I’m alarmed to see that my last post was a month ago.
Well, I have my excuses, which include Christmas and The New Year, plus a new client who needs nine two-hour and one three-hour modules written for The European Communication School. This is devouring the time I would usually spend blogging, and is rather messing up the first blog I’d planned for the year.
I thought I’d have a go at writing 12 Predictions For 2012, but it’s getting a bit late for that, so here are 10 Predictions instead..
I was having lunch with an old friend in The Rivington Grill just before Christmas when he asked me a surprising question.
“You’re an economist, aren’t you?” asked Andy White, a partner at CBW which had just been named the 2011 Mid Tier Accounting Firm of The Year at the new British Accountancy Awards.
I looked around nervously to see whom he was addressing, and then recalled that my degree does indeed contain an element of economics, including economic history, the economics of developing countries, macroeconomics, microeconomics, and all points inbetween.
“Why is Greece so seriously in the shit, and what is going to happen?”
Surprisingly, I knew the answer.
The terms of trade are firmly, and, currently, irrevocably, against Greece, and will continue to be that way unless Greece starts selling large quantities of high value manufactured items. This is so because it takes a lake of olive oil and a mountain of feta cheese to buy a Porsche Cayenne.
If Greece still used the drachma, it could devalue, and thereby tilt the terms of trade back towards its favour. But it can’t. Not until it leaves the Euro.
In the middle of March, Greece has to make a bond repayment of €14.5 billion. There’s no chance of this happening. Bond-holders have refused to accept less than their due, gambling that their insurance policies will protect them. Further, Germany refuses to let the ECB pump more liquidity into the Greek economy.
So, here are my predictions:
- Greece will fail to buy back the bonds in mid-March, 2012
- This will lead to a Greek default
- The drachmas, which De la Rue has already printed, will then be substituted for the Euro
- The sensible course of action, which is for Spain, France and Italy to club together, and to tell Germany to forget about constitutional unity, will not happen
- The UK will be blamed for everything, but won’t much care
- Two new UK Acts of Parliament, The Fixed-Term Parliaments Act 2011, and The Referendum Act 2011, will stop any further transfer of sovereignty from Westminster to Brussels
- Ireland will still need financial help from the UK, which will be provided without rancour
- The Scots have been watching events, and have not forgotten Alex Salmond’s dscredited notion of Arc of Prosperity comprising Iceland, Scotland and Norway. Much though they’d like to be independent, the majority of Scots will vote against it, whenever the referendum is held, because they know they need the haven of UK’s financial strength
- The Greek default will increase the pressure on all other EU countries as bond prices fall and yields soar, this pressure being greatest in Portugal
- The Turks will not mention the possibility of joining the Euro for many years to come.
If anybody else has predictions on this subject, I’d love to hear them, please.