At this time of year it is usual for journalists to write a piece about the year just gone, or giving predictions for the one to come. My job has been made much easier with the arrival in my inbox of Roger Martin-Fagg’s quarterly economic update.
Roger is an economics lecturer, consultant and broadcaster, and as one of the few experts who predicted our current financial crisis, is well worth listening to.
Essentially he looks back at how we got into today’s mess and what we might do to extricate ourselves.
The 1990 unification of Germany began a substantial transfer of income from West to East, wages fell, state benefits were cut, companies invested in R&D and apprenticeships and the result was a 20% drop in labour cost, compared to rest of the EU and a rise in unemployment to 12.1% by the time Angela Merkel came to office in 2005.
Meanwhile, the Club Med countries were becoming increasingly self-indulgent as governments found they could borrow at German rates of interest, because world markets believed Germany’s growing economic strength would underwrite everything.
As Germany increased its exports to the fringe, France, its biggest trading partner, fought against EU enlargement, believing globalisation was a threat that needed to managed, rather than an opportunity. The EU, with British support, was enlarged and French influence weakened.
The ageing Europeans were enjoying a comfortable lifestyle and Brussels was protecting businesses from an Asian onslaught. France was the only large EU country with a retirement age of 60 and the French, Belgians, Italians and Polish all stop working in their late 50s.
Angela Merkel says that if the euro fails, Europe fails, but in fact, if the euro succeeds, Europe is likely to fail anyway, because the euro was introduced on the back of two lies.
The first was that monetary union could exist without political union, the second lie was that Euro and non-Euro countries could happily co-exist.
In the last week of October 2011, European leaders agreed to leverage the European Financial Stability Facility (EFSF), boosting its lending potential from 300bn to 1.1 trillion euros. This was the first big step on the path of divergence between Euro and non-Euro members.
It is the beginning of joint liability for sovereign debt guarantees, paving the way for the creation of a Eurobond.
If this happens, the ECB will require each Euro member to solve their underlying structural problems, to harmonise their financial sector, co-ordinate labour market rules and become more competitive. Eurozone level taxation will have to be introduced to ensure income is redistributed from north to south and Brussels will send economic policemen to oversee errant countries.
These measures are the opposite to the single market founding principles. A monetary union in trouble has very different needs to a club interested in free trade. The Euro members, influenced by France, will decide it was free trade that caused the imbalances in the first case.
The Eurozone will have to create a common financial platform to ensure macroeconomic stability and that the Eurobonds sell at at a good price (low interest rate). Non-members have no need for such structures and would resist a regime run by and for the Eurozone. There are 10 of these countries; they are smaller and less homogenous than the 17 Eurozone members.
Over the next five years the microeconomic club will turn into a macroeconomic union and Sweden and the UK will have to decide whether they want to remain in a club with which they have increasingly little in common.
The biggest failing is that the technocrats in Brussels think prosperity and growth come from treaties and agreements, whereas, in fact, 70% of EU prosperity is created by firms employing fewer than 200 people, who will all say the biggest cost imposed on their enterprise comes from Brussels in the form of health and safety, employment and harmonisation reporting.
Roger predicts that Greece will leave the euro within the next 18 months, the drachma will trade at 60% of the euro, which will impose losses on Greek businesses with overseas operations, but there will be much bigger gains as Greece becomes Europe’s number one tourist destination. The Greek government will impose strict limits on cash and credit withdrawals to protect their banks.
Inflation will rise to 15%, but wages will not, so Greece will suffer from its lack of competitiveness. Greek villas may be fully booked, but fish will cost more, as fuel and boat repairs increase in price, but Greeks may get rich selling plots of land to British tourists looking for the sun and within two years, Greek GDP will be growing at 3%.
Wise businesses will already be asking Greeks to pay for imports in dollars and probably cash up-front. The ruling Greek families, who bought 10% of London’s property market, will sell their UK homes, buy drachma and the assets of Greek state industries at knock-down prices and ensure the survival of the luxury yacht market.
Meanwhile, the German and French governments will ignore Brussels and put massive support behind their local banks, who took big losses on sovereign debt. The Bank of England will have to supply around £150bn to the London market as the Credit Default Swap issuers are forced to pay up.
In three years time, Roger believes France and Germany will annuonce a Nordic Euro system and a Club Med Euro system, which will trade at a 30% discount to Nordic Euro and Europe will become three clubs; inner, fringe and outer. The outers, Denmark, Sweden and the UK will expand their trade to the East, where the money is.
This will take a while to develop, because Brussels will resist it at every step.
Growth in the material standard of living in the UK, will depend on the growth in real wages, which will depend on the growth of productivity (except for directors of FT100 companies).
Roger says the world’s economy is clearly slowing, but may avoid another recession, thanks to the east, but even they will not be able to dodge the Eurozone recession.
The west needs to reduce its debt.
All-in-all, Roger is not telling us what we didn’t already know, but he says it with a degree of certainty and knowledge that it will be worth revisiting his predictions in six months’ time.
To read the full paper, please click on http://www.wellmeadow.co.uk/2011/11/24/roger-martin-fagg/rm-f-report-november-2011/
In the meantime, here’s a brilliant letter from a disgruntled 86-year-old lady bank customer:
I am writing to thank you for bouncing my check with which I endeavoured to pay my plumber last month.
By my calculations, three nanoseconds must have elapsed between his presenting the check and the arrival in my account of the funds needed to honour it.
I refer, of course, to the automatic monthly deposit of my entire pension, an arrangement which, I admit, has been in place for only eight years.
You are to be commended for seizing that brief window of opportunity, and also for debiting my account $30 by way of penalty for the inconvenience caused to your bank.
My thankfulness springs from the manner in which this incident has caused me to rethink my errant financial ways. I noticed that whereas I personally answer your telephone calls and letters, — when I try to contact you, I am confronted by the impersonal, overcharging, pre-recorded, faceless entity which your bank has become.
From now on, I, like you, choose only to deal with a flesh-and-blood person.
My mortgage and loan repayments will therefore and hereafter no longer be automatic, but will arrive at your bank, by check, addressed personally and confidentially to an employee at your bank whom you must nominate.
Be aware that it is an OFFENSE under the Postal Act for any other person to open such an envelope.
Please find attached an Application Contact which I require your chosen employee to complete.
I am sorry it runs to eight pages, but in order that I know as much about him or her as your bank knows about me, there is no alternative.
Please note that all copies of his or her medical history must be countersigned by a Notary
Public, and the mandatory details of his/her financial situation (income, debts, assets and liabilities) must be accompanied by documented proof.
In due course, at MY convenience, I will issue your employee with a PIN number which he/she must quote in dealings with me.
I regret that it cannot be shorter than 28 digits but, again, I have modelled it on the number of button presses required of me to access my account balance on your phone bank service.
As they say, imitation is the sincerest form of flattery.
Let me level the playing field even further. When you call me, press buttons as follows:
IMMEDIATELY AFTER DIALING, PRESS THE STAR (*) BUTTON FOR ENGLISH
#1. To make an appointment to see me
#2. To query a missing payment.
#3. To transfer the call to my living room in case I am there.
#4 To transfer the call to my bedroom in case I am sleeping.
#5. To transfer the call to my toilet in case I am attending to nature.
#6. To transfer the call to my mobile phone if I am not at home.
#7. To leave a message on my computer, a password to access my computer is required.
Password will be communicated to you at a later date to that Authorized Contact mentioned earlier.
#8. To return to the main menu and to listen to options 1 through 7.
#9. To make a general complaint or inquiry. The contact will then be put on hold, pending the attention of my automated answering service.
#10. This is a second reminder to press* for English. While this may, on occasion, involve a lengthy wait, uplifting music will play for the duration of the call.
Regrettably, but again following your example, I must also levy an establishment fee to cover the setting up of this new arrangement.
May I wish you a happy, if ever so slightly less prosperous New Year?
Your Humble Client
And remember: Don’t make old People mad.
We don’t like being old in the first place, so it doesn’t take much to piss us off.