 

This is what Redwood refers to when he says that we have control. If we had the problems that Greece has - we could devalue, make our exports more attractive and therefore undercut the competing nations. It has its problems that strategy but by heck it is better than having our elected representatives sidelined and our debt getting ever bigger just so we can stay in a failed political currency experiment.

 

What Greece needs to do is just that - walk away from the Euro and devalue. We would all find Greece an attractive place for holidays and business would find that Greece would be like Turkey is at the moment - a good place to manufacture goods because it is outside the Eurozone.

 

Sadly for Southampton - Ford has just underlined this by moving its Transit factory there. What is even more bizarre is that the EU gave Ford money to go there!!!!!!!! 8-)

 

So if I had to summarise - I personally am pleased that we have the EU as it provides a higher tier of check and balance against the stupidity/hubris of our politicians.

 

From a MacroEconomic viewpoint - I see the Euro as a disaster, designed only to bolster a few strong countries whilst beggaring those countries who should never have joined it in the first place.

 

The pendulum of excess has gone too far - I am confident that common sense will prevail and the Euro will wilt whilst the trading block that the EU should be will prosper.

 

Currently the Euro stops that happening - the riots and demonstrations in many countries is just the start.

 

 

[nowtelse2do]

I think that answers my last post Clive, that's if I've read yours proper :D

 

Dave

[Dave225]

Brian Kirby - 2012-11-16 12:42 PM

 

nowtelse2do - 2012-11-16 10:50 AM

 

Probably out of my depth here, but if we have a mechanism to de-value our £, then it must work the other way also. So therefore we must have some sort of influence on our currency which individual countries in the eurozone haven't. Am I barking up the wrong tree or am I barking? :-D

 

Dave

Perfectly true Dave, we could probably jack up the value of Sterling by increasing our interest rates.

 

However, a stronger pound would make our imports cheaper and our exports dearer, so further increasing pressures on our exporting industries that we are relying on to try to dig ourselves out of recession. We would reduce the cost of imports, which should be reflected in food and energy costs, with knock on benefits to households - but probably at the cost of increased unemployment as export orders diminished, so increasing the cost of unemployment pay. We should also increase the cost of mortgages, pushing many family budgets over the edge. Every action has its repercussions, some foreseeable, some not. There is more politics and human psychology in economics than there is clear-cut accounting.

 

However, what King was saying was that he thought the present value of Sterling too high, and we needed to reduce it somewhat to choke off some of the imports while giving exports a price edge. This, he thought, was desirable to fend off a triple dip to the recession. It was that ability to influence the value of Sterling down as well as up I was commenting on. Redwood was quoted as saying we had the "freedom to SET (my caps) its own currency rate". I dispute that is meaningful if the freedom is only a one way street. Under different circumstances, with interest rates nearer "normal" levels, we could to some extent manipulate the value of Sterling in both directions, but still not without impact on the wider economy.

 

In reality, Sterling's value is controlled by external factors, over which we have no control, but some modest influence. If to "set" is to mean to control, which is my understanding of its meaning, then I think he is, as I said, indulging in politically influenced wishful thinking, that suits his particular agenda. He has always been a Eurosceptic, and dislikes the EC as well as the Euro. Bad news from Europe suits that agenda, so he massages it for all he can extract from it, in support of his politics. I don't wholly blame him for that, but I think his desire for bad news from Euroland means he is an unreliable witness. Useful as part of a healthy debate, but only so long as one recognises where he stands.

 

One could lay the same charge against all of us. We all have different opinions and even on this Forum differences can sometimes get quite heated. However, we all have the right (still just) to make our point of view known, and it is the ability to sway others to your point of view that makes a good politician., which I am not.

 

As for Sterling and exports I feel that further devaluation will have little effect except drive up the price of imports and stifle home growth. We cannot export much more because we do not have the facilities or industries to do so. They are in the main all controlled outside. Wjat is left is already doing all it probably can. More QE, or back door devaluation will reduce the value of the Pound but only hurt the indigenous population. All QE has proven to have done is feed the banks cheap money so they in turn reduce their interest rates to the public. Anyone with a mortgage is already at the bottom of the scale, so no further to go, but savers are being punished in droves and all that will happen is society will have to fund them to make up the shortfall, which it will not like. the alternative is a 4th world country. with starving on the streets.

[Brian Kirby]

nowtelse2do - 2012-11-16 3:57 PM

 

So I got a bit of it right then :-D.......Ah ! If that's the case then, are the euro-zone countries that are in deep trouble, being held back by those countries in the euro-zone that are not in trouble (yet) ie. Germany, Finland etc. so can't de-value. If that being the case, would it not be the right thing to drastically de-value the euro to kick start their economy, or am I still treading water ? :-S

 

Dave

Can't devalue the Euro, like Sterling, it "floats". Germany is the principle beneficiary of the Euro, even though it is paying a lot to support it. The poor economic performance of the PIIGS drags down the value of the Euro on international markets, making German exports more competitive and their imports more costly. So, German commerce thrives, but doesn't like the tax levy necessary to keep supporting the PIIGS. They can see the benefits to themselves, but don't like the cost of maintaining them. So, they despise and despair of the PIIGS, but need them to stay competitive. Interesting bind, no? :-)

[CliveH]

Spot on Brian!

 

Tho Sterling can be devalued against the Euro or the $US. Currently we do this via QE. because our Interest rates are so low there is little room for manoeuvre.

 

As soon as our Interest rates go up - so too will the exchange rates.

 

 

 

[Guest pelmetman]

Brian Kirby - 2012-11-16 7:52 PM

So, they despise and despair of the PIIGS, but need them to stay competitive. Interesting bind, no? :-)

 

Makes I smile it does :D.............how's that saying go?.............don't wish for what you want, as you may well get it 8-)

 

They wanted to dominate Europe ;-)..................and now they do (lol) (lol) (lol)...............and are likely to end up paying the price >:-).....................for a change *-)

[nowtelse2do]

Brian Kirby - 2012-11-16 7:52 PM

 

nowtelse2do - 2012-11-16 3:57 PM

 

So I got a bit of it right then :-D.......Ah ! If that's the case then, are the euro-zone countries that are in deep trouble, being held back by those countries in the euro-zone that are not in trouble (yet) ie. Germany, Finland etc. so can't de-value. If that being the case, would it not be the right thing to drastically de-value the euro to kick start their economy, or am I still treading water ? :-S

 

Dave

Can't devalue the Euro, like Sterling, it "floats". Germany is the principle beneficiary of the Euro, even though it is paying a lot to support it. The poor economic performance of the PIIGS drags down the value of the Euro on international markets, making German exports more competitive and their imports more costly. So, German commerce thrives, but doesn't like the tax levy necessary to keep supporting the PIIGS. They can see the benefits to themselves, but don't like the cost of maintaining them. So, they despise and despair of the PIIGS, but need them to stay competitive. Interesting bind, no? :-)

 

Now I see, the leader of the pack is doing everything it can to stay the leader, And like in the past is causing untold misery on the populations of other countries, not by a killing war but an economic war. It could backfire on them dramatically thoe couldn't it.

Could it start a killing war or have we progressed far enough from that? I'm beginning to think that this could be a very nasty problem for the Eurozone and the EU.

Can't think where I read it now but some German companies were buying into other niche market companies in other parts of the eurozone, then transferring them back to Germany after closing them down in the original country. Anyone else read that?

 

Dave

 

Dave

[Brian Kirby]

nowtelse2do - 2012-11-16 8:59 PM

 

....................Now I see, the leader of the pack is doing everything it can to stay the leader, And like in the past is causing untold misery on the populations of other countries, not by a killing war but an economic war. It could backfire on them dramatically thoe couldn't it.

Could it start a killing war or have we progressed far enough from that? I'm beginning to think that this could be a very nasty problem for the Eurozone and the EU.

Can't think where I read it now but some German companies were buying into other niche market companies in other parts of the Eurozone, then transferring them back to Germany after closing them down in the original country. Anyone else read that?

 

Dave

Sort of, I suppose, but the assumptions about the motivation seem a bit overdrawn. I think you're looking for Germany to behave in a domineering way, so you are finding it. I think this is far more cock-up than conspiracy.

 

Before the Euro was formed, Germany was suffering from the over-valuation of the DMark. It needed something to bring down the exchange rate on its famously "strong" currency, but was deeply suspicious of the planned Euro. It tried, and in part failed, to get the Euro modelled on the DMark, which had much tighter controls than almost any of the other putative member currencies. Had they won that argument, I think the Euro would have been far more successful, but the politics of every other country having to adopt a DMark masquerading as the Euro was too great. So, they eventually got what they now have.

 

The damage to the economies of the PIIGS has not, so far as I know, been directly caused or encouraged by Germany, though many Germans have profited from it. What is wrong with the PIIGS is more or less what has always been wrong with them, their politics, generally, is bent, and relies mainly on clientelism for votes. You buy votes by making impossible promises to gullible, relatively poorly educated, people. Realising those promises requires higher taxes, but your influential mates don't like the taxes, so you don't compel them to pay. So you rack up increasing deficits.

 

It is very roughly the same story with all, though the way the debts have been accumulated, and by whom, differs. Now, as they say, the tide went out, and you can see who was skinny-dipping.

 

Having found that their own politicians have duped them, but the Germans in large measure financed the duping, the poorly educated populations have turned on their own states, because it is all they can recognise as the author of their discomfort. Truth to tell, it is their own stupid fault for electing bent politicians, but that is too harsh a lesson to learn. It is also notable that most have relatively short histories as democracies, or even as sovereign countries. Part of what we are seeing, IMO, is a rude awakening to the realities of democracy, and what is needed to make it work effectively. They'll eventually get there, but not before there is more blood on the floor.