THE darkest days of the Eurozone sovereign debt crisis in 2011-12 were when we found out several of its governments had been living on tick every bit as much as the banks and households in the run-up to the financial crash. The cost of borrowing for the likes of Greece, Ireland, Portugal and Spain soared as fears about their financial credit-worthiness stalked financial markets, and fears mounted that we might even be witnessing the beginning of the end of the euro.
Fortunately, reports of the single market’s demise were exaggerated. Painful austerity programmes in the fiscally damaged countries insisted on by the International Monetary Fund, European Central Bank (and Germany’s somewhat hausfrau chancellor Angela Merkel) averted Armageddon.
But although those fears have receded other new ones are escalating. There is concern the Eurozone may be facing prolonged economic stagnation, with echoes of Japan’s experience since its own oriental asset bubble burst in 1990.
A raft of depressing data from the Eurozone shows anaemic economic growth at best, and looming recessionary threats at worst, a full six years after the banking crisis and nearly three years after the sovereign debt crisis. It is as if near-catastrophe has been replaced by attritional malaise.
Last week the European Central Bank pumped nearly €130 billion (£103bn) into the single currency zone’s financial system through an offer of cheap loans, but financial markets were unimpressed. In the greater scheme of things, the markets thought the pump-priming was relative tinkering at the margins of the severe economic pressures many EU member countries face.
They look enviously at the far more impressive economic recovery of the United States and UK, and believe those countries’ extended quantitative easing programmes – currently eschewed by the EU – are a key reason for the disparity in performance.
Admittedly, both the US and UK are not out of the woods yet, but they have food and drink, a good pair of shoes and a working torch.
By contrast, there are plenty of hawks at the ECB (mainly the German Bundesbank) aghast at the inflationary fears associated with full-blown quantitative easing – buying up of government bonds.
In Germany’s case, it is not difficult to believe there are some atavistic concerns associated with that country’s cash-in-a-wheelbarrow Weimar Republic days.
As economist Howard Archer at IHS Global Insight says, whether the ECB will press the button on full-blown QE at its late January meeting or wait until the spring will “depend very much on the tone of the data over the next seven weeks. I think it will also depend on how much more support Mario Draghi [the more dovish ECB governor] can drum up over the next seven weeks.”
Something needs to be done fast to rescue the Eurozone from the spectres of stagnation and deflation, however. France announced a 0.2 per cent fall in retail prices between October and November last Thursday, a clear indicator of consumer caution.
Manufacturing across the Channel is also in a bad way, with recent figures showing the sector contracting in the Eurozone’s Big Troika – Germany, France and Italy. Meanwhile, yields jumped on Greek ten-year bonds to an unsustainable near-9 per cent last week, as its byzantine politics have raised the spectre of the main anti-bailout opposition party, Syriza, seizing power and leading the country to the Eurozone’s exit doors. This is of much more than academic interest to the UK. With 40 per cent of our exports going to the single market, we are in no position to pull up the drawbridge on its seeming economic paralysis.
Miliband on borrowed time
A MIXED metaphor, but Ed Miliband has grasped the nettle and fudged it on Labour’s fiscal policy if elected.
Having quixotically neglected to mention Britain’s £91bn deficit in his Labour conference speech in September – easily done, with so many things on one’s mind – Miliband has promised publicly to cut public borrowing every year until the books are balanced.
However, he has refused to give detail on the level of cuts, or what the split will be between spending reductions and higher taxes to achieve the goal.
Given Labour’s reasonably well-founded allegations of a cost of living crisis on those least able to afford it, one would guess there would be a relatively larger portion of deficit reduction achieved by higher taxes than spending cuts than is the case under the coalition government.
But we should not be overly precious on the Labour leader’s coyness on detail. Many controversial and possibly vote-losing government policies have been ushered in without pre-election spilling of the beans down the years.
Thatcher’s doubling of VAT and the introduction of the poll tax, Blair’s rejection of a phased assimilation of migrants from the EU, Clegg and student tuition fees …
Miliband has firm historical precedent for his disingenuousness on the detail.
Not buying into this …
SELF-serving marketing rubbish continued … We’ve had Black Friday, Manic Monday and Cyber Monday, and Mayhem Monday allegedly looms for shoppers on 22 December. I am launching Banal Tuesday as the next quotidian retail “phenomenon”. «