The Perfect Storm
It is alarming that the markets have given a thumbs down to the Obama/Congress deal. And now we hear that they are seriously doubtful of Italy’s ability to grow its way out of the enormous debt it holds.
What with Spain teetering on the brink, and Greece, Portugal and Ireland considered lost causes, we have what amounts to ‘the perfect storm’. Yet we British have retained the market’s confidence; our willingness to bite the bullet allows us to borrow at the same rate as the Germans. But sadly that won’t save us. We absolutely have to sell our goods and services to the New World as well as the old.
43% alone of our output goes to the European Union, and another huge chunk to North America. The US Republicans – led by the Tea Party – refuse to aid a deficit cutting programme by including tax increases, even though the Federal Government’s tax take is barely half the European average. What right-minded system in today’s world allows Western drivers to fill up at not much more than half of the EU average?
Alas, Americans (and to be fair we) have been living high on the hog for too long. We in the West – especially the Americans with their consumption-driven economy – have been sating ourselves on China’s cheap goods, fueling its mind-blowing year-on-year 10% growth at the expence of increasing their own competetiveness. Industries have gone down like ninepins and jobs exported; they have allowed China to get away with a grossly undervalued currency and not to conform to World Trade Organisation rules. Perhaps most alarming of all, China stands accused of commercial and military espionage on a industrial scale by hacking into the West’s computer systems. This amounts to war by other means. So either the US treats balancing its budget almost as though it were a wartime priority, or it can say goodbye to being the world’s leading economy. Hello, China. Hello, India.
We may have been sold the idea that somethings are too big to fail, but believe me: a whole nation can fail – even the US if it hasn’t the stomach to put its house in order. The wars in Afghanistan and Iraq have done for the United States what the Kaiser and Hitler wars did for us… nigh bankrupted it. The difference is that in our case it was a noble struggle that simply had to be faced; a militaristic Germany bent on world conquest was a cause worth sacrificing even the British Empire for.
As far as the Euro is concerned, no matter how many sticking plasters they try to put over the crisis, nothing can hide the fact that the patient neeeds surgery. Greece and the others – the so called PIIGS – can’t service the debts they already have and provide for growth. And how does it help to foist more loans on them and push their service charges even higher? It’s the economics of the madhouse. They must all be cut loose; free to set their interest rates at the appropriate level; free to make a mess of things if they can’t get their act together without dragging everyone else down with them and also free to rejoin if they get their house in order and meet the strict criteria of membership, which they were meant to meet in the first place but never did.
The only alternative is for the sound economies of the north to take fiscal control of the hopeless cases in the south. In other words, a Fiscal Union to add to the unworkable existing Monetary Union. In the long run the PIIGS would all be better off. But would they stand for it? Proud, broken Greece would find it exceedingly hard to take the teutonic medicine that Frankfurt would insist they swallow.
As for poor old Britain, we are left dangling in the wind, waiting on events over which we have no control, but which are certain to turn all our lives upside down. I would hazard a guess, however, that if the Euro is reformed so that only successful economies can belong, then perhaps a very good case could then be made for us to join
There are huge advantages to be had in belonging to a truly powerful currancy bloc that might well take over as the world’s Reserve Currency. I fear the dollar’s day may be done, but I wouldn’t underestimate Uncle Sam’s recuperative powers and his legendary can-do approach when fired up. But please, please don’t let the Reserve Currency be the Yuan if Uncle Sam can’t make it.