Europe and the UK

[Graemsay]

There's a worrying piece by Robert Peston on the BBC website this morning about the state of British and European banks.

http://www.bbc.co.uk/news/business-18607088

Banks are allowing customers to have payment holidays or shift onto interest only deals in order to hang onto their mortgage. 8% of British mortgage holders are said to be subject to these deals, and it's concerning that this is happening at a time of record low interest rates.

The same is true for other European economies, and also the commercial sector.

Carrying on with that theme, a piece at the FT Alphaville blog also showed that despite a few years of the housing market deflating, there's still a long way to go in countries like Spain.

http://ftalphaville.ft.com/blog/2012/06/26/1059711/of-housing-booms-and-busts/

That said, I'm feeling a bit more confident about the Eurozone right now. The Germans have been getting a lot of flack for not bailing out the southern states. I don't think that they're opposed to this in principle, but they want there to be safeguards in place.

Take a look at this interview with Wolfgang Schäuble.

http://www.spiegel.de/international...means-eu-structures-must-change-a-840640.html

The Germans want deeper political and fiscal integration as the price for supporting the weaker member states, so that there is some mechanism for reining in profligate governments. Merkel is looking for a long term solution, whereas a number of countries, and the markets, are demanding quick fixes.

There's a major summit in Rome tomorrow and Friday, and I'd expect to see some sort of movement towards the this being announced. Unfortunately the British government will object, and make life difficult for everyone else for no real gain.

 

[Aaron Sice]

That said, I'm feeling a bit more confident about the Eurozone right now. The Germans have been getting a lot of flack for not bailing out the southern states. I don't think that they're opposed to this in principle, but they want there to be safeguards in place.

Take a look at this interview with Wolfgang Schäuble.

http://www.spiegel.de/international...means-eu-structures-must-change-a-840640.html

The Germans want deeper political and fiscal integration as the price for supporting the weaker member states, so that there is some mechanism for reining in profligate governments. Merkel is looking for a long term solution, whereas a number of countries, and the markets, are demanding quick fixes.

ve vant yur gold, yah?

http://www.zerohedge.com/news/vice-...s-gold-collateral-european-bailout-recipients

 

[Ausprop]

read an interesting piece yesterday about the likelihood of the UK leaving the EU. The UK seems to be struggling to find its place in the world.... am sure it will, it is one of the most adapative and creative cultures the world has seen. Will be interesting to see which way they go and what they do next in order to stay relevant

 

[Aaron Sice]

i thought they didn't officially join the EU because they didn't adopt the currency...?

 

[joeExpat]

The UK has been in the EU for 20 years, EEC before that. They get a lot of benefits from being in the common market, exiting would only accelerate their decline.

As for Germany, they helped cause the current mess in Europe with reckless lending & they have an interest in & responsibility to help lower the borrowing costs of other members. Germany itself has bigger public debt than other Euro countries & wouldn't survive with the interest rates being imposed on Spain & Italy for example.

 

[Graemsay]

Ausprop, I think that the piece on a UK exit you read was this one in the Economist.

http://www.economist.com/node/21557315/

The EU and Eurozone aren't entirely interchangeable. Britain and Denmark are the only countries with a complete opt-out. Gordon Brown killed off any hopes for a UK entry in 2000 with his five tests. Though there are rumours that membership was considered during the financial crisis.

Sweden and a number of Eastern European countries are legally committed to joining the Euro at some point in the future.

The right wing of British politics is largely hostile to the European project, and there's a certain amount of "I told you so" gloating over here the single currency's problems. That's part of what's increasing pressures for an exit from the EU, and membership of the EFTA instead.

One of the points of conflict is that the City is really concerned about any extra taxation or regulation being imposed on it. Because, as you well know, the investment banks are well-oiled engines of capitalism that never go wrong, and any extra red tape would cut into their margins and ability to make vast profits.

(Yes, I can do sarcasm...)

What is going to be interesting is whether the proposed banking union makes it less attractive for them to be outside the Eurozone. If there's a collectivisation of financial institutions' liabilities across the member states, and the UK is sitting outside, then the those in the former could well have access to cheaper funding than the those in the latter.

I'd agree with JoeExpat about Germany public debt. Overall, levels across the Eurozone are lower than the UK or US, so it's more a matter of politics and confidence than glaring economic problems.