Economics News : 26 Nov

November 29, 2010

Economics crises are boring;
here today, and here tomorrow as well.

Binnie Barnes, there’s a suspicion that politicians encourage them to justify their own existence!

Activity is rising, but not accelerating.
A good many countries have now published estimates of GDP in third quarter 2010. A sizeable majority of them (more than two-thirds) reported slower growth after mid-year than before it. That’s consistent with (not proof of) the current business cycle’s having entered into a phase of deceleration.

There’s no immediate risk of recession.
But the numbers do question the politicians’ promises of a broadening and deepening recovery. At best, it looks as if there’ll be progressively slower growth during the next nine months. At worst, there’ll be a new recession in the period thereafter.

End-2011 is the danger period.
It’s not just the business cycle that’ll be operating adversely in this period. It’s likely that the monetary environment will be as well. A number of countries have already thought it necessary to lift interest rates. Several more may be preparing to follow suit.

Credit, by then, will also be tighter.
China, for instance, seems to be fretting that it overdid its monetary indulgence in 2008 and 2009. The policy neutralised the forces of recession, but encouraged those of inflation. Currently, retail prices are rising at about 5% per annum and still quickening. Worse, property prices in a number of cities are soaring at 50% per annum.

China is about to hike interest rates.
The authorities in Beijing know they’ve conjured up a bubble. And they know that the longer the phenomenon is left unattended, the more painful will the corrective therapy have to be. Action is probably imminent, therefore.

India will continue to do so.
India is a year ahead of China in its development of excess demand. Retail inflation is running at about 10% per annum, and the external trade deficit is more than 5% of GDP. The Reserve Bank has raised interest rates several times already—but not by enough. It too is likely to do more in the months ahead.

Commodity producers likewise.
The picture is somewhat comparable in the commodity producing world. In Australia and Brazil, for instance, growth has exceeded potential. The external accounts are in deficit despite strong terms of trade, and inflation is relatively high despite strong currency. The countries are vulnerable to declines in commodity prices; and their Central Banks are thought to want to act in anticipation of the danger, rather than in reaction to it.

And Europe, perhaps by default, . . .
Europe is a little different. But, there too, a tightening looks probable. It’s the euro’s difficulties that are provoking the change. The ECB’s one-size monetary tights don’t fit all the EZ’s economics leg-shapes. Competitive countries want rectitude; uncompetitive ones leniency. Germans (and Dutch and Austrians) would prefer tighter money and stronger currency. Greeks (and Irish and Portuguese and Spanish) wouldn’t.

. . . will revert to monetary orthodoxy.
One group is going to be disappointed. Probably the latter: its economics debilitated; its politics emasculated. If, as seems likely, the EZ disintegrates, there’ll be lots of austerity to share around: the strong countries having chosen it; the weak ones having had it imposed on them!

Will the US and Japan loosen enough . . .
Only the US and Japan are thoroughly committed to accommodative money. And, even in them, the commitment is no more than temporary. Both currently see the risks of inflation as negligible in comparison with those of recession. But both are also fearful of indulging the financial misbehaviour that protractedly easy credit encourages.

. . . to offset tightness elsewhere? Unlikely!
It’s unlikely, therefore, that the monetary environment will stay expansive throughout the whole of the forthcoming cyclical downturn. At some stage, probably in 2012 or 2013, conditions will become fraught. There’ll be a new recession.

Especially if protectionism should be given its head.
It’ll be a bad one if protectionism becomes widespread. Will it? Possibly; it’s the politicians’ knee-jerk reaction to divergent competitiveness. China is the obvious target at the moment, of course. But it’s possible that a rising yuan (the consequence of Beijing’s tighter credit policies) will reduce the justification for trade restrictions.

The UK is muddling along (threatened only by regulators).
Britain tends to outperform in times of adversity. Its numbers have been satisfactory in recent months, and might stay acceptable in the years ahead. The speciality is sophisticated financial services—not banking, but fund management, corporate finance etc. International competition poses only a limited challenge. The threat comes, not from there, but from regulators. Those at home are pernicious; those in Europe worse.

Markets look set to rise for a while longer.
Security prices will rise during the next twelve months; extra liquidity prompting investors to acquire additional assets. Whether the bull trend will continue until the year end is less clear. There’s a risk, by then, of economics fracture and financial dislocation.

Economics Views : 24 Nov

November 29, 2010

Truth emerges eventually from error.

Francis Bacon—but it seems often to take an inordinately long time for the process to work!

The scales having fallen from his eyes, . . .
Patrick Honohan, Governor of the Irish Central Bank, said earlier this week that he’d welcome offers to buy the country’s commercial banks. What he was saying, in a heavily coded format, was that he thought the bailout two years ago had been ill-conceived. He was right, of course: it’s always wrong to try to save the unsavable.

. . . the Irish Governor is Saul reborn.
Surgeons understand these things. Faced with tissues that are half-diseased and half-healthy, they sacrifice the former for the latter. Only politicians or central bankers are daft enough to attempt the reverse.

He’s acknowledging that the banks oughtn’t to have been bailed out.
If the banks couldn’t have been sold in the immediate aftermath of the cri¬sis in 2008, they ought to have been eliminated. Doing the sums, the authorities would have known their policies were almost certain to fail. The Irish economy simply wasn’t large enough to bear the burden posed by the banks. The bailout would destroy what was healthy without cur¬ing what was diseased. Instead of the failure being partial, it would be¬come systemic.

Perhaps, the UK’s Governor will eventually concur.
It was much the same in Britain, of course. The delinquents there were no less insolvent, but were somewhat smaller as a proportion of the eco¬nomy. In consequence, the non-banks were able, just about, to bear the weight of the banks. But they shouldn’t have had to!

It ought not to have been the good guys who were harried.
The burden should have been distributed very differently. Regulators, po¬liticians and bankers should have borne as large as possible a share of the costs. Taxpayers as small as possible a share of them.

But the bad ones.
In the midst of a crisis, it’s not easy to think clearly. Panic overwhelms the brain. The reaction of Brown and Darling two years ago illustrates the phenomenon. Stunned, they left it to the Governor of the Bank of England to call the shots.

Regulators, Manadarins and Central Bankers, for instance.
Unsurprisingly, he didn’t recommend a public flogging for himself and his opposite numbers in the Treasury and the FSA. Nor did he propose that the delinquents who’d been in charge of the banks bear any respon¬sibility for the disaster they’d caused. Instead, he loaded the burden in its entirety onto the shoulders of taxpayers!!!

The Coalition’s leaders don’t agree.
What did Cameron and Osborne think? They’d had two years to ponder the issues when they took office. Their conclusions? To leave things as they found them. To continue to punish the innocent, but not the guilty. Regulators were to go uncensured; Treasury mandarins undenigrated; Banking executives unmolested; and, incredibly, B-of-E officials pro¬moted!

They want to pour yet more money down the black hole that is banking.
When the Irish tragedy took its latest turn for the worse, the PM and the C-of-E were quick to offer aid. Though resources couldn’t be found for the deserving poor at home, they were readily available for undeserving rich overseas. What curious priorities!

Very uncommercial of them!
It’s a loan, they said, it’ll be repaid. Probably not. Do the sums. Can Ireland survive a penally high real interest rate and a substantially over¬valued cur¬ren¬cy? How will it fare in the global economics slowdown that lies ahead? The country might leave the EMS, and repudiate its eu¬ro obligations. The banks might renege on their debts.

Markets are distraught now; they’ll be better later.
Little wonder that investors are nervous. Little wonder they distrust their politicians. Markets will probably rise in the next twelve
months. But they’ll do so despite government policies, not because of them.

Ireland’s Mistake

November 26, 2010

Ireland’s Mistake: Saving the Banks

“It was a mistake to save the banks. That was the cause of the problem because the Irish economy doesn’t have enough resources,” said Roger Nightingale today.

Tuesday’s Market Action

November 24, 2010

A Look at Tuesday’s Market Action

Roger Nightingale, strategist at Pointon York, joined CNBC for a look at Tuesday’s market action.

A Look at the European Markets

November 23, 2010

A Look at the European Markets

Roger Nightingale, strategist at Pointon York, joined CNBC for a look at Monday’s action in the European markets.

China to Take Top Economy Spot

It’s almost inevitable that the Chinese economy overtakes the US within a decade, Roger Nightingale from Pointon York told CNBC Monday. But it could take longer for the yuan to take over as the global reserve currency, he added.

Economics News : 19 Nov

November 19, 2010

Dream of things that never were,
nor ever will be.

John. Kennedy, Speech in Dublin 1963. Was he addressing the EU’s Commissioners? His track record was as bad as theirs!

Appearances are sometimes deceptive.
What’s happened to Ireland? Has its economy really changed so much? Was it a powerful tiger one moment and a pusillanimous mouse the next? Or is it just our perceptions of the country that have altered? Were they overstated previously? Are they understated now?

Perceptions often misleading.
None of us knows. It’ll be several years before a dispassionate assessment of the fundamentals is possible. But it has to be acknowledged that economists are as susceptible to sentiment (post hoc rationalisation) as investors. They set their expectations of the future by reference to their perceptions of the past. That’s sensible enough in normal circumstances. But it can lead to escalating error in periods of excess credit.

Was Ireland’s virtuosity . . .
Was Ireland then just a consequence of bubble psychology? Its economics prowess mis-analysed as a result of heady asset valuations and overwhelming capital flows? When the dust has settled, will the message be that nothing much changed in the last fifteen years? That yesterday’s euphoria wasn’t justified but that today’s despair is? Will our image of the country be returned to its status quo ante?

. . . just an illusion?
Possibly. Similar transformations have occurred to other countries. Analysts are not unemotional: always looking for the next superstar, they’re rather too easily persuaded they’ve found it. There’s a reluctance to acknowledge how rarely paragons occur.

Can the country deliver only when . . .
Brazil, for instance, has been touted as the next big thing for more than a hundred years. And, from time to time, on the back of temporarily favourable circumstances, it does have a good run. But the country’s never managed to sustain its spurts. Instead, it’s always regressed.

. . . circumstances are exceptionally favourable?
Is Ireland another Brazil? Time will tell. But there’s no doubting that the country was swamped with funds when membership of the euro coincided with globally easy credit. Nor that its economy was flattered by the receipt of huge EU grants. Nor that the Finance Ministry’s decision to cut corporation tax to 12½%, the lowest rate in Europe, was instrumental in attracting to the country the headquarters of large numbers of multi-nationals.

Nobody knows.
For a while, therefore, the country found itself in a virtuous circle. Economics activity and asset values and capital flows reinforcing each other. Even its Rugby became sublime!

But sentiment has reversed.
But was there anything substantive going on underneath the froth? What were the USP’s that’d survive the temporarily favourable circumstances? Gradually, in the years following the Fed’s credit squeeze, investors became first less optimistic, and then pessimistic. The good times, they said, were a mirage; all smoke and mirrors.

Everybody (Osborne only excepted) . . .
Now, a vicious circle is operating. All news is negative and all analysis pessimistic. Ireland can’t afford to stay in the euro, it is said. Its 10 year bonds are yielding 8¼% and its inflation rate is minus 1¼%! No country can bear that combination, least of all one in which GDP is collapsing.

. . . is gloomy.
Nor will it be able to maintain its low corporation tax rate. It may gradually lose its HQ trophies, therefore. That’ll put more pressure on GDP, on sentiment, and on the fiscal balance. Out of the EMS, Ireland’s borrowing costs will gradually subside, but they’ll do so only gradually. For years to come, possibly for decades, they’ll be higher than those in competitor countries.

Most of Europe is in a mess.
It’s presumed that something similar will happen to Greece. Probably also to Portugal and Spain. But will the process stop there? What about Eastern Europe? What about Italy and France and Belgium?

Heads ought to roll.
And what will be the fate of those who were the source of all this woe? What will happen to the half-baked Commissioners who proposed Monetary Union in advance of Political Union? Will they be censured? Or sacked? Or allowed to cause more mischief?

Elsewhere in the world . . .
Meanwhile, outside Europe, there’ve been some interesting economics developments. The US has been making reasonably good real progress. China has reported fairly steep increases in inflation. And India (another Ireland?) seems to have hit the buffers.

. . . the US may be quickening, the PRC overheating, and India stalling.
The message from the first is that, in dull economics circumstances, devaluation yields short term benefits. It’s one that Ireland and Greece would do well to take on board. The message from the second is that the yuan is going to be allowed to rise sharply. It’ll be a corollary of the containment of price pressures. That from the third is not at all encouraging. If interest rates are to be raised to cap inflation, there’s a danger that real activity will shudder to a halt!

But valuations up.
Asset markets to continue to rise: money easy; inflation low; and corporate profits resilient.

Economics Views : 18 Nov

November 18, 2010

Economics progress, in any society,
implies turmoil.

Joseph Schumpeter—but turmoil doesn’t necessarily imply economics progress!

It’s necessary sometimes to be harsh to be fair.
The rule is simple: the good can succeed only if the bad are allowed to fail. It’s a rule that the authorities break at their peril. Sadly, they did so in 2008. That’s when worthless banks were saved at the expense of worthwhile taxpayers.

Indulgence may harm rather than help.
It was a huge mistake. Two years later, banks aren’t yet viable. If their life-support system were turned off, if their subsidised finance were discontinued, chaos would ensue: they’d collapse in a heap.

In banking, it has.
Apparently, Cameron and Osborne see things differently. They think the billions deployed to prop up delinquent Scottish banks was money well spent. Accordingly, they intend now to do something similar for failing Irish banks!

But the PM and C-of-E don’t get it.
It’s a question of priorities. When there’s a shortage of resources, it’s important to cut the trivial so as to make room for the essential. And who is in which category? That depends on who’s calling in the shots. But the Prime Minister and Chancellor are suggesting that, in the first, are to be found this country’s pensioners, industrialists and soldiers; in the second, other countries’ bureaucrats and bankers!

Voters, unsurprisingly, are unhappy.
It’s not a judgment that’s been universally applauded. There are some who say that, if the Brits were to want to help, they’d offer good advice, not bad. They’d recommend a return to the kind of economics that works, not a continuation of that which doesn’t.

The Irish should never have joined the euro.
They’d start with the EMS. It would probably have failed in any event. But disaster was assured when Ireland (and Greece etc.) joined the euro at too low an exchange rate. The consequence was joy initially, but pain subsequently—the former insufficient compensation for the latter.

Especially, at a low level.
It would have been better if the starting rate had been higher. It would have been difficult, but salutary, for companies and their employees to have had to struggle for a few years with poor competitiveness. If they’d overcome the difficulty, containing costs and capping expectations, their economies would have been well set for the medium term.

Nor should they have accepted the Commission’s fiscal handouts.
That’s how the Eastern Länder acclimatised themselves to life in the FDR; difficult at first but easier later. It’s how the FDR as a whole dealt with European Monetary Union; a generation of debility, giving way only recently to signs of revival. It’s how the Scots succeeded after Union with the English in 1707; miserable failure for the first fifty years, brilliant success for the next one hundred and fifty.

Short-term benefit; long-term detriment!
But the psychology of countries currently in difficulty in the EZ seems not yet to be ready to contemplate sacrifice. People are looking for short-term scapegoats, not medium-term solutions. Bankers are an obvious starting point; politicians another. Rightly so.

Devaluation looms.
Eventually, the US example—combining devaluation with fiscal austerity—may be followed. Thus far, it’s worked rather well for its initiator. Two years after the therapy began, America appears to be competitive, growing reasonably briskly, and boasting negligible inflation.

Asset valuations will continue to rise.
Securities markets tumbled when investors foresaw change. But they’ll recover just as sharply when the change, whatever it turns out to be, is implemented. The rally won’t last forever, but it’s unlikely to end before autumn next year.

The English taxpayers’ burden

November 16, 2010

The most alluring prospect a Scotchman ever sees: the highroad to an English public sector job.

Darling and Brown are first generation examples. Cameron, the result of an earlier displacement. Isn’t it time for a reversal?

The majority isn’t always right . . .
In economics and politics, the instincts of the ignorant-many usually turn out to be better than the analyses of the educated-few. Take the issue of European integration, for instance. For almost half a century, governed-majority in Britain has been wisely suspicious, but its governing-minority credulously complacent.

. . . but it is more often than the minority.
Mandarins in the upper echelons of the Civil Service, for instance, have found nothing unpalatable in the elitism of EU governance. Nor have politicians: Liberal Democrats being wholly in favour of unrepresentative rule; Labourites substantially persuaded by it; and Tories quite willing to bend with the wind. Nor have the Media objected: the BBC and Financial Times have, on the contrary, competed for the role of Chief Propagandist; doing for the Commission in Brussels what Pravda used to do for the Praesidium in Moscow.

People distrust “expertise.” It prompted wars in Iraq and Afghanistan!
The People, on the other hand, though denied a platform, though disparaged whenever they expressed dissent, stuck to their guns. Their scepticism was characterised by frustration rather than rage. They were agnostic: not sure they knew the answers, but fairly certain their leaders didn’t. Opinion polls showed the public to be consistently distrustful of the European Project and those who supported it.

And it’s united Europe in economics misery.
Who was right? Not those in the top drawer, but the bottom one. Not the self-assured crème de la crème, but the self-doubting dregs of the dregs! The European Monetary System turned out to be nothing more than political vanity. It ought never to have seen the light of day. Sadly, it did; spreading des¬titution across the region it was designed to help.

Poor Greece is being sacrificed on the altar of the EMS
Greece demonstrates the phenomenon: its economy in disarray and its democracy suspended. Living standards have fallen sharply and will continue to do so for years, possibly decades, to come. Meanwhile, elected Ministers in Athens are emasculated, their powers passed to un-elected Commissioners in Brussels. A similar destiny probably awaits Ireland and Portugal, possibly Spain and Italy, conceivably Belgium and France.

It’s her costs that need to be reduced, not her borrowings.
The problem for these countries is not their fiscal deficit but their uncompetitiveness. Cuts in public spending and hikes in taxation are no solution; they attack a largely irrelevant problem. It’s the level of the exchange rate and the extent of labour market regulation that need to be lowered.

The EU Commission knows it’s failed.
The European authorities, predictably, don’t agree. They think that fiscal orthodoxy will work miracles; lifting productivity and lowering costs. There’ll be a near-term reversion to economics balance, and no disintegration of the EMS!

And is looking for a scapegoat.
If there are anxieties in financial markets, they’re the responsibility of Hedge Funds! Commissioners have, of course, long wanted to regulate these troublesome irritants out of business. Now perhaps is the time to do so. Paris and Brussels are busily working on the blueprints.

It’s selected the City of London. Darling approved; Cameron doesn’t disapprove!
If that should turn out not to be sufficient to keep the system going, temporary loans would be supplied to embarrassed countries. And who’d supply the funds? The rest of the EU; including, incredibly, Britain! Cheekily, the Commission asked for help earlier this year. And, outra-geously, in the face of universal British disapproval, Alistair Darling agreed!!!

Economics News : 12 Nov

November 12, 2010

By dint of railing at fools,
we risk becoming fools ourselves!

Gustave Flaubert—be kind to politicians and central bankers, therefore!

Some phenomena are essentially temporary.
Currencies have been too stable for too long. The European monetary authorities have suppressed changes in EZ exchange rates. And a number of Asian Central Bankers have operated similarly to preserve the dollar value of their currencies.

Fooling traders is one.
Until earlier this year, the policies were quite successful. A skilful mixture of psychology and open market operations convinced traders that there was little to be gained from speculation. No longer.

It can be done, but there’s always a reaction.
The money policies that caused currencies to converge prompted economies to diverge. And that convinced speculators that adjustments would have eventually to be made. The only issues worth debating were: how much and how soon?

Trichet is about to be taught the lesson.
Last week’s GDP numbers from the EZ demonstrated how urgent the need for change had become: the weak were getting weaker, and the strong stronger. Germany’s third quarter growth was 2¾% (excellent, given the better than 9% figure in the preceding period), but Spain’s and Portugal’s, Greece’s and Ireland’s, were in negative territory. The money policy appropriate for the one was clearly inappropriate for the others.

It’s unlikely that either he . . .
What was Trichet to do? Focus on the good or the bad? In either event, there’d be a disaster: if money were tightened to suit the strong, the weak would suffer a 1930s-style depression; if it were loosened to accommodate the weak, the strong would overheat (or jump ship).

. . . or the EZ will survive.
In these circumstances, the only sensible thing to do was abandon the pretence of a single currency and let member countries implement independent money policies. That was the conclusion to which traders and hedge funds had come months ago. They saw the ECB as a busted flush. It’d not been respected in the past; it wouldn’t be in the future.

Short term, the euro might rise.
How much will the departing currencies fall in relation to the ongoing euro? Nobody knows, but the range of guesses is fairly tight: 15 to 40%! Much will depend on whether the Governments of the leaving countries honour or repudiate their euro-denominated bonds.

But, eventually, it’ll morph into the DM.
There’s another issue exercising the minds of traders. If the ongoing euro were to rise significantly in the aftermath of any departures, mightn’t that send the next candidate over the top? If the four obvious casualties were to go, it’s possible that a stronger euro, made stronger still by heightened German influence, would force out Italy and Belgium as well. Next in line: France! By 2014, it’s not impossible that the euro’ll be confined to Germany and a couple of its satellites!

The Chinese know they have to tighten money.
Asians are more logical than Europeans. They’ve already worked out what needs to be done, and have prepared themselves to do it. Currently, the Central Bankers in Beijing may be resisting, but probably only for the sake of form. They know that the alternative is protectionism. They know as well that their domestic economy is overheating (property bubbling). Higher interest rates and a stronger currency are needed.

The Indians also.
India’s analysis proceeds similarly. The monetary authorities have been remiss: they’ve let inflation rise to 15% and the external deficit to 5% of GDP. It may be that a recession will be required to restore equilibrium.

That’ll allow the Americans to loosen.
The Fed has a problem on its hands. US growth faltered in the second and third quarters. It needs a boost: easier money, a weaker currency, or both. Inflation seems not to be a problem. Jobs are. They’re not being created quickly enough to make the recovery self-sustaining.

The Fed wants a weaker currency.
Bernanke realises that, in the slowing phases of the cycle that lie ahead, it’s recession that has most to be feared. Quantitative easing will be implemented, therefore. And, if the dollar were to fall 25 to 50% against the yuan, he’d probably not worry. Republican hotheads will be allowed to pretend that fiscal policy is important. He’ll control liquidity.

So, probably, does the B-of-E.
The Brits are taking a somewhat similar line, albeit less expertly. The Governor of the Bank of England has mis-analysed the economy fairly comprehensively in the past. It’s to be hoped he’ll not do so again.

Pity about Cameron.
Nor is the Government inspiring much confidence. The GDP numbers for the middle quarters of 2010 were satisfactory. In part, though, they were boosted by last year’s devaluation. Things will get worse in the new year. And what a pity it was that, on the fiscal front, the Government missed the golden opportunity provided by the spending review to contain the pensions of the public sector and the excesses of the eurocrats.

The bull run isn’t yet over.
Currently, financial markets are nervous. Investors fear that political aggravation in Seoul will hurt valuations. It probably won’t. There’ll rise again in the months ahead.

Economics Views : 10 Nov

November 12, 2010

In international politics, as in high finance,
intelligence is unimportant, duplicity essential.

Mikhail Bakunin—economies are performing as well as the public had hoped they would, and politicians are being blamed.

All round the world, incumbent politicians . . .
At the G20 meeting in Seoul this week, the Press focused on international tensions: those between the US and the PRC on the one hand; and those within the EZ on the other. Both were the result of divergent competitiveness. And both had given rise to divergent economics performance.

. . . are unpopular, and being dismissed.
How were the imbalances to be resolved? Would the process be amicable or otherwise? The prospects for the one looked moderately good; those for the other worryingly bad. Politicians in America and China tended to be pragmatic; those in Europe idealistic.

They blame the “unfair practices” of foreign countries.
The former were expected to take contentious opening positions, but compromise subsequently. The latter, affecting initial co-operation, would remain dogmatically inflexible. A crisis would probably be avoided in the one case, not in the other.

The genuine cause is divergent competitiveness.
It wouldn’t help that the cyclical upswing in global activity was in its maturing phase. GDP was still advancing, but doing so at progressively slower rates. And, from autumn 2011, the cycle having peaked, the background would start to deteriorate. There wasn’t much time in which to do a deal!

The easy short-term solution is currency adjustment.
China knew what was at stake. The country’s leaders didn’t want to concede a sizeable revaluation of the yuan, but recognised that the alternative, protectionist legislation, would be much worse. A compromise was imperative.

China will co-operate.
Europe knew that it ought to behave similarly, but refused to do so. Loathsome Commissioners, unaccountable and out of touch, preferred economics disaster. They’d probably get it.

Europe won’t.
Greece and Ireland had already been condemned. Spain and Portugal would probably follow them to the stake. France, Italy and Belgium might do so as well. Their problem was twofold: they had to compete not just with Asia, but with Germany also. A decline in the euro-yuan exchange rate helped on the one front, but not the other.

The euro, part of the problem, is kaputt.
What was to be done to lower France’s costs, for instance, relative to Germany’s? The ECB and the Commission, disdaining currency adjustment and labour flexibility, recommended that balance be restored via differential inflation! In effect, for the greater glory of the EMS, they’d plunge France into a decade-long recession!

The ECB likewise.
In reality is that the EZ is finished. The single currency ceased to be a single currency several months ago. The corpse is rotting, and ought to be given a decent burial.

But will debts be paid out? Probably not.
What remains to be decided is who inherits what. When Greece reverts to the drachma, will its euro-denominated bonds be honoured or repudiated? If the former, economics recovery will be delayed; if the latter, the demise of the finances of other failing EU countries hastened.

The risk is that HMG’ll be asked to compensate dozy investors! And it will!!!
And where is Britain in all this? Not as well placed as she ought to be. The madness of the euro might have been avoided, but all the EU’s other lunacies were implemented. The Prime Minister reneged on his promised to hold a referendum on the Constitution and is now busily reneging on the promise not to transfer more powers to Brussels.

Blame Cameron, Brown, Blair etcetera etcetera.
The only good news is that London’s securities markets are faring reasonably well. Currently, the advantage is coming via the currency; presently it’ll revert to valuations.

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