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Tuesday, 15 May 2012

Greece in Europe and Another Wasted Opportunity for Britain

I interrupt my mini-series on the only truly positive prospect that faces Britain to comment on the 'new' situation in Europe following Greek and French elections.
My long-standing adherence to the view that Greece must, eventually, escape the intolerable burdens of eurozone membership is unchanged. Of course severance would be a plunge into the unknown, a choice between the devil and the deep blue sea [or, as my fellow Lancastrians put it, a choice between muck or nettles]; but the certainty of pain for Greek people while their country remains within the zone has now been confirmed. The new French President went to Berlin to agree with the Chancellor that the current EU policy must remain in place. This has been amplified this morning by the German Finance Minister who has declared that every detail of the Greek bail-out deal is part of an integrated whole and that no tinkering can be attempted without unscrambling the whole deal. The IMF has admitted that their contingency planning for a Greek exit from the euro is [necessarily] in an advanced state.
In this painful situation, British government debt is being sold at the lowest price since the modern system of public finance began around 330 years ago: London interest rates are a record lows because so many international investors are viewing Britain as a 'safe haven' for their money. They want to diminish their exposure to the euro in case a Greek exit causes 'contagion' affecting Portugal, Spain, Ireland, Italy and possibly even France. The Japanese yen has limited appeal, Brazil and Switzerland have taken steps to keep out 'hot money', the Chinese currency is not fully transferable, Indian money is not even trusted by the gold-hoarding home population and there is a limit to how many US dollars any portfolio can safely contain. So the familiar old pound sterling came under 'positive' pressure, regardless of the fact that the buyers understand the long-term fragility of the UK economy. If the UK had a government capable of capturing opportunity it would now create a huge investment pool to finance the Grand Oceanic Project that I am advocating, taking advantage of these unique monetary circumstances: but no such government is in prospect.

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