'It's the Euro, stoopid!.........

The US economy seems to have turned the corner except in housing. I see that the Dow is roaring away and all the economic indicators (except housing) are showing an up-tick. Very good for O. You will see little improvement in employment. Experience tells us that there is a time-lag of 5 years before employment catches up post-recession.

Europe is looking distinctly dodgy.  The sooth-sayers are telling us that France is next for nasties. They have not had a balanced budget since 1974, they are excessively dirigiste which stifles the economy, Sarko and Hollande are making the most ridiculous election pledges which they cannot possibly keep. Hollande is proposing a top rate of tax of 75% which, with social charges, makes it 90%. Britain will get another influx of the brightest and best. There are already signs of French business relocating to lower cost, more business friendly, countries.

Spain, meanwhile, has unemployment running at around 25%; youth unemployment is a staggering 50%. Stand by for the emergence of more nationalistic politics. I have little sympathy there. The Spanish had a ridiculous boom in housing off the back of cheap Euro-money, and then ruined the expat market through corruption and dishonesty.  When they began dispossessing expats – mainly Dutch, German, and British – without compensation they buggered it up for all time.

The conventional view is that Club Med is responsible entirely for the present chaos, through their profligacy and dishonesty, over-borrowing of cheap money and generally leading the good life at someone else’s expense. Others castigate Germany for being over-competitive and concentrating on supply-side economics which forced Club Med into a hopeless demand-side position. They squeezed wages and costs, improved efficiency and pursued an aggressive export policy.

What’s wrong with that?

Well, if Germany still had the Dm its rate against other currencies would have strengthened to reflect relative values. Instead the German economy was able to forge ahead on a cheap currency because of the ‘one size fits all’ system. It was beggar thy neighbour’.

The root cause of the crisis is not the Club Med or the selfish Germans.

It’s the Euro, stoopid!