.."And the broader picture for the euro isnt looking a lot brighter
than for the pound, either. Because long-term private investors are
pulling their cash out of the eurozone at the fastest rate since the
creation of the single currency, says a report by BNP
Paribas..."http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/30/ccambrose130.xml
Why Europe could be in as much trouble as the UK
Today
we have a slightly new look for our Money Morning masthead. This is to
tie in with a redesign of our website, coming soon. We hope you like it.
The news on the UK economy just keeps getting worse.
Last weeks news was unremittingly glum - from falling house prices
to income squeezes, most of us are quite a bit worse off than we were a
year ago. And with inflation soaring, we cant expect the Bank of
England to cut interest rates this week to try to alleviate any of the
pain.
To add insult to injury, the pound, our national virility symbol,
has plunged against the euro, so we cant even afford to go away from
it all on holiday on the Continent. And we came last in Eurovision
again. We seem to be becoming the sick men of Europe.
If you cant beat them, they say, join them. So has the time finally come to
dump the poor old pound and plump for the euro?
Why Europe could be in as much trouble as the UK
With the euro now among the worlds strongest currencies, you might
assume that the eurozone was in a much better state than Britain. But
take a closer look and you soon see that plenty of problems have been
cropping up on the other side of the Channel, as well as across the
Irish sea.
Take housing. Last weeks Nationwide house prices survey showed that
prices were down 4.4% year-on-year in May, the biggest fall since the
early 1990s. Thats pretty grim.
But in Spain house prices have already fallen 15% across the board
since September, according to the developers association (APCE). And
in Ireland, house prices were down nearly 10% year-on-year up to the
end of March.
Of course, the UK property market is set to get a lot worse. But the same could
be said for Spain and Ireland.
Then theres consumer confidence. In Britain this has crumpled,
according to the latest GfK indicator, to its lowest point since
Margaret Thatcher was ousted from office. Again, pretty grim. But the
eurozone isnt immune either - French consumer confidence has now
fallen to its lowest level in 20 years.
And as for inflation, despite the European Central Banks (ECB)
reputation as a hard-nosed inflation fighter, Europes having trouble
with rising prices too. Last Fridays figure turned out worse than
expected, coming in with an annual rate of 3.6%, adding to what ECB
president Jean-Claude Trichet has called policy makers biggest
challenge. Despite the strong currency, thats 0.6% higher than in the
UK. Indeed, the pressures now building on the ECB for the next move in
interest rates to be up.
And the broader picture for the euro isnt looking a lot brighter
than for the pound, either. Because long-term private investors are
pulling their cash out of the eurozone at the fastest rate since the
creation of the single currency, says a report by BNP Paribas.
Foreign direct investment in plant and factories has swung down over
the past year to a negative 149bn (£117bn), including a drop to minus
19bn in March alone as the surging euro drove up relative labour costs
in southern Europe. Add in a $280bn withdrawal of private funds from
eurozone equities and bonds, and total outflows have exceeded 400bn
over the last twelve months.
The euro is now suffering from the reserve currency curse, says
Ambrose Evans-Pritchard in The Telegraph, as central banks in Asia,
Russia, and the Middle East use it as an alternative to the dollar.
While Asian funding has helped ease the credit crisis in Europe, it
has also pushed the exchange rate to damaging levels. The eurozone has
gained financial flows, but has lost industrial and investment flows.
BNPs currency strategist Hans Redeke sees mounting signs of stress.
There are lots of ugly surprises in store as deleveraging finally hits
Europe. Investors are going to stop treating the eurozone as if it were
just Germany. We will discover in this downturn whether the eurozone is
really an optimal currency area. This is the test.
So, on reflection, maybe this isnt the time for the Treasurys
great and good to contemplate dumping the pound. And if youre still
unconvinced, heres what the FTs Martin Wolf has to say. Hes such a
staunch opponent of such a move, hes even just criticised his
europhile peers in print: the Lex column argued last week that the UK
was close to meeting the economic tests for joining. Lex is wrong.
Three reasons why our currency should be left alone
Weve not been hurt historically by being out of the euro, says Mr
Wolf. Between the first quarter of 1999 and the first quarter of 2008,
Britains economy expanded by 28% compared with 21% in the eurozone as
a whole and 16% in Germany. Nor has Londons position as a financial
centre been hurt.
In fact, had the UK been a recent eurozone member, our present
situation could be even worse. Our credit bubble would have inflated
more, because euro interest rates have been lower. On top of that, now
that the domestic spending boom is over, thered have been no
offsetting benefit from the recently plummeting pound.
Inflation may well now rise faster in the UK than in the eurozone,
but at least we have some hope of controlling this. The Bank of England
can set interest rates to suit Britain alone, rather than relying on
the ECB, which is arguably far more concerned with how suitable
interest rates are for Germany. If the BoE sticks firmly to its 2%
inflation target, Britain will almost certainly veer into recession,
but then so will the eurozone countries.
So forget the euro - our currency should just be left alone, to find
its own level. Which of course, looks like it could well be
considerably lower than it is now.
source-Money Morning
__________________________________________________________________
Be smarter than spam. See how smart SpamGuard is at giving junk email the boot
with the All-new Yahoo! Mail. Click on Options in Mail and switch to New Mail
today or register for free at http://mail.yahoo.ca
[Non-text portions of this message have been removed]
------------------------------------
===============
Group Moderator: [Е-ПОШТА
ЗАШТИЋЕНА]
page at http://magazine.sorabia.net
for more informations about current situation in Serbia http://www.sorabia.net
Slusajte GLAS SORABIJE nas talk internet-radio (Serbian Only)
http://radio.sorabia.net
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/sorabia/
<*> Your email settings:
Individual Email | Traditional
<*> To change settings online go to:
http://groups.yahoo.com/group/sorabia/join
(Yahoo! ID required)
<*> To change settings via email:
mailto:[Е-ПОШТА
ЗАШТИЋЕНА]
mailto:[Е-ПОШТА
ЗАШТИЋЕНА]
<*> To unsubscribe from this group, send an email to:
[Е-ПОШТА
ЗАШТИЋЕНА]
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
