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Countdown to €/£ parity

by Frank Schnittger Fri Dec 12th, 2008 at 05:12:54 AM EST

Perhaps we need a "Countdown to parity" diary series chronicling the decline of Sterling relative to the Euro.  It currently stands at .89 £ to € or 1.12 € to £ as in the graph below. This is down from a high of 1.75 € to £ in the early 2000's.

The key reason for the decline now is the collapse of the financial services sector which had become the increasingly dominant sector of the British economy and which has resulted in an overall decline in the size of the British economy in recent months.  However massive increases in Government borrowing to fund the bail-out of British banks and to stimulate the British economy are also resulting in an increasing crisis of confidence in the value of the £.

Although the nominal Debt to GDP ratio is c. 40% of GDP, some authorities now estimate the real Debt GDP ratio to be closer to 100% once all the contingent liabilities taken on by the Bank nationalisations are taken into account - the highest figure for over 50 years.  Sober analysts like Willem Buiter are warning of a triple financial crisis: a combined banking crisis, sovereign debt crisis and sterling crisis and advocating an immediate move to join the Euro as a means of stabilising the crisis.

But would the current Eurozone countries be wise to agree to such a move without radical structural changes in how the British economy is managed?  Would Merkel add a nein to De Gaulle's famous non of 40 years ago?

promoted by afew


First, let me declare an interest in this discussion:  Britain is still Ireland's largest trading partner, and so exchange rates risks and costs are still a major factor in Irish economic development - perhaps more so than for any other Eurozone member.  The devaluation of Sterling is currently putting huge pressure on the Irish retail trade as shoppers flock in their droves to Northern Ireland to take advantage of the much cheaper Sterling denominated goods.

To be fair, the Irish Government has also not helped their cause by raising VAT rates just as the UK is reducing them.  In addition the Irish retail sector - being relatively small and remote from the rest of Europe - has not had the same competitive pressures as mainland Eurozone countries - resulting in Irish prices for food and consumer goods frequently being as much as 30% higher than in the rest of Europe.  Global retail chains like Tesco, Aldi, and Lidl routinely charge 30% more for the goods in Ireland - always, of course, citing higher overhead and transport costs - when the reality is that it is lesser competitive pressures which enables them to get away with higher prices.

Ireland ranks fourth dearest in price survey - The Irish Times - Wed, Dec 10, 2008

RELAND IS the fourth dearest place in the world to live and shop, according to an international price comparison survey.

Although prices are falling for many goods, they are not falling as fast as in many other countries, the survey by cost comparison website PriceRunner.co.uk shows.

Ireland was the most expensive of the 23 countries surveyed for condoms and ranked in the top five for other products such as vodka, bus tickets, Coca Cola, takeaway coffee and a Nintendo Wii. Prices for some consumer electronics in Dublin are more than twice those in the US.

Last year's survey ranked Ireland in sixth position, but this year only Norway, Denmark and France were more expensive.

So the devaluation of Sterling cannot be blamed for all of Ireland's economic troubles, but it certainly doesn't help.  If the same currency were in use both north and south of the boarder there would be much greater price transparency, it would be difficult for multiples with branches in both markets to justify such differential pricing, and generally it would facilitate the greater integration of the all Ireland economy - something the EU and the internal market is supposed to be all about.

But would it be in the interest of other Eurozone countries to allow Britain to join?  Certainly, if you want to compete with the $ as the world reserve currency, there is a certain logic to saying that 'Big is Beautiful' and that adding Britain - and the London financial centre - to the Eurozone will give it more critical mass and help to consolidate its position vis a vis the $.  But would the UK joining the Eurozone destabilise it and make its future management more difficult unless there was a concurrent development of common fiscal and economic policies?

The current apparent spat between Merkel and Sarkozy/Brown can also be seen as a fundamentally different philosophy of Government and Government intervention - even in a time of crisis - and such a philosophical difference would likely grow even wider if a more Atlanticist Tory Government were to come to power.  The "British solution" appears to be to borrow and inflate its way out of trouble and if this results in a devaluation of Sterling (and an improvement in the relative competitiveness of what remains of British Industry) then what's the problem?  It's hard to see any future German Chancellor (or ECB President) being similarly flahouloch with the value of the Euro.

So for all kinds of political, national chauvinistic, and genuine philosophical reasons I don't see the UK joining the Euro any time soon.  But that also means we have to live with a wildly fluctuating neighbouring currency.  And at the moment it seems that there is only one way that Sterling is going, and that is down.  What goes down doesn't always come up again, but it might be interesting to see where the £ to € exchange rate will be in 12 months time:  Anyone like to take an (of course very educated) guess?

Poll
The £ to € exchange at the end of 2009 will be:
. .70 4%
. .80 9%
. Same as now (£.89 to 1€) 9%
. .95 9%
. Parity 33%
. 1.1 14%
. 1.2 0%
. The £ will have joined the European Exchange Rate Mechanism at Parity 19%

Votes: 21
Results | Other Polls
Display:
Just for fun...

Migeru: Blogging the Liberal Democrat Conference: Day One by Migeru September 16th, 2007

The Euro was barely mentioned, but there was an intervention by someone from "The City" which I'll report here. He started out with the claim that London is subsidising the rest of the UK through its tax revenues which, as we know (ahem), are due mostly to London's position at the centre of the world's capital markets. He mentioned that the Euro Zone is taking over from the US as a global standard-setter in finance, and that this is driving international banks to establish offices in London, which (see above) is good for the UK economy. So the Euro is good for Britain because of that. But, of course, that doesn't mean that the UK should trade the Pound for the Euro. And here's where I really felt like slapping the guy to wake him up: he said there wouldn't be a case for the UK joining the Euro Zone unless and until there's some serious economic crisis which is not what "the current hiccup" is.
I'm sure that guy still has his job in The City while I have lost mine... There is no justice in the world...

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Dec 11th, 2008 at 03:39:30 PM EST
Sorry to hear you lost your job.  I presume it was a "last in, first out" situation. I wondered where you'd been.  As I have argued elsewhere (with Jerome) being right too early doesn't really help you in (bureaucratic) business.  (It can help you as an entrepreneur).  Even Obama is appointing Summers rather than Stiglitz. The alacrity with which the neo-libs have become neo-Keynesians also seems to have disconcerted the Germans.  Career management is about re-inventing your brand to suit changed circumstances.  The most successful are also the most shameless.  Principles tend to get in the way.  I hope you find something else soon - perhaps start your own consultancy - how about one specialising in "surviving disaster Capitalism"?

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Dec 11th, 2008 at 03:55:40 PM EST
[ Parent ]
Bah, it's been over two months.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Dec 11th, 2008 at 04:08:32 PM EST
[ Parent ]

The alacrity with which the neo-libs have become neo-Keynesians

They are no more "neo-keynesians" that the Pauslon bailout of friends was "socialism." We are storign up trouble if we let them steal more words while they still do the same as before: pile in debt on all of us to help a few.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Dec 12th, 2008 at 03:44:03 AM EST
[ Parent ]
Entirely agree, they will steal every word, every idea in the book - one of their techniques is ideological chaos.

(But if y'all want to take on debt to help me, I don't mind... ;))

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Dec 12th, 2008 at 05:05:47 AM EST
[ Parent ]
The pound needs to spend 2 years in a narrow exchange rate band (the ERM). This means the £ cannot have joined the Euro by the end of next year.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Dec 11th, 2008 at 03:41:53 PM EST
Willem Buiter goes through the process and alludes to this.  However he sees many of the effective benefits of the Euro applying even during this transitionary phase.  Perhaps I should amend the poll to reflect this distinction.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Dec 11th, 2008 at 03:46:54 PM EST
[ Parent ]
Can't amend a poll after it's been voted. I think I can do it. Should I replace the last option with "will have joined the European Exchange Rate Mechanism at parity"?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Dec 11th, 2008 at 03:48:04 PM EST
[ Parent ]
Fine.  I had amended it to read Euro/ERM - I don't know if that change stuck.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Dec 11th, 2008 at 03:58:04 PM EST
[ Parent ]
Frank, horrible formatting with the picture in the left half of the table. Just use an <IMG SRC="..." ALIGN=left> tag.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Dec 11th, 2008 at 03:49:47 PM EST
Thanks - it had looked fine for me but then I have a wide screen laptop.  Now it looks like it needs a centre spacing column but I'm not sure my HTML is up to it.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Dec 11th, 2008 at 04:00:26 PM EST
[ Parent ]
Added some padding.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Dec 11th, 2008 at 04:08:15 PM EST
[ Parent ]
Thanks - be useful to add the code to the new user guide, or better still, to the space around the text/copy boxes on the edit page.  I'm a copy and paste man when it comes to code!  I was trying to avoid the above the fold graphic/text taking up too much screen space but the HTML requirement doesn't make it easy...

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Dec 11th, 2008 at 04:22:46 PM EST
[ Parent ]
There are too many Little Englanders who'd rather see the pound suffer hyperinflation - which is a reasonably likely outcome of the Brown plan - than see it disappear.

A year from now parity will be a distant curiosity.

Economically the pound should have been eliminated back in the late 90s. It was always a footnote on the NuLab ticklist, because pushing harder for it would have been political suicide.

So 'should' and 'will' are completely different questions. The answer to 'should' is Euro entry is the only thing that can save the UK from double digit inflation and interest rates of 15-20% a year or two from now. I'm sure the two year requirement could be waived at short notice, on the grounds that the UK won't get another chance to show practical interest in joining any time soon.

But 'will' is still beyond a last resort, politically. It would take food riots and martial law before it could be considered seriously in Whitehall - or at least a plausible threat of same.

I'd be impressed if Brown suggested joining ahead of time, but I'm not expecting that happen. The Tories would be even less likely to suggest it, for obvious reasons.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Dec 11th, 2008 at 04:29:29 PM EST
My take on the internal UK politics would be similar, but the Diary is written more from an Irish/Eurozone perspective.  Would the Eurozone countries really want to take on the grief of Brits whingeing at ECB polices in the way that they whinge at Brussels now?  Hell, even if the Eurozone rescued the UK from an Iceland meltdown (geddit) they would get nothing but grief in return.  I suspect Merkel would let the UK stew in its own juice - and as you suggest - the Tories would be more inclined to that POW as well.  The real question is whether the City would have the clout to call the shots - especially if London was losing its position as a centre for global capitalism to Frankfurt/Paris.

My suspicion is that the UK will join the Euro far too late, if at all, and that the Germans will not be over eager to accommodate them - as they are not now over eager to adopt the Brown strategy for European recovery.  Bottom line - Germany will call the shots.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Dec 11th, 2008 at 04:47:32 PM EST
[ Parent ]
You may well be right. And it's an interesting POV because the default UK assumption is that of course the EU would accept the UK on demand.

The possibility that there might be loss of face, or strings and conditions, not to mention a certain implicit payback, really isn't on the radar here.

The UK could point out that the City has been convenient for various semi-legal and illegal laundering and tax evasion schemes which have had tacit EU support, so it's not as if the EU is an innocent party. But that might be a little too overt and wouldn't be in the spirit of the game as it's played.

This is worrying because UK as Iceland 2.0 is far from unlikely. We do still have manufacturing and engineering industries of a sort, and Brown has been muttering about green this and that. We also have unexpectedly strong media and broadcast industries, and if it were up to me I'd be pushing the creative industries next to sustainable greenery as a replacement for finance - because we have the talent, but most of it is being wasted or sidelined.

Really we're in a 70s-style transition moment now - from Old Economy to New Economy.

Back then Thatcher and the Friedman Freaks were ideally placed to push through their idea of progress. Currently green tech and creative media are an obvious next step, but neither have the lobbying power nor the so-called intellectual and academic support that finance had at the time, so any transition is likely to be much less smooth and much more dangerous.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Dec 11th, 2008 at 06:09:56 PM EST
[ Parent ]
Can't have Britain suffering the indignity of shacking up with the Cheese-Eating Surrendermonkeys under a single currency.  Read my lips: Naaah gaaah do it.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Dec 11th, 2008 at 06:11:59 PM EST
[ Parent ]
Even worse, the Brits can't have the Krauts running the show and telling them what to do!

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Dec 11th, 2008 at 06:41:35 PM EST
[ Parent ]
That, too, but I just wanted an excuse to say "Cheese-Eating Surrendermonkeys" to get a laugh out of Jerome, since I know he gets a big kick out of that name. :)

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Dec 11th, 2008 at 06:47:18 PM EST
[ Parent ]
If the UK joins the European Exchange Rate Mechanism it will become vulnerable to a Soros attack and, again, it will depend on the Eurozone's willingness to defend the exchange rate.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Dec 11th, 2008 at 04:59:01 PM EST
Which in turn requires that Eurozone countries have confidence in UK fiscal/economic policies in the first place - which won't happen under current policies - and current policies won't be changed at the behest of the Germans - which means that ERM won't happen short of a post Iceland melt-down rescue package and radical political culture/ policy change.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Dec 11th, 2008 at 05:05:48 PM EST
[ Parent ]
Here is the longer-term history:

I.e. the Pound just reached the region of its lowest valuation after being expulsed from the ERM.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Dec 11th, 2008 at 05:17:45 PM EST
You could also read the graph since 1995 as representing a dip in the Euro/Deutschmark post German re-unification which has now been corrected - and the longer term Deutschmark/Sterling trend is reasserting itself.  Perhaps devaluation has been an ongoing UK strategy since ww2/loss of empire to compensate for ongoing de-industrialisation/loss of competitiveness.

Why change now?  There are no structural factors to offset that long-term decline, and some which will accelerate it, at least in the short term.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Dec 11th, 2008 at 05:27:33 PM EST
[ Parent ]
1995-2008: the Anglo Disease in full force, before the symptoms are too obvious.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Dec 12th, 2008 at 03:50:31 AM EST
[ Parent ]
How so? What's the mechanism by which the UK financial sector could prop up the £/€ exchange rate? And why only from '95 through '08? What happened in the early to middle '90s to offset the devaluation in the previous couple of decades?

I'm not saying It's wrong - I just don't see a clear mechanism (whereas the German reunification explanation comes with a pretty neat story).

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Dec 12th, 2008 at 04:30:17 PM EST
[ Parent ]
British property bubble - Wikipedia
Property prices in Britain have risen dramatically between 1996 and 2005.


*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Dec 12th, 2008 at 04:43:56 PM EST
[ Parent ]
FT.com | Willem Buiter's Maverecon | Could the UK face a sterling crisis, or are we in one already?
One interpretation of the drivers of this persistent overvaluation would be a Dutch disease story, where the role of the natural resource sector in the standard version of the Dutch disease is taking by the UK banking sector.  In this interpretation, a long financial industry bubble in the UK has driven up the real exchange rate in the whole economy and crowded out other sectors producing internationally tradable commodities.  The recent sharp depreciation of sterling corrects this long-standing anomaly


notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 12th, 2008 at 05:02:37 PM EST
[ Parent ]
I get that part: Stoopid Furriners(TM) buy into British Ponzi scams with their own currency, which they then have to convert to £, which drives up the £. But why did that become so dramatically more marked in the mid-90s? The fun and games started in the early 80s with Maggie Thatcher, after all. So why this uptick in exchange rates in the middle of Bliar's first or second term?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 14th, 2008 at 04:13:14 AM EST
[ Parent ]
Bliar's first term started in 1997. The Euro started was introduced in 1999 but didn't circulate until 2002. I have always attributed the Euro's initial weakness to the fact that it didn't circulate.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Dec 14th, 2008 at 05:13:02 PM EST
[ Parent ]
I didn't realise that Bliar was quite that recent a phenomenon. He seems to have been there for all of my political life. Not that I paid much attention to him before he started going off on that whole ill-advised Iraq adventure...

Which is all well and fine, but according to the graph, the revaluation of the £ happened in '94-'96 against the D-Mark. So the question appears to remain, even if the name of the British PM has to be swapped to whoever it was before Bliar.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 14th, 2008 at 05:19:20 PM EST
[ Parent ]
I didn't realise that Bliar was quite that recent a phenomenon.

Youngster :-) 1993: Clinton, 1994: Wim Kok, 1996: Persson, Prodi, 1997: Bliar, Jospin, 1998: Schröder - that was the centre-left Third Wayist (well, except for Jospin) march into power.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sun Dec 14th, 2008 at 05:31:29 PM EST
[ Parent ]
He seems to have been there for all of my political life.

Well, you were not that old in 1997...

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Dec 14th, 2008 at 05:33:56 PM EST
[ Parent ]
So the question appears to remain

I found a real gem for you.

HOME ECONOMICS FOR THE NINETIES | Independent, The (London) | Find Articles at BNET

...Driven by stockmarket bonuses, foreign investment buyers (principally from Hong Kong and Singapore) and a shortage of the "right" properties, the capital's heated market is seen, by this faction, as the portent of a Second Coming for a nationwide upturn in house prices - regardless of the election results. (Rival agency Knight Frank recently made the dry comment, that it doesn't see the "widely predicted victory for Labour" having a significant effect on the market because "the economic policies of the Labour party do not appear to be dramatically different to those of the current Government".) "Of course, it's nothing like the Eighties boom," said a Savills Surrey consultant in a silk bow tie. "Ten years ago, it didn't matter if a house was as ugly as sin and sat on a main road, people would buy it at any price. These days, buyers are much more fussy and still very cautious." Let's hope he's right, because signs of the crowd hysteria which underlined the 1988 boom-time peak are beginning to re-emerge.

The date of the article is... 27 April 1997. Pretty prescient.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sun Dec 14th, 2008 at 05:43:04 PM EST
[ Parent ]
So... is The Independent praising the NuLab soon-to-be government there, or are they attacking it? I can't really figure out which...

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Dec 15th, 2008 at 07:26:54 AM EST
[ Parent ]
Damning with faint praise?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Dec 15th, 2008 at 07:28:10 AM EST
[ Parent ]
We could test the German Unification hypothesis by looking at similar time series for £/$ and £/yen exchange rates. If they show a similar picture, then it's probably the £ climbing. If they don't have that kink, it's probably fluctuations in the value of the DM.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 14th, 2008 at 04:16:16 AM EST
[ Parent ]


*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Dec 14th, 2008 at 06:01:58 PM EST
[ Parent ]


*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Dec 14th, 2008 at 06:09:26 PM EST
[ Parent ]
Nice figures, but I'm not quite sure what story they tell. Where did you find them, and do they have the numbers that go into them so I can do an overlay of all three time series?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Dec 15th, 2008 at 07:30:48 AM EST
[ Parent ]
Bank of England...

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Dec 15th, 2008 at 08:00:22 AM EST
[ Parent ]
Given the speciality of the dollar's course vs. the Euro, and Japan's aspiration for the Yen to follow the dollar, I'm not sure much can be derived from this graph.



*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Dec 15th, 2008 at 08:33:34 AM EST
[ Parent ]
My take would be that Sterling has performed similarly against other major currencies with the exception of the Euro from 1999 to 2003 when it significantly over performed against the Euro.  Perhaps this reflects anglo scepticism about the prospects for the Euro in its early days - and as Mig says - particularly during the period prior to its formal introduction (Jan 2002) as the cash currency for all participating members.  Perhaps its a case of the Euro gradually gaining credibility and traction such thet 90% of UK trade is now transacted in Euros.

Euro - Wikipedia, the free encyclopedia

After the introduction of the euro, its exchange rate against other currencies fell heavily, especially against the U.S. dollar. From an introduction at US$1.18/€, the euro fell to a low of $0.8228/€ by 26 October 2000. After the appearance of the coins and notes in 1 January 2002 and the replacement of all national currencies, the euro then began steadily appreciating, and soon regained parity with the U.S. dollar, on 15 July 2002. Since December 2002, the euro has not again fallen below parity with the U.S. dollar but instead began an ascendency. On 23 May 2003, the euro surpassed its initial ($1.18) trading value for the first time. At the end of 2004, it reached $1.3668 (€0.7316/$) as the U.S. dollar fell against all major currencies. Against the U.S. dollar, the euro temporarily weakened in 2005, falling to $1.18 (€0.85/$) in July 2005, and was stable throughout the third quarter of 2005. In November 2005 the euro again began to rise steadily against the U.S. dollar, hitting one record high after another. On 15 July 2008, the euro rose to an all-time high of $1.5990 (€0.6254/$). In a reversal, in August of 2008 the euro began to drop against the U.S. dollar. In just two weeks the euro fell from its peak to $1.48 and by late October it reached a two and a half year low below $1.25.[59] On 12 December 2008, the pound sterling fell to an all-time low of £0.89235 (€1.1206/£) against the euro.[60]


notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Dec 15th, 2008 at 09:35:14 AM EST
[ Parent ]
once it becomes that rumania has a better chance of feeding its own population, i expect the £ will find its 'true value'.

the usa might be about to get re-aquainted with the joys of manual labour to a barely imaginable degree, but at least they have enough land to feed themselves.

the english are a few beers, and a few more factories closing, away from mob rule.

and what a charming mob!

anglo disease has consequences, and chickens have a way...

prediction: the next monarch will take the electric bus with the rest of the folks while going to work on the community farm.

charles has done his homework, i wish you could say that about more brits, toffs or not.

 

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Mon Dec 15th, 2008 at 10:09:46 AM EST
[ Parent ]
But will Charles be a sustainable King?

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Dec 15th, 2008 at 05:21:47 PM EST
[ Parent ]
lol

good question

i can only say that if the monarchy has any sustainability going forward, it will thrive better under chucky than it will in its present constipated form.

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Mon Dec 15th, 2008 at 10:43:05 PM EST
[ Parent ]
If I had to take a stab, I'd call that a sharp devaluation of the £ around '93, followed by a more or less steady climb (with a peak around '97-'99 - what happened there?) until the present crash, overlaid by a period from '99 through '03 where the € was undervalued.

This is certainly compatible with Jerome's diagnosis, and with Migeru's ideas about the relative weakness of the € around the time of its introduction.

The German reunification, OTOH, does not strike me as overwhelmingly obvious in that figure.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Dec 15th, 2008 at 01:44:27 PM EST
[ Parent ]
(with a peak around '97-'99 - what happened there?)

As per upthread: the re-start of the housing boom; and also London having its part in the dotcom boom (but even London was left on the sidelines by Wall Street by 1999); both of which meant a flood of foreign capital.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Dec 15th, 2008 at 01:54:37 PM EST
[ Parent ]
OK, it sounds like we are starting to have a cute story... I'm not sure I want to get carried away yet, but it's definitely a cute story.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Dec 15th, 2008 at 03:47:00 PM EST
[ Parent ]
The German reunification, OTOH, does not strike me as overwhelmingly obvious in that figure.

Indeed the DEM never had it so good as in the first few years after Reunification. Reunification might still have a effect if investors 'realised' the economic problems around it with delay. Redstar however will surely point blame at Bundesbank policy in those years.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Dec 15th, 2008 at 01:57:34 PM EST
[ Parent ]
I'm trawling across some older news at Bloomberg, and found this gem:

Bloomberg.com: News

``The bleak outlook for the economy has led to a lot of disappointment and that's putting pressure on the pound,'' said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``Whichever way you look at it, there's no good news from the U.K.''

The pound traded as low as 82.38 pence per euro... The pound may depreciate to 84 pence in the next ``couple of weeks,'' Karpowitz said.

...Last Updated: November 12, 2008 03:27 EST

My bolding. It actually weakened that low the same day. In an article later that day, the same quote is included -- I wonder if the editor felt funny or just didn't pay attention:

Bloomberg.com: News

The pound traded as low as 84.12 pence per euro, the weakest since the single currency's introduction in 1999, and was at 83.82 by 4:27 p.m. in London. It fell to $1.4972, dropping below $1.50 for the first time since June 2002, from $1.5384. The pound may depreciate to 84 pence in the next ``couple of weeks,'' Karpowitz said.

...Last Updated: November 12, 2008 11:28 EST



*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Dec 11th, 2008 at 06:23:03 PM EST
[ Parent ]
FT.com | Willem Buiter's Maverecon | Could the UK face a sterling crisis, or are we in one already?
...there is nothing that cannot be explained as a (long overdue) correction of a persistent overvaluation of sterling - a misalignment that has biased the economic playing field against industries, both exporting and import competing, that would have had a fairer crack of the whip at a more reasonable exchange rate.

One interpretation of the drivers of this persistent overvaluation would be a Dutch disease story, where the role of the natural resource sector in the standard version of the Dutch disease is taking by the UK banking sector.  In this interpretation, a long financial industry bubble in the UK has driven up the real exchange rate in the whole economy and crowded out other sectors producing internationally tradable commodities.  The recent sharp depreciation of sterling corrects this long-standing anomaly.


Emphasis mine.

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Thu Dec 11th, 2008 at 05:22:44 PM EST
LTE?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Dec 11th, 2008 at 05:29:59 PM EST
[ Parent ]
Jerome should have Munchau eat his dismissive words on the Anglo Disease concept.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Dec 11th, 2008 at 05:44:11 PM EST
[ Parent ]
I mean Martin Wolf, not Munchau.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Dec 11th, 2008 at 05:46:56 PM EST
[ Parent ]
See the discussion started by afew here

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Dec 12th, 2008 at 03:53:23 AM EST
[ Parent ]
Looks like the sterling is in free fall: it just passed under 1.12 €...

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Fri Dec 12th, 2008 at 06:48:42 AM EST
Although the nominal Debt to GDP ratio is c. 40% of GDP, some authorities now estimate the real Debt GDP ratio to be closer to 100% once all the contingent liabilities taken on by the Bank nationalisations are taken into account - the highest figure for over 50 years.

Yes, well, Alice at UKhousebubble.blogspot. was kind enough to post a graph of UK "external debt" that linked to Spectator.co.uk. The one to the left the other of the pair. I take it "external debt" comprises government bonds ("gilts") as well as  corporate bond and securities held by foreign investors. Note that the graph merely describes rates of change rather than absolute value outstanding. Evidently, investors "fled" to UK debt quality over the period. The Spectator's blogger implies a crash in roll-over corporate debt is imminent:

"Narrow it down to short-term debt, ie IOUs that have to be paid back within a year, and the picture grows even bleaker. It adds up to 300% of GDP - six times that of France whose loans are long-term. Saunders says, with some understatement, that this makes "the UK economy and financial system highly vulnerable when, as now, global banking and capital flows dries up." I would suggest that Ireland's miracle industrial growth over the past decade is vulnerable to the similar credit dependencies more so than ForEx ties to the UK.

I didn't find the Saunders source material, but I did discover his opinions are rather ubiquitous, in the manner of Delong and his "good friends" Mankiw and Furman. Saunders appears at silobreaker.com (what an amusing masthead!). He also publishes at MarketWatch. As the Euro-contributor to the January 2007 bulletin, "Benign Outlook Reinforced," (pdf) his analysis betrays his rank in the silo. Consider one top-line: "M3 appears increasingly uncorrelated with GDP in the short- and medium-term, while credit to firms overstates the growth of total liabilities." In his section Saunders clarifies "credit to firms" is a head-line for excessive leverage encouraged by low interest rates, cascading from the ECB setting over all. Which strikes me as odd since ECB resisted despite much press acrimony FRB formulations 2007-2008. Perhaps Saunders was somewhat biased by UK-IR securities marketing and firm-level data. I dare not speculate on that matter. His observation about cumulative corporate debt and "total financing" exceeding capacity is well taken.

Diversity is the key to economic and political evolution.

by Cat on Fri Dec 12th, 2008 at 08:41:25 AM EST
MarketTrustee:
It adds up to 300% of GDP

Fuck.

Rancid shark steak - here we come.

I don't see the bank nationalisations as a problem - as long as they're paying their way, they're not a key debt.

More worrying is the long-term PFI fix, which was was always designed to take government borrowing off the official balance sheet, but will have the unfortunate effect of back loading repayments so that various councils and social services become less and less able to afford them.

If the short term debt figures are accurate - and bear in mind the Spectator is a Tory rag - that's quadruple plus ungood.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Dec 12th, 2008 at 09:03:03 AM EST
[ Parent ]
Wow - thanks for erudite comment

MarketTrustee:

I would suggest that Ireland's miracle industrial growth over the past decade is vulnerable to the similar credit dependencies more so than ForEx ties to the UK.

Although the Sterling area is our biggest single market, the Eurozone, taken as a whole, is much bigger.  I suspect most Irish corporate borrowing is in Euros - interest rates have been low, and why take on exchange risk?

The problem for the Brits is that with so much of their borrowing denominated in $ and €, they have to pay back so much more as Sterling depreciates.

Longer term this can be offset by the improved competitiveness of Sterling based companies, but short term it must make their borrowings look pretty scary.

For many companies, there may be no long term.


notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 12th, 2008 at 09:04:49 AM EST
[ Parent ]
Ireland's miracle industrial growth

Where industy == (services||construction) pretty much.
by Colman (colman at eurotrib.com) on Fri Dec 12th, 2008 at 09:06:30 AM EST
[ Parent ]
kiss o' death. If it's any consolation, BLS estimated US services at ~86% of the labor force a/o Q2 2008.

Diversity is the key to economic and political evolution.
by Cat on Fri Dec 12th, 2008 at 10:10:29 AM EST
[ Parent ]
Obligatory reminder about Ireland; it's population is 4m and it's basically one city with an extended hinterland. Analogies to bigger countries are often pretty much vacuous, just like they were when the neo-libs were singing the praises.
by Colman (colman at eurotrib.com) on Fri Dec 12th, 2008 at 10:13:04 AM EST
[ Parent ]
Analogies to bigger countries are often pretty much vacuous, just like they were when the neo-libs were singing the praises.

Comparison by total population isn't the point of my comment. The point of my comment is comparison, if any, to structure, or composition, of the labor force and perforce domestic demand for certain skills. The so-called service sector is non-farm and non-manufacturer. Now, the types of occupations that comprise the service sector have varied over time, for example, to exclude "gardeners" but include "landscapers", real estate agents and customer service reps as well as "independent software vendors" (ISVs). In any case and as a matter of asset production, such employment classes are not coupled to durable assets and are historically speaking extremely vulnerable to substitution effects, ergo unemployment and prevailing (non-unionized) wage competition, in both B2B supply chains and consumer DI markets.

Now, the welfare costs, if any, to the state is a function of the size and composition of the labor force. Of course, the cost would be greater in the US than in Ireland simply because of the population differential. So that is an uninteresting observation.

The truly interesting hypothesis of cost and unemployment rates depend on composition characteristics.

Diversity is the key to economic and political evolution.

by Cat on Fri Dec 12th, 2008 at 11:03:06 AM EST
[ Parent ]
Well put.  Ireland still has significant though relatively diminishing agricultural and industrial sectors and is well represented in ICT and pharma.  Like everyone else we have been attempting to go up the food chain into Finance, R&D, Branding, tax avoidance etc. with some success, but the resilience of all these sectors is now going to be severely tested.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 12th, 2008 at 11:20:05 AM EST
[ Parent ]
Ireland: its population is 4m and it's basically one city with an extended hinterland

Sounds like the province of Madrid...

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sat Dec 13th, 2008 at 10:53:58 AM EST
[ Parent ]
Colman is from Dublin.  He doesn't understand that the rest of the country isn't like Dublin....

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Dec 14th, 2008 at 03:38:26 PM EST
[ Parent ]
Hinterland.
by Colman (colman at eurotrib.com) on Sun Dec 14th, 2008 at 04:21:28 PM EST
[ Parent ]
Hinter in German for backside or behind.  The rest of the country is not Dublin's behind...

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Dec 14th, 2008 at 05:01:54 PM EST
[ Parent ]
No, hinter is the preposition 'behind', not the noun.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Dec 14th, 2008 at 05:09:28 PM EST
[ Parent ]
Hinternland...

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Dec 14th, 2008 at 05:20:13 PM EST
[ Parent ]
I think it loses the n in English, to become just hinterland. AFAIK, it's an accepted English term (the spellchecker recognises it too).

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 14th, 2008 at 05:22:05 PM EST
[ Parent ]
Migeru picked at the German association behind Frank's joke ('behind' in English can also mean after/buttocks/ass/you get me, i German that's Hintern), not "hinterland".

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Dec 14th, 2008 at 05:34:20 PM EST
[ Parent ]
Well the rest of the country is not prepositionally behind Dublin either...

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Dec 14th, 2008 at 05:39:47 PM EST
[ Parent ]
MarketTrustee:
I would suggest that Ireland's miracle industrial growth over the past decade is vulnerable to the similar credit dependencies more so than ForEx ties to the UK.

This article re Ireland is first rate: McWilliams is excellent.

Brace yourself now for the Deckland Depression

In fact Ireland is the most exposed EU country of all, and what is coming there will test the Euro to destruction, I think.

Unlike the UK, where housing values are underpinned by a shortage of building land, Ireland has a huge oversupply of newly developed property, developments in progress, and overpriced "banked" land zoned for building.

Irish land prices have collapsed - and the decline has been accelerating, I was told. Virtually all Irish banks - but the "Builders Bank" Allied Irish in particular - are sitting on time bombs.

Several people I talked to in Dublin when I gave

this lecture

think that there will be carnage when auditors get to grips in earnest with this year's set of bank accounts.

McWilliams sets out brilliantly how viciously he sees a depression kicking into the Irish private sector in the DeckLand suburbs...

Brace yourself now for the Deckland Depression - David McWilliams - Independent.ie

Commuter towns such as Naas, Arklow and Navan are likely to be hit hardest and the people who will lose their jobs and, eventually, their homes are the very ones who bought into the boom most. They are the young working families, largely employed in white-collar jobs, who believed the hype and bought the new houses, complete with decking and barbeques, close to the top of the market. They are the Decklanders and Ireland is about to endure the great "Deckland Depression".

A few years ago, it was all so different. Deckland, that vast expanse of new suburbs, which emerged in the past 10 years, was the most optimistic place in the country. It was young, energetic and despite the snobbishness of many commentators who believed that these new towns were soulless, Deckland was as vibrant and community-focused as any new suburb has ever been. If you dispute this contention, look at the growth of community organisations like the GAA or new school rolls in the commuter counties. Deckland was Ireland's "Babybelt"; and for many thousands of people, Deckland represented a New Ireland, where people could settle, own their own houses and begin the great Irish process of trading up. Deckland embodied the essence of the New Irish Dream, where the population was on an upwardly mobile conveyor belt, propelled by the twin forces of easy credit and rising house prices. Everyone could be a winner.

Now all that is shattered and the dream is over. Unemployment is rising fastest in these areas, house prices are falling quickest and a recent survey indicated that the most insecure part of the workforce are young, heavily committed white collar workers.



"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Dec 12th, 2008 at 09:07:26 AM EST
[ Parent ]
Ireland is the most exposed EU country of all, and what is coming there will test the Euro to destruction

Ireland has, fortunately, a small enough GDP that a government guarantee of 2-3 times GDP is has been put in place is only about 5% of the Eurozone's GDP. Ireland may become a wholly owned subsidiary of the European Central Bank, but it won't take the Euro down with it.

However, the days where the EU could have a monetary union and no EU-wide fiscal or industrial policy are likely over.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sat Dec 13th, 2008 at 10:52:08 AM EST
[ Parent ]
I'm sure I read that Ireland's external debt was over nine times its GDP?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sat Dec 13th, 2008 at 03:09:17 PM EST
[ Parent ]
I'm just going with the size of the recent bank bailout. 9 times GDP would put us in the region of 15% Eurozone GDP...

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sat Dec 13th, 2008 at 03:21:42 PM EST
[ Parent ]
The true extent of Britain's debt | Coffee House
P.S. To answer CoffeeHousers' query, this is "external debt" by the IMF definition, which is gross. (And does not include contingent liability, just debt). One must take into account that Britain is likely to have proportionately greater net assets whose value would be amplified by sterling's plunge. But how much greater? I'll keep hunting. Every crisis is different, and each has its own metrics. It was our concentration on the metrics of the last crisis (inflation) that blinded so many to the causes of this crisis (debt).
by Metatone (metatone [a|t] gmail (dot) com) on Fri Dec 12th, 2008 at 09:20:13 AM EST
[ Parent ]
The key issue is the value of the assets Britain can set against its 400% of GDP external debt mountain.  If those assets are in quality profitable companies, then fine.  If they are in derivatives, dodgy mortgages and other asset bubbles and Ponzi schemes, then you are looking at a massive default.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 12th, 2008 at 09:39:29 AM EST
[ Parent ]
If they are in derivatives, dodgy mortgages and other asset bubbles and Ponzi schemes, then you are looking at a massive default.

As always the bottom line is income. Repayment is dependent on income, irrespective of sources. Of course, many of us are watching in wonder as central bankers connive QoQ by ForEx and mineral reserves to "ease" the obligations of their most favored clientele.

Diversity is the key to economic and political evolution.

by Cat on Fri Dec 12th, 2008 at 10:29:16 AM EST
[ Parent ]
Stumbling and Mumbling: UK overseas debt scare
Fraser Nelson is trying to scare us by pointing out that the UK's external debt is equivalent to 400% of our GDP.
Actually, on the most obvious measure, he understates the true amount. National Statistics say our external liabilities were £6.7 trillion in Q2 - 461% of our annualized GDP. (Tables D and K of this pdf).
What he doesn't say is that our overseas assets are also big. They`re £6.4 trillion. So our net overseas liabilities are just £309.4bn, 21.2% of annualized GDP. This is largely a reflection of the fact that we've been running  small current account deficits for ages.
by Metatone (metatone [a|t] gmail (dot) com) on Fri Dec 12th, 2008 at 04:19:09 PM EST
[ Parent ]
Gross external debt by country, per capita, % of GNP
List of countries by external debt - Wikipedia, the free encyclopedia
 United States[1] $13,703,567 6/30/2008 $42,343 31-March-08 99.95%
2  United Kingdom $10,450,000 6/30/2007 $189,855 Q4 2007 376.82%
3  Germany $4,489,000 6/30/2007 $54,604 30-Jun-07 159.92%
4  France $4,396,000 6/30/2007 $68,183 30-Jun-07 211.86%
5  Netherlands $2,277,000 6/30/2007 $136,795 30-Jun-07 352.75%
6  Ireland $1,841,000 6/30/2007 $448,032 30-Jun-08 960.86%
7  Japan $1,492,000 6/30/2007 $45,287 30-Jun-07 34.93%
8  Switzerland $1,340,000 6/30/2007 $509,529 30-Jun-07 441.95%
9  Belgium $1,313,000 6/30/2007 $126,202 30-Jun-07 348.74%
10  Spain $1,084,000 6/30/2007 $176,019 30 June 2007 est. 79.65%
11  Italy $996,300 12/31/2007 $124,049 30-Jun-07 55.35%

Wow, 6th. in the whole world for gross external debt, for such a small country!!

Looks like Ireland has a much bigger problem, although, again, we don't know what the NET debt is, and the degree of currency risk involved.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 12th, 2008 at 04:52:19 PM EST
[ Parent ]
I was at first surprised to find Sweden at number 15 as the public debt has been mortgaged quite a bit since it skyrocketed during the 90ies crisis. Seeing Norway with its oil wealth at number 18 was also a bit curios.

Then I looked at the definition:

List of countries by external debt - Wikipedia, the free encyclopedia

"External debt" is defined as the total public and private debt owed to nonresidents repayable in foreign currency, goods, or services

Small countries has more international trade per capita, as borders are passed more often. Trade yields debt, and if trade is equal then debt is equally on both sides of the border, giving both countries more external (as opposed to internal) debt. A country can be on the top of the external debt list and have no problems at all if it has assets to cover every one of those debts on a moments notice.

So I would say that external debt in it self says very little.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Fri Dec 12th, 2008 at 07:37:38 PM EST
[ Parent ]
... would be the balances on short term and long term external debt payable in foreign currency. Those are the values that can explode in domestic currency terms during a FXR melt-down, as many SE Asian nations discovered in the 90's.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Dec 12th, 2008 at 10:48:30 PM EST
[ Parent ]
Ha. Marke-to-market.

Diversity is the key to economic and political evolution.
by Cat on Sun Dec 14th, 2008 at 10:15:37 AM EST
[ Parent ]
Gordon Brown hits back as Germans attack tax giveaway - Times Online

The earlier finger-pointing underscored the fault lines in Europe between those such as Mr Brown who believe in spending their way out of the downturn, and others such as Mr Steinbrück who are resisting calls to increase borrowing. The attack by Mr Steinbrück - from the left-wing Social Democratic Party, which is in coalition with Ms Merkel's Christian Democrats (CDU) - delighted British Conservatives. In an interview in Newsweek magazine he ridiculed the British Government's recovery plan, in particular the cut in VAT from 17.5 per cent to 15 per cent.

"We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90?" Mr Steinbrück said.

"All this will do is raise Britain's debt to a level that will take a whole generation to work off. The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking."



notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 12th, 2008 at 10:39:29 AM EST
Frank Schnittger:
"All this will do is raise Britain's debt to a level that will take a whole generation to work off. The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking."

Thus spake Steinbrück!

Independent assessment of the UK government's total budget (not just the VAT decline) by the IFS (no friends of the Labour party, I would note):

BBC NEWS | Business | Economic slowdown hits borrowing

And overall government debt will rise rapidly from the current level of 40% of GDP to peak at nearly 60% by 2013/14 before the government believes it can stabilise the budget gap.

German government borrowing as a percentage of GDP?

Well, in 2007, it was estimated at...

CIA - The World Factbook -- Rank Order - Public debt

20 Germany 64.90 % 2007 est.
by Metatone (metatone [a|t] gmail (dot) com) on Fri Dec 12th, 2008 at 04:31:40 PM EST
[ Parent ]
If Germany has so much more public debt, why is the UK crying, Germany should follow Browns policy?

Actually there are good reasons.

  • Trajectory counts. This 64.90% are only slightly more than 1998. In the last two years, this number was going down, while Britain was already running a high deficit on which Brown is now adding.
  • It is very credible that this high indebtness is a one off issue for Germany. Kohl was running a pretty conservative fiscal policy in the eighties. The unification was extremely expensive and made it necessary to adjust the revenue and the state's spending. For several reasons this took a very long time. There is no similar huge project in sight.
  • The Euro is pretty much reserve currency. Germany is likely paying lower and more stable interest in the long run and can therefore bear higher indebtness.
  • The private sector in the UK is in a much more dire situation than in Germany. Before the German state goes bankrupt, it will tap the private wealth. Brown's policy is doing the inverse, it increases gov't debt for making the private sector wealthier.


Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Fri Dec 12th, 2008 at 07:15:54 PM EST
[ Parent ]
This does absolutely not bode well for the repayment of my French student loan!

Maybe I should ask for a student loan bail-out!
Maybe I should move back to France and quit my first job in Canary Wharf, east London:( . The honeymoon would have lasted for not so long...Have any of you ever been there? (Canary Wharf I mean)
It looks like an island with arguably imposing buildings that host big financial institutions (such as defunct Lehman Brothers').
What is funny is that the whole place is surrounded by a (very) poor neighbourhood. It is almost iconic to me, reminiscent of some futuristic comics...

Ed.

by Eddie on Fri Dec 12th, 2008 at 11:21:30 AM EST
Never had the (dubious) pleasure of being there...  The fact you still have a job there is impressive enough.  Perhaps they will redevelop some of the impressive buildings into apartments for the poorer neighbours?

You don't seem to have got the message that the stimulus package is for the rich, not the poor.  The poor need to have an incentive to work, so you can't give them any handouts...

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 12th, 2008 at 11:33:56 AM EST
[ Parent ]
Well I just started off as a graduate so I believe they're better off laying off people who weight more on their payroll.

The temporary VAT cut is LUDICROUS! And I realised that in the UK the City (and its extension,i.e. Canary Wharf) dictates the rules...

The other day, I was talking to my friends from University and asking them why the people here liked living (way) above their means so much?
The reason they put forward was cheap credit and its relatively easy obtention thereof.
It's almost as if they believed all those seemingly tempting credit card / cheap loan deals can make you into a millionaire!
I really don't want to concede that Brits are so gullible as to accept ever more debt. I think it's more of a sociological ill in the end.
Inevitably, people will have to become more reasonable...

I'm being way too analytical anyway; I should remember that the markets are very shaky at the moment and I could be whisked off at any time:)
So I should just enjoy everyday as my last, save as much money as possible (in "falling GDP" haha), and well... wish you all a happy weekend!

Eddie.

by Eddie on Fri Dec 12th, 2008 at 01:39:54 PM EST
[ Parent ]
What a fascinating, illuminating and erudite discussion here.  I've sure had my views and understandings broadened by this diary and comments.  Kudos Frank, and ET.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Fri Dec 12th, 2008 at 12:36:15 PM EST
Question: When was the last time the British electorate was polled about the joining the euro? I keep hearing that they are against joining but I never see any figures.

Money is a sign of Poverty - Culture Saying
by RogueTrooper on Fri Dec 12th, 2008 at 02:29:01 PM EST
Britons back euro, NOP poll suggests - UK Politics, UK - The Independent

The Government would win a referendum on the euro if it came out in favour of British membership of the single currency, an influential poll showed yesterday.

The Government would win a referendum on the euro if it came out in favour of British membership of the single currency, an influential poll showed yesterday.

Britons would vote narrowly to abolish the pound provided the Government said its tests for the euro were met and the country's leaders campaigned in favour of joining.

An NOP poll for the investment bank Barclays Capital found that under those conditions, 40 per cent would support UK membership of the euro, and 39 per cent would vote against.

Barclays said it was the first time an independent UK survey had found a majority in favour of the euro. Opposition to entry without government backing also softened. A net balance of 27 per cent would oppose joining, compared with 31 per cent last month.

"It is very clear from our research that there has been a major shift in attitudes towards the euro in the last few months," David Hillier, Barclays Capital's chief UK economist, said.

The poll triggered a fresh row between the lobby groups on either side of the euro debate. Britain In Europe said the launch of euro notes and coins had reduced opposition. The No Campaign said it was always possible to get a "funny result" from a hypothetical question. "The public are two to one against, despite distorted media coverage of the euro launch being a success," a spokesman said.

Patricia Hewitt, Secretary of State for Trade and Industry, became the latest cabinet minister to back the euro. In a speech on the manufacturing industry, she said the pound's exchange rate against the euro was "causing difficulties" for British firms.

"The potential benefits of euro membership in terms of trade, transparency, costs and currency stability lead us to support it in principle," she said.

In the autumn of 2007, just over a third (34%) of UK citizens believed
that membership of the European Union was a good thing with 31%
taking a neutral view and 28% saying that membership was `a bad thing'.   http://ec.europa.eu/public_opinion/archives/eb/eb69/eb69_uk_exe.pdf

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 12th, 2008 at 03:07:40 PM EST
[ Parent ]
And just last September the LibDems dropped their longstanding Euro accession plank from their European election platform. And this is after having advocated a referendum on EU membership rather than on the Lisbon Treaty on the argument that the British electorate would actually vote for EU membership if given the choice to stay or quit (rather than having a referendum on Lisbon interpreted as a referendum on membership).

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sat Dec 13th, 2008 at 11:00:18 AM EST
[ Parent ]
33% predict parity in 12 Months and another 19% predict parity within ERM (+/- 2.25%) - over 50% in total.

Time I took my meagre assets out of Sterling!

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 12th, 2008 at 10:07:31 PM EST
Weell, not all ET'ers' opinions are created equal. If all the actual economists say 1.3 and only n00bs like myself say parity or below-parity, then the poll might not say all that much...

For myself, I just pretty much took a shot in the dark saying that the UK is monumentally screwed, but the rest of the Union will cut a deal to keep it in the ERM at roughly around parity - in exchange for a boatload of concessions on other points.

I expect much wailing and gnashing of teeth.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 14th, 2008 at 04:26:18 AM EST
[ Parent ]
I would say that if the ability of economists to predict and understand the economy is taken into account, then noobs vs econs opinions is not a good predictor of quality of opinion.

Even on ET: Shall we do a countdown of oil prices? Even the decoupling theory is still a bit under the "to be seen" category (although in the short term watching the UK is surely to be "fun" and to go as expected).

The "specialist" is overrated, especially in soft sciences.

by t-------------- on Sun Dec 14th, 2008 at 06:32:16 PM EST
[ Parent ]
If all the actual economists say 1.3 and only n00bs like myself say parity or below-parity, then the poll might not say all that much...

Refer to my signature...

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Dec 14th, 2008 at 06:52:11 PM EST
[ Parent ]
Before the inbred elites who have dominated England allow the pound to become extinct and join the euro; the elites will give serious thought to becoming the defacto 51st state of the US. Especially when the Americans are far superior in graft and bribery than their European counterparts in what will become a 'seduction' of the British to give up the pound except as ceremonial currency for the masses.

If the British are forced to choose; it very well may be the US even with the systemic problems it faces.

I do not believe Britain with 'The City' in ruins and an almost non existent exporting manufacturing sector can survive without either using a wealth tax on the elites (never happen), becoming extremely attractive to outside investors as a sort of 'multi Monaco' due to the civility and educated class of Londoners in addition to the combination of devalued currency and assets or finally making a deal to be the 51st state except in name and ceremony.

by An American in London on Sun Dec 14th, 2008 at 03:06:57 AM EST
Which of course raises the question of whether the US wants them... and can afford them. But certainly, it's an - ah - interesting idea... Would be a pain in the neck for the Union in the long term too, to have an American colony right on our Western border...

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 14th, 2008 at 04:28:44 AM EST
[ Parent ]
Sterling edges closer to parity with euro - The Irish Times - Mon, Dec 15, 2008

The pound slumped to fresh lows against the euro today as the two currencies edged closer to parity.

At its low, £1 bought just £1.1102 euros -- its latest in a series of record plunges against the single European currency in recent days.

Some holidaymakers travelling to Europe from Britain are reportedly already receiving less than one euro for their pound at bureaux de change, where commission is charged.

Sterling has dropped around 13 per cent against the euro in the past two months as the Bank of England has slashed interest rates in its attempt to stave off a deep and prolonged recession.

UK rates have dropped to 2 per cent, below those in the eurozone after a 1.5 per cent cut in November and a 1 per cent cut earlier this month, which has compounded the pound's woes.

The weaker currency could provide a boost to UK exporters but the economic woes of major export markets such as the US and Europe is hitting demand.

It is thought short-selling -- where investors sell assets such as shares or currencies in the hope of buying them back later at a lower price and pocketing the difference -- is also behind the pound's slide.



notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Dec 15th, 2008 at 08:12:04 AM EST


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