Political events are driving economic ones with investors remaining concerned about a number of factors all of which have the potential to upset market sentiment and economic confidence. (I have written about these concerns before- see blogs of May 30th – EU superstate or EU in a state? Germany has a dilemma… and May 15th – We didn’t start the fire…).
European sovereign debts issues remain central to the concerns of the wider world too if headlines are to be believed from the recent G20 meeting in Mexico. On the contrary some may recall legendary investor Warren Buffet’s advice of being “fearful when others are greedy…**” and vice versa. Equities, some in particular, appear attractive but for me just not yet.
Will disaster arrive once a country, probably Greece, leaves the Euro zone? Does bailing out Spain with Germany taking more risk one way or the other conserve the Euro zone and the wider EU project? More fundamentally what is the great hope of the EU?
My city insider Clive had this to say recently “if the ultimate reason for the EU existence is to stop German dominance then it’s failed”. A fair point as everyone including G20 nations looks to Berlin as the fixer of last resort. The proposals now being discussed involve deeper fiscal Euro zone integration whether this may be achieved in a timely manner remains to be seen. The Euro zone area would develop further the Euro plus group in making the key economic decisions. Would defence and foreign policy then follow? A truer EU state would form if the economic and debt strains could be absorbed.
Would the EU try to resemble what the UK is already? Something for the Scottish independence seekers to think about with their wish to end the current union and jump into another as a renewed smaller less well financed nation state. Nationalists wishing to have sovereign powers in an even larger entity that’s in consolidation mode whilst applying for membership is what I would describe as swimming against the tide.
The UK would most likely find itself in outer core of EU nations. This provokes the argument whether this is a good or bad economic situation to find itself. Euro sceptics may get their chance to push for a role in the European Free Trade Association and leave the EU altogether and join Norway, Liechtenstein and Switzerland. All rich and AAA rated successful countries. Is this a disappointment or opportunity in waiting for the UK especially if EU tax-free incentives are provide by an enterprising UK government with an eye on fostering economic initiatives with commonwealth countries and growing Asian or Latin economies?
An EU having economic difficulties is much preferable to one having warring states as history clearly shows especially in the 20th century. I like being a European and support the single market philosophy of simplified trading and cross-border regulation. The Euro zone or EU will remain important trading partner with the UK albeit economically moribund for years whilst debt is reduced. However tumultuous political events increasingly outside UK influence may decide who our new friends are and the opportunities that arise.
LDC
** “be fearful when others are greedy and greedy when others are fearful” Quote by Warren Buffet, CEO and Founder of Berkshire Hathaway.