Thanks God Britain is not in the Euro. Had we been inside the eurozone since Blair tried to slide us in the 1990s, our rates of interest would have been so low that the UK property boom would have been as barmy as Ireland’s. As it is people complain that the young cannot afford to get on the property ladder. Inside the Euro, the problem would have become far worse with average price houses valued at GBP 160,000, possibly as much as doubling, making most owners of middle class houses into GBP-equivalent millionaires.
We avoided the worst of the boom, because British interest rates could be raised enough to keep it within reasonable limits. Outside the Euro too, we will now hopefully avoid the worst of the coming slump.
The one hope in the USA that means the recession will not end up being too bad over there is the falling Dollar. Their banking system is under stretch trying to absorb sub-prime losses. Over two million homes have been repossessed so far in under one year. Share prices and house prices are down, house prices by the most since the 1930s.
Consumer demand also is down. But as yet employment hasn’t collapsed. As long as people can hang on to their jobs, and companies maintain their payrolls, the economy will ultimately trade up again. Employment is weakening with only 18,000 jobs created in December, but so far it hasn’t collapsed. See HERE.
With the dollar down against the Euro from .77 to .65 Euros in a year (15% so far), the hope of maintaining employment levels is very likely to be fulfilled, as US companies can more easily compete with imports.
Pity the eurozone, on the other hand which has always suffered from a puny internal consumer market, and has long been dependent on exports for its growth. The 15% currency swing which is saving the USA and thereby the UK, (which has one of the few currencies actually falling against the US dollar), is crucifying the eurozone. As the eurozone has a significant inflation problem caused by oil, food and commodity prices all rising in tandem along with many structural inflationary factors, the ECB is not yet able to cut interest rates. Despite the looming threat of a sharp recession, the Euro as a result trails ever higher.
If Britain had been a Euro country, we would be about to see one almighty downturn to follow what would have been one almighty boom. With a freely floating currency, our economy like that of the USA should continue to dodge the worst of these extremes.
Germany is already seeing a decrease in its exports, as its December export figures show. The pain is starting to hit home. One wonders if this will be the moment that one or two Eurozone counties decide that they would be better off quitting the Euro, and allowing their currencies to fall. Italy must be a prime candidate, and Berlusconi, about to form a new government, will be well aware of these options. He was always critical of the Euro as inappropriate to Italy’s economy, right from the beginning.
The coming downturn will be the Euro’s first real test.
People in the UK should take note that they are the lucky ones being not locked in to the financial problems of our near neighbours. We should keep fighting at all costs to maintain the lessening amount of independence we have left.