April 28, 2010
Will Britain be the first country to go bust or at least have a run on its currency before, not after, the Olympics?
Traditionally, countries and cities host the Olympics with great fanfare, expecting great things from tourism and then, when the marathon finishes and the clean-up begins, they are left with a nasty bill. However, such is the ‘feel-good’ factor associated with the prestige of the games that the bill is rarely presented before the opening ceremony.
But this time it might be different. Britain is in a precarious financial position, but at least it is exceedingly lucky in that it can print its own currency. However, while devaluation saves parts of the economy, it almost guarantees a run on the currency, particularly now that Britain faces a hung parliament.
Its deficits are huge and there is real angst across the water as to what Britain can do. What industries does it have that can, in the years ahead, save it from being a chronic deficit country?
Not that you would feel this angst in London. In fact, the place seems giddy. Anyone who has sat on the Tube in recent days and read the ‘Evening Standard’ over the shoulder of their neighbour will know that London is in the grip of Cleggmania. There is not much else being talked about and as the election approaches Nick Clegg is the man to beat.
If you doubt this, just read the Tory press, which is spewing out as much bilious gunk as it can find in an effort to smear this guy simply because he does a better imitation of Tony Blair than David Cameron.
But the Tories are stuck, as are Labour, because the people are responding as they have responded politically in the past two years — they want change. They want the outsider. They are sick of the two-party system; and the more the press and political opponents throw at Clegg, the stronger he gets.
I have been spending a few days in London and the place is buzzing with politics. So much so that no one is discussing the underlying economic challenge facing whoever wins the election, which will be massive cuts in spending.
For example, last night I found myself in an old London institution, Bloom’s Restaurant in Golders Green. The place is one of the few authentic kosher restaurants in London and well worth a visit — if not for the food, just for the people watching.
Last night the place was hopping. As the only man without a yarmulke, I stood out a mile. The tables were full of old Jewish ladies, nattering about their daughters-in-law, elderly couples sharing desserts with two spoons, bearded men on mobiles and my own raucous table deep in heated debate.
My hosts were worried. We tucked into some Yiddish specialties all washed down with Maccabi beer. The conversation moved quickly with no one agreeing with anyone else. You could have been in an east European shtetl before the war — all exaggerated hand gestures and dramatic sweeping statements with warnings of the impending disaster that awaits Britain if the Liberals and Labour do a deal. This Armageddon was only marginally more treacherous than the one that faces us if the Liberals and the Conservatives do a deal.
We spoke of the euro too, which they all agreed was going through the mill. Some of these guys had years of financial experience and they were in no doubt that Greece would blow, followed by Portugal and then on to Ireland. They explained to me something I had forgotten which was how profits, not ECB press statements, embolden market players.
So today the Greek bond yields are out at 16pc. This means that the markets who bet when Greek bond yields were at 5pc that there would be a crisis can now make a tidy profit. This money that they make in Greece will now be banked and deployed against the next country.
I left the restaurant more confused than when I had arrived and hopped on the 328 bus to Notting Hill. As the bus left the predominantly Jewish Golders Green so too did the Jews who were on the bus. They were replaced by Indians and Chinese.
The bus moved towards Kilburn. At Kilburn High Road, the bus filled up with older Irish people, immigrants from the 1950s and 1960s. Out the window the corner shops sold the ‘Limerick Leader’, the ‘Sligo Champion’, the ‘Leitrim Observer’ and, of course, ‘The Irish Post’.
By the time the bus pulled into Westborne Park Station, most of the Irish had got off, replaced by younger Middle Eastern and Asian migrants.
The bus captured the essence of London; transient, mixed, still territorial. I had started in pre-war Poland and ended up in 21st century Bangladesh via 1950s Mohill.
This is the country that Nick Clegg is connecting with. This is the place that is fed up with the two old parties. For Ireland, the next few weeks in Britain will be crucial. The UK is still our biggest trading partner and it is where we are most likely to go to as our recession drags on.
It is also the place that we have to be competitive with. As the Greek crisis reaches its endgame with either Greece leaving the euro or defaulting, Ireland will come under severe pressure. Markets will look for reasons to validate selling Irish bonds. Most obviously the enormous NAMA debts to bail out the banks will tip us over, but so too will our competitive position with Britain.
Think about the following: Clegg and the Lib Dems do very well. He holds the balance of power and has a big spending agenda, plus the added spice of wanting a PR system. It will mean that the new coalition will be unstable and unable to rein in the public deficit. The markets will do what they always do — sell sterling. Sterling falls even against a weak euro, which is being hammered against the dollar because of bond crises in Greece, Portugal, Spain and Ireland.
Sterling’s fall means that in Dundalk, Cavan, Letterkenny and all across the country north of Athlone, the retail trade seizes up. People go north for bargains, but also retailers here who expanded in the boom see their credit cut off by the banks, who are suffering because our bond market is in freefall.
Then the true lunacy of our Government’s policy becomes apparent. We are trying to slash prices and wages in the euro at a time when we are papering over the cracks with massive borrowing to save the banks. In the process, we strangle domestic indigenous exporters — who are supposed to be the saviours.
It won’t be just Britain who has its day of reckoning before the Olympics.