Fiscal Union - only precursor to an even bigger crisis

We want to keep this post short and to the point: those members of the Commentariat who think that Fiscal Union will solve the current Euro Crisis will be in for a rude awakening - in a few years time, but maybe much earlier. A chain is only as strong as its weakest link, and there are quite a few weak links in the Euro-Chain. Even mighty Germany (as those on One Euro jobs there know already) is not as strong as it might appear. Its performance is strong only because the other countries are weak, bit like the conundrum in the currency markets where a strong currency means that the other side of the trade is by definition weak). Debts in Germany are also sky-high, especially if you include all private and bank debt and - most importantly - unfunded pension promises etc. How the poor German taxpayer, squeezed that he is by a relatively efficient (and merciless) tax collecting system, is supposed to carry the burden of all the freeloaders in the Euro Gravy train remains to be seen. I would not put my money on it except in very short term trades.

Sarkozy: a flawed mind?

Anyone who can endure a certain amount of (intellectual) pain would do well to have a close look at the French President's speech to party loyalists held in Toulon on December 1st. While the French are often said to be particularly rational followers of the 'Cartesian' tradition we were aghast at the incoherent reasoning cobbled together in this effort to explain and possibly solve the current crisis in the EU. If the analysis is wrong the solutions cannot be the right ones and while a temporary patching up of the Euro structure might well work it gives little cause for longer-term optimism.

George Osborne: clueless at the rudder

All the razzmatazz surrounding today's autumn statement by the UK Chancellor of the Exchequer cannot disguise one fact: the country is helplessly exposed to the decisions of a man without any practical business experience or specialist economic background. Having a (minor) title, going to the 'right' schools and having the 'right' friends still seems to count for more than competency. Only consolation - the situation is not much better in many other countries. It is a sad indictment of our so-called Western Democracies that wide-ranging decisions can be taken by individuals that owe their wafer-thin legitimacy to an election that is often fought on image and broken election promises.

What happens if a country leaves the Euro Zone?

An article in the Financial Times compares a possible break-up of the Euro Zone with the period after the end of the old Soviet Union. We think that contrary to some observers Greece would not announce any date for the Switchover - it would all happen on one weekend, without any warning. Monday all accounts are denominated in Drachmas and Banknotes are stamped over. One little detail, what happens to bank notes circulating outside Greece that have been issued in Greece (all Euro notes can be traced to the issuing country). Whatever the likely disturbances, lower quotes for Drachmas would start a stampede to book holidays in Greece, buy property etc.

Saving by Spending more - not only in Britain

There is talk that the UK government may subsidise first-time home buyers. Apart from problems of policing the eligibility one has to ask how this proposal fits in with the urgent - not to say existential - need to bring public spending under control. Like Germany the UK benefits from the fact that the flight out of countries that are perceived as unstable makes it a 'safe haven' as capital has to be invested somewhere. This effect is similar to the one in the foreign exchange markets where the sale of one currency necessitates the purchase of another one - even if that one has blemishes as well. It is all a relative game, but the situation may one day change, perceptions or facts, and suddenly the UK will be exposed with all its weaknesses. Spending is still rising, despite all pronouncements to the contrary, and no one seems to have the will to impose fair, balanced and effective spending discipline. So all those putting their faith - and money - into the UK markets have been warned!

Monetary Policy close to lunacy

Recently some prominent and not so prominent economists have suggested that the Fed should target nominal GDP growth when setting its policy. The only thing these wise analysts have forgotten to mention is the question of how to make sure that not all - or even the majority - in nominal GDP growth will be accounted for by price inflation.

Bank of England's Adam Posen: Inflation will be low

Another nuggett of wisdom from the Bank of England's American import. Maybe he also thinks that pigs might fly. It always struck us as more than strange that there was no (more) suitable economist among the UK population.