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Wednesday, 29 August 2012

Waiting for the Euro

Clegg's daft 'soak the rich' soundbite can be considered as much a part of the silly season as the Clacton lion; the number of taxpayers in a narrow band between the 'squeezed middle' and those wealthy enough to leave UK tax jurisdiction if overtaxed is small. Yet this captive group - tied to their firms or employers, earning say over £100k - are to be token rich victims as the cuts start to bite next year among the poorest deciles. It's politics; it ain't economics.

Similarly all the calls for massive infrastructure funding. Such schemes take years to develop, and over the next two or three the only people who will benefit are architects, planners and consultants. Meanwhile business is sitting on a massive cash-pile they're either too nervous to invest or are keeping to compete in the inevitable shake-up of mergers, acquisitions and battlefield salvage from any Euro collapse.

Keynesian demand-stimulus - dropping fivers out of a helicopter - isn't the way either, not at this time. And don't forget hysteresis, that efficiency-gains implemented by firms in recession mean that if and when production returns to 2007 output levels it will do so at lower input factor costs. Except of course for the public sector, so resilient to shedding labour costs in recession that few efficiencies are ever gained from the economic cycle. 

What I'm convinced is lacking is not will, or capacity, or ability or too few poorer people. It's knowledge of the road ahead. Uncertainty is the greatest risk, and inhibits business and investment decisions more than anything else. And the greatest element of that uncertainty is the future of the Eurozone.


cuffleyburgers said...

Raedwald - there is one certainty, and that is whatever the political self styled elite do or say, they will make matters worse.

The main uncertainty is which of many possible stupid decisions they will take at any given time, and how bad will it prove to be.

Dan said...

I'm convinced that at some point in the past, no later than the early 1980s, a plan was hatched over in Europe to unite Europe by stealth. Initial assumptions were that the financial system would carry on mostly the same as it always had done.

The plan was simple: Form a union of European states and under the guise of easing trade, make them all give a backdoor for EU legislation. Then set up a single currency, and let every Tom, Dick and Harry join. Germany, Holland and (if it joined) Britain could be relied on to be fairly sensible; Club Med would rapidly get into debt.

Once in debt and hurting, use this debt to force minor concessions of sovereignty from the states to the centre.

The plan failed on two counts. Firstly, financial tricks like debt commoditisation allowed Club Med to get deeply in the smelly without feeling a thing, and secondly pervasive networked computing allowed financial traders to pounce on perceived weakness very, very quickly.

So, slowly-increasing debt pain isn't forcing concessions and an empire-by-stealth; instead rapid onset of paralysing agony and seemingly no way out. The Grand Plan has therefore failed, hence the collective headless chicken impersonations from European leaders who don't now know what to do.

Barnacle Bill said...

If we had a real leader this side of la Manche/der Kanal things might be different.