Euro Crisis?

[TopCat]

Dear All
I know there are many Dutch on this forum- so I thought I would share some thoughts on the present Euro Crisis

First of all some of you may have seen my letter in Saturday's Daily Telegraph (10th Dec 2011)?- in case you missed it here it is:


"Why doesn't David Cameron offer Sterling as an alternative to those countries considering joining the Euro?"



And:
"It took a meeting I had yesterday with some French Journalists to look at the situation from another perspective. One of the journalists had mentioned in an article that Europe had much to lose if Britain left – since Europe would miss Britain’s influence in the world. From this side we often tend to overlook the obvious!

In addition I told them of the world-wide co-ordinated Bank rescue last week to raise $USD liquidity in the European banks which had been orchestrated by none other than Mervyn King the Governor of the BOE from – in of all places the City of London.

Mervyn King is showing a mature and competent approach to the Euro problem and it seems he is operating at a higher level than those politicians seeking to obtain a Scapegoat for their own failings in the design of this currency."


I don't know why you Dutch guys are keeping so quiet at present (over this issue)?

[raymondw]

Sorry Topcat,

I think you are completely missing the point; IMHO the problems with the Euro are primarily caused by south European countries that before they joined the Euro-zone printed them selves out of their deficits by increasing the base-amount of money. When they entered the Eurozone, they weren't allowed to do so anymore so they basically had two options.

1) getting grip of their deficit
2) borrowing money on the free market.

Option one would imply impopular measures to be taken, something that would shake of voters. And the respective goverments were simply to weak as they wanted to stay in power, so they reverted to option two. This lead to the unsustainable situation that for instance Greece, Italy and Spain are in. They expected that the other European leaders would bail them out by printing more money when time comes, but then they forgot one important history lesson that ms Merkel remembered very well. Germany bailed itself out of the crisis in the 1920's; at first this worked rather well, but eventually this lead to a hyper-inflation in the late 1920's and eventually mr Hitler to be elected. Hyper-inflation alone is a doom-case scenario for any country so I am gratefull that we have at least one European leader with a straight back. And that leader certainly isn't mr Cameron or mr Sarkozy.

As for the UK; you have had your own crisis in the 1960's and 1970's that almost lead to a bankrupcy. That was solved by printing more momey, but eventually lead to inflation and a weak GBP. I think that this is one of the reasons why the UK didn't want to join the Euro zone.

The problems we are facing now is not caused by the Euro, but by poor politics and regulation. I have a firm believe in the Euro and its members. Britain may have some influence left in teh world, but only thanks to a small fraction of banking sytems that needed to be bailed out just like their European and US competitors. That banking system only believed in unlimited economic growth which eventually lead to catastrophy. Have you forgotten the hughe amount taht the UK tax payer has to pay on interest alone to bail out RBS that not long before was part of the group (Santander, Fortis and RBS) that took over ABN-AMRO for 72B. RBS still needs government support, Fortis is broke and Santander took over interests in South European and South American markets.

In the end, the Eurozone being much larger (>440M inhabitants) also has better economic possibilities then the UK (60M inhabitants) or the US (312M inhabitants). if we in the Eurozone are able to come over our differences and stick together, we have a good basis of meeting the challenges of the 21 century. But that requires that we stand above national interests and are able to step-aside from the interests from a minor group (banking system) in favor of our common interest (economic growth and stability). if we can achieve that, I don't mind transfering powers from our national government towards a European government.

One foreign department
One defense department
etc etc.

BTW: have I forgotten that e.g. the state of California has significant deficit problems? Were are the other US states to bail them out ? Sometimes I have the feeling that the UK and the US are pointing fingers to the Eurozone to divert attention from their own problems, e.g. the battle between the US democrats and republicans over the fiscal-budget that was only solved at the very last moment, however without a structural solution.

I for one will never blame the instrument (Euro) or its objectives. I do blame the politicians who are only standing up for their own interests or the interests of a minor group. Therefore, I have a firm believe in the Euro and the Euro zone; but our leaders must get their act together. The last EU-summit resulted in 26 countries reaching an agreement. The 27th country was ?

[Jeroen]

Right behind you Raymond!

[TopCat]

I think it seems we all agree that the Eurozone has been poorly served by its politicians!

BTW- similar to Reuters:

Quote from Money Matters:

· Finance chiefs at the UK's biggest companies think there is a one in three chance of at least one country leaving the euro this year, a report has said. Accountancy group Deloitte also said firms were "unconvinced" by European leaders' response to the crisis. Its survey of chief financial officers (CFOs) said most see a break-up of the euro as the biggest risk to their firm.


· Activity in the eurozone manufacturing sector fell for the fifth successive month in December, but showed a slight improvement on the previous month, a closely-watched survey suggests. The Markit eurozone manufacturing PMI was 46.9, up from November's 28-month low of 46.4. Any score under 50 represents a contraction. Employment rose in Germany and France, but fell across the bloc as a whole.

Just got back to GB after a long 14 hour shlep across France - we had been skiing in Couchevel over New Year.
met some pretty senior Brussels Bureacrats who had rented my girlfriend's other Chalet in Le Praz- they joked - "we have it all sorted now - haven't you heard?"

Seriously they seem to believe that the Project will not fail and is greater than the sum of its rather parochial politicians!
Although the Euro 580Bn that the ECB put in at 1% was gobbled up immediately before Christmas and was meant to buy them some much needed time to sort things out- and will probably only make speculators very rich - buy at 1% and sell to Italy at 7%?

The thing that really rattled me about France is that we don't have many clients there- but one was advised to seek tax advice from a new Accountant about the new French Trust tax that comes in wef April 2011. After a 3 1/2 hour meeting my guy offered the accountant cash for his fees
which he accepted!!
When the accountants are up to this sort of thing - there can only be one end game (for the country!)

[TopCat]

I should add that IMO the UK has been one of the worst governed countries of all western democracies over prolonged periods since the war!