Monday, 19 December 2011

The Euro Turkey

The coming break-up of the single currency makes Britain’s veto seem a mere sideshow, writes Jeff Randall in the Daily Telegraph: 

As George Osborne prepares his response to the Vickers report on banking reform (the Chancellor is expected to make a Commons statement this afternoon), there’s a growing sense in the City that while Britain upgrades its sprinkler system, a fireball has already engulfed our neighbours.

Much-needed changes to UK financial legislation, recommended by Vickers, will be enacted by the end of the current parliament, with the overhaul completed by 2019. Nothing wrong with long-term planning, except that with the eurozone in disarray and sovereign defaults looking all but certain, even getting to next Christmas without a fresh banking crisis may prove a wish too far for Santa.

Those who had bet on a seasonal gift of salvation from this month’s Brussels summit have already lost their wager. With a gun to the head of monetary union, European ministers, in effect, invited bond markets to pull the trigger. Without a new mechanism for very large and permanent fiscal transfers – from the prudent to the profligate – the euro turkey is stuffed.

The sideshow of David Cameron’s veto will soon be upstaged by the single currency's combustion and the immolation of its weaker members’ economies.

Confounded by the triumph of remorseless debt over political will, EU leaders have succumbed to collective delirium, promising that future government budgets will be “balanced or in surplus” and that annual structural deficits will “not exceed 0.5 per cent of nominal gross domestic product”.

There is not one chance in a million that this can be achieved by more than a handful of EU states. When fantasy masquerades as action, the end is nigh.

One can only marvel at the Micawberism of some in the European press who continue to perform as cheerleaders for a dysfunctional and discredited system. Germany’s Der Spiegel concluded: “The result of [the summit] is a success. A success for the majority of Europeans and for efforts to find a solution to the euro crisis.” 

Keep taking the tablets, guys.

Nouriel Roubini, professor of economics at New York University, sees it differently: “Papering over solvency problems with financing and liquidity may eventually give way to painful and possibly disorderly restructurings; addressing weak competitiveness and current-account imbalances requires currency adjustments that may eventually lead some members to exit the eurozone.”

The French, in particular, are finding this hard to swallow. In a new book, The End of the Euro, Johan Van Overtveldt, editor-in chief of Trends, Belgium’s leading business weekly, delivers a harsh verdict:  
“France’s inability to accept gracefully its political and economic decline has produced additional tension. Le grandeur de la France, once an undeniable reality, is now a thing of the past.” 

Burdened by an inferiority complex over France’s subordinate relationship with Germany, frustrated by the markets’ sceptical view of the French state’s finances, the elite in Paris lashes out at an imaginary conspiracy among Anglo-Saxon bond investors and their perceived henchmen, the ratings agencies.

With Fitch, one of the big three, deciding that “a comprehensive solution to the eurozone crisis is technically and politically beyond reach” and Standard & Poor’s, a rival agency, reported to be preparing a downgrade of France’s triple-A status, a sense of persecution is building inside the Elysée Palace. Quel dommage!

In May 2010, when I wrote a column for this newspaper under the headline “Whatever Germany does, the euro as we know it is dead”, there was a predictable response from the usual suspects, accusing me of economic illiteracy and xenophobia.

Today, it seems, I’m in good company. The Economist, not known as a flag-waver for Little Englanders, opines: 
“As investors and voters lose faith, the task of saving the single currency grows harder. Sooner or later, the euro will be beyond saving.”

It’s a view shared by many whose livelihoods depend on forecasting global events and adjusting their finances accordingly. Few believe that the euro will disappear altogether, but a growing number expect it to be reconstructed, shorn of members who can neither accept the rules nor afford the fees.

Last week, I pre-recorded a Christmas special for Sky News at which Sir Philip Hampton, Royal Bank of Scotland’s chairman, was a guest. Asked if the euro would hold together in 2012, he said: 
“I think it’s likely that one country, a small country, will drop out. It could be any of them because these things will be driven by political events as much as by economic circumstances.”

Would such an outcome trigger a banking Armageddon? On this, Sir Philip was only slightly more guarded:
“Some banks will be under particular strain, but I don’t think the banking system as a whole. The banking system as a whole can deal with Greece.”

Social cohesion, however, is a different matter. As if to bat back France’s recent aspersions on Britain’s creditworthiness, Sir Philip predicted a wave of unrest across the Channel:
“France has got an unmatched history of getting on to the streets and making a big noise. I’m amazed the French have been so subdued. I don’t think it will continue: they will be on the streets in 2012.” 

Cher Sarko, you have been warned.
Jeff Randall’s 'Christmas Dinner’ with RBS’s chairman Sir Philip Hampton, Sainsbury’s chief executive Justin King and Imperial Tobacco’s chief executive Alison Cooper will be broadcast on Sky News at 7.30pm on December 22.

No comments :