More crisis to come?

Is Europe heading towards a major economic and political crisis?.

David Cameron has set the cat amongst the pigeons by vetoing changes to a European treaty that could have affected the regulation of UK financial services. It may well break up the coalition and impair our trade overseas. But even ignoring this latest headline, Europe is in a very strange and perilous position.

I was born at the end of the Second World War, which cost 50 million lives and ended with Germany being resurrected by the Allies. Now, the Europe that the Germans devastated begs, nay demands, that Germany should let the ECB print as many Euros as it takes to buy up the toxic debts of the likes of Greece and Italy, and – via some Eurobond mechanism – underwrite future borrowings. Germany has not forgotten what happened the last time inflation took hold, and is not going to play unless, in effect, it takes over the running of the indebted economies. The Italians and the Portuguese will have to do as they are told, and if they don’t, there will be sanctions. So goes the fairy tale.

What if the Governments that sign up to Eurozone hegemony get slung out by the voters, who elect a party that has promised to tell the Eurozone to get stuffed? What sanctions will be applied? Happily, probably not tanks, because only us and the French have spent any money on our armed forces.

And even if Merkozy et al manage to calm the bond markets for now, the underlying problem does not go away. The one size fits all Euro is a disaster. The convergence of economies that was supposed to happen simply hasn’t. Arguably, they have diverged. In the last couple of months some respected commentators have actually argued that The Eurozone members should face up to reality and start planning the break up.

This would all be pretty comical if it wasn’t so serious. When Lehman went belly up and the banks went to pot and the economy shrank sharply, I thought it would take us seven or eight years to restore equilibrium. We’ve had three, but now we have the Eurozone mess and, as Osborne has made clear, we have to set the clock back to nought.

But is it so awful if living standards fall back just a bit? I seem to remember managing without telly, foreign holidays, 3G mobile ‘phones and designer clothes. Come to think of it, I still do, aside from the telly. The woman interviewed on the box the other night to tell us how awful it was that she had to turn the heating down and wear a vest was artfully arranged behind a Christmas tree with obviously fancy and probably fairly pricey decorations. People will have to give things up. Guessing what they’ll give up is a great game for Christmas.

But spare a thought or more for the genuinely hard up. They’re down to the wire, and will be close to giving up what we have all come to think of as essentials.

And again

When HM Government came up with NEST (the new state provider of what will be, to all intents and purposes, personal pensions) they said that NEST would not take transfers from other schemes. That seemed unfair on the folks stuck in higher charging Stakeholder arrangements. Now, with the ghastly Child Trust Fund thrown out of the window, we have the junior ISA, which won’t take transfers from CTFs. Why?

At various times in these columns I have railed against structured products, bundling, and financial projections associated with Life and Pension products. The FSA has had a poke at all three in the last couple of months. The canals at Canary Wharf echo again, and again, and again to the unmistakeable sound of horses hooves following by the equally unmistakeable sound of stable doors clanging shut.

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