ARmy Rumour SErvice

**FORMER_FYRDMAN** · 07-05-2012, 08:13

Originally Posted by Wordsmith

Firstly, its not good news for the UK.

Osborne's master plan was to effectively devalue the pound, thus inhibiting imports and stimulating exports. That plan went out of the window when the eurozone started to implode. We have to get our spending under control, but Osborne seems incapable of revising his plan to cater for changed circumstances. If the eurozone contracts, so do we - and we're blissfully sailing on without changing course. At a minimum, I would have hoped the treasury would have carried out a root and branch review of public spending, identified wasteful programs and diverted the spending to infrastructure projects that could stimulate the construction and business sectors. Thus far - nada.

Secondly, don't underestimate the ability of the eurozone to keep blundering on to disaster. Merkel has been shifting her ground in recent weeks in order to bow to the inevitable demands for stimulatory spending. I expect the eurozone to keep throwing money at the problem in the hopes that it will go away - instead of LTRO, it'll be dressed up as a stimulatory package to help Club Med.

As to France. it'll be interesting to see what happens to its borrowing costs over the next few years. I don't expect the wheels to fall off immediately, but I do expect to see a slow inexorable rise in borrowing costs that'll make the French debt even more unsustainable.

For Greece, I expect to see the EU throw money at the problem. With the political turmoil I expect to see there, there is a real risk of a disorderly exit from the Euro. And if the Greek domino falls, then so does the Portuguese one - and ultimately the Spanish one. So, to prevent Greece descending into chaos and default, I expect the EU to massively increase structural funds. So it won't be the Greek government paying for non-jobs, it'll be the eurozone.

As to the big problems, they're twofold:

1) An inability of the euro-elite to admit that the euro in its present form is ill-conceived and requires major surgery.

2) An inability of political parties right across Europe to admit that we cannot afford the current level of social spending and it has to be cut back.

I don't expect to see either of those problems addressed any time soon, so we'll continue to sleepwalk towards eventual disaster...

Wordsmith

I agree with that but I'd further add that Hollande is painting himself further and further into the corner with every public utterance. I was expecting a grandstand for the election followed by a quiet retreat and some rapprochement with Merkel, much like Mitterand - I don't think that's now possible and, as you say, if he presses ahead with his programme, the markets are going to make France pay dearly.

In the wider scheme of things, I think this is the best outcome. Either France will prove that cut backs are unnecessary

or else it will smash the cosy little Merkosy cabal that has enabled such extensive can kicking for the last couple of years and the Eurozone will finally have to face reality.

**Alsacien** · 07-05-2012, 08:19

It is not often I post something from the press, but this article in Bloomberg is pretty much in line with my thinking:

Euro Strength Intact as Contagion Ends Aussie Dollar Haven - Bloomberg

The market behavior is rather interesting at the moment. The overall tendency to over react was not apparent last week in the case of France. Around Thursday it was realised that what Sarko would gain moving to the right, he would lose from the center, and the center is where elections are won, the failed last debate settled it.
But the tendency to over react is tempered by the realisation that there is little scope for manoeuvre. Politicians are not implementing spending cuts for fun, the market will simply not tolerate increasing debt at the moment, period. Hollande can only play the cards in his hand, which may be bad for France in the short term, but will have little impact outside in the bigger picture.
If he is smart, he will realise his inexperience and gather a competent team around him to run the show, we will have to wait and see......

**Alsacien** · 07-05-2012, 08:21

Originally Posted by FORMER_FYRDMAN

or else it will smash the cosy little Merkosy cabal

You think that existed any place except in the press?

They found themselves going in roughly the same direction through need, not choice....

**alib** · 07-05-2012, 08:53

It's not like the markets really had much faith in the Merkosy austerity mantra, it had been fraying at the edges as with various heavyweight opinion formers like Lagarde cautioning on the negative effect on growth. After all that puff about fiscal prudence they are mainly reacting to the ECB warding off a EU banking collapse disaster by throwing money at europe's still very dodgy banks while the ghost of the Reichsbank shrieks in the corner, Hollande is only likely to mean more of that, the French banks need to buy time.

**alib** · 07-05-2012, 09:15

Originally Posted by jonwilly

Osborne, the financial brain of the Conservative Party or Daves best mate.

john

Well he's making Lamont look like a feckin financial genius and I think Dave does not trust him an inch.

**Alsacien** · 07-05-2012, 09:21

Originally Posted by alib

Well he's making Lamont look like a feckin financial genius and I think Dave does not trust him an inch.

Osbourne worked hard before the election asking around and listening, he learnt a lot and still kept listening.
The problem now is that he has made the classic mistake of thinking he knows what he is doing now without help. While he may have gotten away with a little bit of knowledge and experience in easier times, at the moment there are too many disparate forces at play, and he is out of his depth.

**Drlligaf** · 07-05-2012, 09:24

Wordsmith wrote: 2) An inability of political parties right across Europe to admit that we cannot afford the current level of social spending and it has to be cut back.

Admittedly its on a much smaller scale, but in the State elections in Nord Rheinwestfalen next weekend overspending by the Socialists is a major subject. They see no problem, but the CDU (rightish wing) definitely does and so do the Liberals. Having said that the election is small scale it must be remembered that NRW has a population of around 14 million, thats equal to or more than some European countries.

**jonwilly** · 07-05-2012, 09:35

"I think Dave does not trust him an inch."

He is reputedly Dave's mate. Now Dave is stuck with him.
Be interesting see what happens in the "Forecast" Reshuffle.

john
John Redwood for Chancellor.

**FORMER_FYRDMAN** · 07-05-2012, 09:51

Originally Posted by Alsacien

You think that existed any place except in the press?

They found themselves going in roughly the same direction through need, not choice....

I used the word cabal deliberately and explained why in a post that you deleted to your advantage, leaving it to appear as if I did not understand the dynamic - hardly a fair use of moderating powers. I understand the politics very well and have done from page one.

**Alsacien** · 07-05-2012, 10:00

Originally Posted by FORMER_FYRDMAN

I used the word cabal deliberately and explained why in a post that you deleted to your advantage, leaving it to appear as if I did not understand the dynamic - hardly a fair use of moderating powers. I understand the politics very well and have done from page one.

It was 50/50 to bin this post too.

If you want to explain the parity of economic policy between M and S crack on. If you are naive enough to believe there is some deep personal relationship between them that will have an economic impact that is your problem.