Germany v Greece

In my post Germany 1 – Team GB 0 (follow the link below), I commented on Germany being less and less reliant on selling to the Eurozone. Not good news if you are in need of German goodwill to prop you up financially.  
 

http://stevesmithlive.blogspot.co.uk/2012/11/germany-1-team-gb-0.html

 

 

There has always been an assumption that Germany would (sooner or later) move further and further away from the Eurozone, as the weaker members were effectively dragging them down. In essence, Germany are only as strong as the weakest link in the Eurozone.  

 

 

Some interesting news this week……

 

 

Top level economists in Europe have calculated that it has cost Germany €600 billion to keep the Eurozone together. However, it also calculated that it would cost Germany €1.2 trillion to let the Eurozone collapse. And this answers very nicely the question on many lips as to why Germany have stuck at it.

 

 

Add to this the German Election in September 2013, and it is safe to say that the Eurozone will be held together very tightly……well for the next 9 months anyway.

 

 

2014 could see an interesting unravelling of Greece and in effect Germany could pay them to leave (they’ve got a €600 billion kitty to play with after all).

 

 

Saved for another year!

The Price of Gold

Amongst all the political strutting when the UK economy came out of recession thanks to 1% economic growth in Q3 of 2012 was an absolute gem that our great leaders of Westminster decided not to tell us……we came out of recession thanks to a once in a lifetime economic party designed to make the UK money. AKA The Olympics.

And that is the bigger story……it took something so vast to take us out of recession that there is genuine concern for the UK economy in the short term.

 

I will leave you with just one thought on the subject:

In every Olympics ever held (except Beijing 2008), every host nation has suffered an economic slump the following year.

Let’s hope those gold medal memories last long into 2013 as they will have to be paid for!

Stick or Twist?

Stick or Twist?

Having the Chancellor’s ‘autumn’ Statement in deepest ‘winter’ on Wednesday tells you all you need to know about the current state of our economy and politics……confused.

For all the spin, counter spin, political arguing / point scoring and statistical skulduggery……it is important we understand the simple facts of the current situation.

1.     Under the Labour Government, the UK’s public outgoings were far higher than the public incomings. This deficit was the highest of all developed economies in the world and resulted in the UK public borrowing reaching record levels to bridge the shortfall in income.

2.     In May 2010, Mr Osborne promised to eliminate this budget deficit within 5 years through the austerity measures of higher taxes and public spending cuts. Or to put that another way……the Government would have more money coming in and less going out. The job losses from public sector cuts and increases in taxes were sold to us on the basis of “short term pain for long term gain”.

3.     Mr Osborne’s original estimates were calculated using assumptions on economic growth provided by the Office for Budget Responsibility. Mr Osborne then reviews these periodically and manipulates UK income / expenditure through the budget each year to ensure that we are on track.

4.     Wednesday was the half-way point in the 5 year plan. The result……the income / expenditure hole is actually bigger today than it was in May 2010. 

The Government is powerless in addressing our finances by using fiscal policy if it doesn’t ignite the economy. 

We are now in a Catch 22 situation. If taxes are increased and public expenditure is cut further, this will have a detrimental impact to the economy. However, if the Government borrows further to ignite the economy, it will have more income through taxes in the long term but the financial black hole will get bigger and the deficit will not be addressed.

Stick or Twist?

Well the current Government have decided to ‘stick’. They will stick to the continued plan of tax increases and spending cuts but the outcome will be a 5 year plan becoming 6 (very optimistic), 7 (doable just) or 8 (realistic) years to complete. Throw in a General Election in the middle of all of that and any figure you pick has a decent chance!

A dire state of affairs......

King of Close Shaves

In case you missed it last week with all the media coverage on newspapers, hacking and proposed associated new laws against the want of our Prime Minister (he really is clueless)......the new Governor of the Bank of England has been chosen.   

Out with the old (Mervyn King) and in with the new (Mark Carney)......

Marvellous Merv's tenure has certainly left a legacy.  On his watch,  the Bank of England was rightly criticised for not providing any warning or pre-emptive evasive action when banks grew into lethal weapons of mass destruction. To compound the misery, he has never come forward to accept his part of the blame or offered any apology. It was a very close shave that things didn't work out far worse from the banking crisis fallout.....and it was still bad. How he kept his job will offer conspiracy theorists a story to hand down generations. It is a mystery to all.

The one piece of encouraging news is that his successor is a real curve ball. He didn't go to Eton or row with any of the cabinet at Oxford. Instead, the Chancellor went for a Canadian Central Banker and a real outsider. This pretty much tells you all you need to know of Downing Street's opinion of the Bank of England currently.  

What can we expect? Time will tell but the bar has been set low and Mark Carney can hardly do any worse than the past 8 years!