The Great Debate UK

The death of the euro is greatly exaggerated

-Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own.-

The Governor of the ECB, Jean-Claude Trichet has raised interest rates by 0.25 percentage points – and quite right too. For us in the UK, blaming rising prices on temporary disturbances in the world’s commodity markets is a figleaf to hide the fact that we are actually embarking on a partial default-by-inflation. For Europe, it is a different story. For one thing, the Germany-Austria-Netherlands bloc is, if not booming, at least chugging along at a highly respectable rate, and as the ECB Governor said today in response to a question about the impact of the rate rise on Portugal, his job is to set interest rates for the Eurozone as a whole, not just for the benefit of one of its smallest and weakest members.

Sovereign bailouts are becoming routine and, for the media, a standard part of the ritual is to question whether the euro zone can survive these crises. There is one highly relevant question, however, which seems rarely if ever to be discussed.

Quite simply, it is not in my view a question of whether the euro zone can survive, but rather of what we mean by the death of the euro zone or, maybe, how it can be killed off without inflicting near-fatal damage in its death-throes.

History, bunk and the bond market

–Laurence Copeland is a professor of finance at Cardiff University Business School . The opinions expressed are his own–

The title says it all: “This Time is Different” by Reinhart and Rogoff tells how, for centuries, monarchs and, later, nation states have persuaded lenders to forget their chequered credit record and trust them yet again with loans on relatively easy terms. Although, by the nineteenth century, Western European countries had mostly reached a stage where their reputation seemed worth preserving at  some cost, more or less from the moment they achieved their independence the South American countries established a tradition of default which they have guarded jealously to the present day, and as Reinhart and Rogoff make clear, Greece has defaulted at regular intervals ever since it became an independent nation in 1832.

Defining a post-crisis reputation for brand Ireland

– John Keilthy is Managing Partner of ReputationInc Ireland and is a former business journalist and director and chief operating officer of NCB Group.  Andrew Hammond is a Director in ReputationInc’s London office and was formerly a UK Government Special Adviser. The opinions expressed are their own. –

IRELAND/In recent weeks, the focus for Ireland and indeed the world’s financial markets has been on devising a plan to remedy the country’s precarious banking and fiscal affairs.

from MacroScope:

Europe’s over-achievers and their fall from grace

Ireland's fall from grace has been rapid and far worse than that of its counterparts, even Greece. But life in the euro zone has still been one of profound growth, as it has for most of the other peripheral economies.

Take a look first at the progress of  PIGS (Portugal, Ireland, Greece and Spain) GDP since 2007 when the global financial crisis took hold. In straight comparisons (ie, rebased to the  same point) Ireland is far and away the biggest loser. Portugal is basically where it was.

Thank you, Gordon Brown

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BRITAIN-INFLATION/–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

If the economics profession has sunk in public estimation in the last two or three years, it would hardly be surprising. Our failure to predict the crisis is something which cannot be simply brushed aside lightly, as some of my colleagues would love to do.

from Felix Salmon:

Greece: The bull case

Back in April, I noted with respect to Greece that "the bear case is terrifying, and the bull case is very hard to articulate". So it's extremely useful to have a clearly-articulated paper from the IMF, entitled "Default in Today’s Advanced Economies: Unnecessary, Undesirable, and Unlikely", which puts the bull case much more vividly than I've seen it before.

At its heart is this table:

pb.tiff

The idea here is that whether or not you default, you're going to have to embark upon a large fiscal adjustment in order to get back into sustainable territory. And even if you default with a massive 50% haircut, the size of that fiscal adjustment doesn't change all that much:

Not much stress, not much test

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-Laurence Copeland is professor of finance at Cardiff University Business School. The opinions expressed are his own.-

Back in the 1950’s, when most women stayed at home while their menfolk went out to work, a favourite trick of life insurance salesmen was to walk into the prospect’s home at dinner time and ask the wife:

from MacroScope:

It’s all Germany’s fault

It is fairly commonplace at the moment for U.S. and UK financial analysts -- what continental Europeans call the Anglo-Saxons -- to predict the collapse of the euro zone,  a project they were mostly sceptical about in the first place.  MacroScope touched on this on two occasions in March.

The latest foray into this area comes from Alan Brown,  global chief  investment officer at the large UK fund firm  Schroders. But he does it with twist,  blaming what he sees as the eventual  collapse of the euro zone not on the structure itself nor  on the profligacy of peripheral economies, but on Germany's response to the crisis.

from MacroScope:

Should central banks now sell gold?

Central banks in debt-strapped countries have a golden opportunity ahead of them, if you will excuse the pun, to help their countries' finances by selling their yellow metal holdings.

At least, that is the message that Royal Bank of Scotland's commodities chief Nick Moore has been giving in recent presentations -- and he thinks it might happen.   The gist is that gold is now at a record price but banks have not come close to  meeting their sales allowance for the year.

Sovereign default risk, fact or fiction?

-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

If a gauge is needed to measure how concerned investors are at about sovereign default risk, we need look no further than the price of gold which has made fresh all time highs this week.

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