4. THE TRAGIC PANTOMIME OF THE EURO The effects of the 2007 banking crisis have been profound and long-lasting and the continuing crisis in the euro is a powerful illustration. There were two intellectually defensible models for the euro. The first was to say that it was such an important element of the European project that everything possible had to be done to make it succeed. The second was purely economic: currency union was only available to nations which could meet strict criteria for entry and maintain fiscal discipline. Broken currency: Liam Fox brands the euro unstable and claims it is rum with a lack of fiscal discipline Broken currency: Liam Fox brands the euro unstable and claims it is rum with a lack of fiscal discipline In the end, neither model was followed and an unstable and unworkable hybrid emerged instead. Countries which failed to meet the convergence criteria were allowed to join anyway, and then a lack of fiscal discipline meant that many countries – including France and Germany – broke through the barriers that were supposed to keep the currency on the rails. Germany, more than any other country, will probably decide whether this hybrid will be allowed to survive. But the idea of austerity being forced upon smaller nations by Berlin has too much historical resonance to succeed without potentially dangerous political backlashes. This is a recipe for instability and the revival of nationalism in Europe. Throughout this tragic pantomime Britain and the rest of the global financial community will largely only be able to look on, waiting to see how much damage is done to our collective economic prospects. 5. QUICKSAND OF DEBT Overspending is a time-bomb, with government debt standing at over £1trillion in the UK and total public debt over $16trillion in the United States. In Britain we owe more than £17,000 for every man, woman and child and that’s before the bank bailouts are considered or the off-balance-sheet debts hidden by previous administrations. The more we borrow, the more we burden our children with having to repay our debts. UK debt is increasingly owned by overseas investors, who hold 30 per cent of outstanding UK gilts (Treasury bonds). In the third quarter of 2012 some £398billion of UK government debt was held overseas. One of the most alarming global statistics is China’s dominance of the debt markets. China holds $1.16 trillion of US debt and its status as its number one creditor enables it to wield considerable political power. It is therefore ever more important to have a fiscal policy which these investors believe in. Only in this way will they continue to offer us credit at a rate low enough for us to afford the repayments
Posted on: Sun, 08 Sep 2013 12:01:20 +0000
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