All at sea in a sea of debt


            You cannot ignore the government debt markets for long. They have a way of muscling into the economies and the political stories of western Europe.

             We need to get up to date with the interest costs each country faces for borrowing money for ten years:

Greece   29.02%

Portugal   11.28%

Ireland    8.2%

Italy    6.97%

Spain   6.65%

Belgium    5.21%

Austria    3.74%

France   3.63%

Germany  1.98%

                The first three countries in the list are in special measures. They are in receipt of subsidised loans from the EU and IMF, as no-one thinks they can afford to borrow at current market rates. An early return to normal borrowing does not look likely, especially for Greece.

                Germany and the EU Commission are using the crisis to strengthen  controls on the budgets of these countries. Yesterday Mrs Merkel had to warn Greece that their conservative opposition party had to sign up to the austerity package as well as the government, before the EU would release the next tranche of money they need to pay the bills.  Germany is working closely with the EU authorities on measures to tighten and enforce budgetary discipline on Euro area members.

                Italy, Spain and even Belgium are now in the zone where they could be forced in to seeking subsidised loans from the EU/IMF combination. Italy has already submitted to IMF surveillance of its budget, and has imposed a technocrats government on itself at the request of EU leaders. Spain has just elected a new conservative majority government on a platform of imposing greater austerity, but this has not yet impressed the bond markets who want proof that the deficit is going to come down and stay down. All three countries are going to need to impress and deliver some better figures to get their market rates down.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† France and Austria have now detached from Germany, and have to pay considerably more than their German neighbours. France’s credit status remains AAA officially, but the markets are now treating it differently from Germany and the UK. ¬† Yesterday, for the first time, the markets even dared to question the safe haven reliable status of German debt. Around one third of the 10 year bond offered at 1.98% was left without buyers. More in the markets are now asking how safe Germany’s ¬†credit status will prove, if Germany is dragged into¬†offering more ¬†support for ¬†the weaker parts of the zone.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† Germany has for the time being ruled out the issue of Euro area bonds, backed by all the Euro area governments. This¬†might ¬†enable the weaker areas to borrow at a much lower average rate than they can command. However, Germany did sign up to the EFSF. This is a ¬† Luxembourg company with the power to borrow using the credit standing of the Euro area countries. This vehicle has struggled to raise large sums at rates close to Germany’s, implying¬† some technical and marketing difficutlies with Euro area debt anyway.

              Mrs Merkel is right to say you cannot solve a debt crisis by borrowing more. Her critics are right to say you may not get growth in the weaker countries if all you do is cut spending. This might keep the deficit high as tax revenue falls. It should fall to experts who like the Euro and think it can be easily saved to tell us all how you pull off the trick of encouraging growth in the depressed southern countries without ballooning the deficits further through fiscal stimulus.  QE, changing  bank regulation, devaluation and the other tools being tried in the US and UK are  not open to Euro area economies who no longer control their own money, exchange rate or banking system.

               It may be that many overborrowed western economies have to rein in spending to get their deficits and debts under control.  That is going to require political leaders who can find the words to get people to believe it is the only option, and then offer them the hope that after a short sharp adjustment things can start to get better again. The danger of the current drift in Euroland is we will end up with bigger cuts and less hope.


  1. norman
    November 24, 2011

    The entitlement culture has to change and I don’t mean people on benefits, although that’s a part of the problem. We (in Europe) seem to think that we’re entitled to work a 35 hour week, often in a makework job, car in the drive, nice house, world leading health care, access to all the raw materials we could wish for, 20+ year retirement, etc.

    While all of those things are nice, and I’d not deny them to anyone, other countries are playing catch up and they’re catching up at a furious pace which simply wasn’t possible in years gone by when, whatever happened, you could be assured that Europe would come out on top after every bump in the road.

    Government seems to think we’re entitled to this too (or is too afraid of the political outfall to say we’re not) and so bumps along the bottom borrowing massive amounts of money in our names to maintain the size of government we think befits us rather than taxing us into poverty as would have to be the case if we were to try and pay as we go (which at least would be honest).

    The stark choice is either impoverish ourselves slowly like an aristocrat fallen on hard times by selling off assets (as we’re doing via QE) to maintain the illusion all is well or we bite the bullet and attempt a fundamental change in the relationship between government and governed.

    1. A different Simon
      November 24, 2011

      Norman ,

      Whilst I agree with you that people have unrealistic expectations I’d like to examine 3 of your points :-
      – 35 hour weeks
      – world leading healthcare
      – 20 year retirements

      i) 35hr week

      There is not and will never be enough work so it has to be spread around better .
      People are far more likely to accept fewer posessions if they have more time to spend with their family , help them with their homework etc .

      I’ve worked stupid hours most of my life and it isn’t the answer .

      ii) World leading healthcare .

      Obviously there has to be a limit as some treatments are hugely expensive . One could also argue that the young should receive priority over those who are at a good age and have enjoyed a good life .
      There is still no reason why we cannot continue to have universal access to very good healthcare . The NHS is useless at procurement .

      iii) 20 year retirements

      Many people involved in software development are burned out by the time they are 60 . I also knew a builder who worked until he was in his early 70’s .

      Yes people can adapt but again there is only so much work and the young need their slice too . The scope for raising the age of retirement is very limited .

      How do I think we can maintain a decent standard of living . In short enable people to keep a larger proportion of their money instead of having it taken by the financial services industry :-

      – reduce accomodation prices to about half what they are now . People spend less money on interest to banks . To do this we need to create a housing surplus and ensure it isn’t monopolised for the few . Consider moving towards a land value tax and removing tax from employment .

      – sort out pensions so people get the benefit of their savings themselves . Other countries have managed it . Deduct money from everyone to fund a universal pension which pays out at the rate at which meens tested benefits kick in then scrap the meens tested benefits . Replace public sector vocational pension schemes with a vocational scheme open to everyone where the risk is assumed by the policyholder rather than the taxpayer .

      1. A different Simon
        November 24, 2011

        There is no real competition in the financial services industry for services which are essential ; mortgages , pensions , domestic and vehicle insurance .

        Perhaps these services should be nationalised ?

        Take house insurance , the insurance industry gets approval to create a national database ostensibly to combat fraud .

        What happens in practice is it turns house insurance into a cartel .

        Instead of real competition driving prices down there is collusion raising them to the absolute maximum the market can bear .

        1. John Maynard
          November 25, 2011

          A Different Simon:

          May I suggest that you look up in your economics textbook, or Google – the Lump of Labour fallacy.

    2. Mike Stallard
      November 24, 2011

      Agriculture, fishing, meat production, ship building, manufacturing, car production, mining, railways have all been more or less got rid of now. Agriculture, which once needed a lot of people, and domestic service, which was a major source of employment now are almost entirely mechanised. So where are the jobs to come from.
      In addition, free schools, shale oil and house production are all more or less forbidden by law. Starting up new businesses is very, very hard – just one pregnancy and – bingo!
      So, for the young, buying a house, getting married, going to College, starting work are very, very expensive and difficult to do.

      So I vote for the aristocrat – and lots more caravan parks.

      1. A different Simon
        November 24, 2011

        I thought we produced more cars than ever , just not for British owned companies anymore .

        Simmilarly there is a lot of manufacturing , just of different things .

        I think we’ve shown pretty convincingly that offshoring and importing to the degree we do it now is a path to ruin .

        How do you convince a whole nation that it is in their interests to pay a premium for British produced goods because the money will circulate in our own economy and come back to them more quickly ?

      2. forthurst
        November 24, 2011

        I was in the Yorkshire Dales recently and in conversation with a farmer, was told that their farm had not yielded any income for several years; it was not marginal land, and the woman was intelligent, energetic and in good heart, but like many she has had to find other sources of income in order to be able to afford to work her ancestral land. Her situation is entirely a construct of the CAP and the host of unnecessary regulations and taxes, particularly for fuel, with which she has to contend. We are ruled by people who do not produce anything of intrinsic value and do not know anybody who does; they are parasites, pure and simple.

        As to the Eurocrisis, everything is going to plan: countries are being forced by the intrinsic constraints of the EZ to cut their cloth accordingly; once they get round to actually doing that and manage to take their voters with them, I’m sure everything will be hunky-dory. However, it might have been better if countries were not tied down with so many rules and regulations having a sclerotic effect on personal initiative and endeavour.

      3. Disaffected
        November 24, 2011

        Today Merkel made it clear the way forward for the EU financial mess will be treaty change. Of course Germany will be in control with strict measures to punish wayward countries. This will place Weak Dave in a difficult position where he has to make a decision.

        Ireland are already trying to use the treaty change prospect as a way of negotiating/reducing the bad deal they made with the EU when they agreed to be the EU slaves- contrary to their public’s wishes.

        The UK public should get an EU referendum- what is Dave going to do???

        I think Labour’s unpopular troubles will disappear into oblivion compared to this.

    3. uanime5
      November 24, 2011

      Well if the Government provided better public transport and built flats instead of houses then we’d need fewer cars and houses.

      1. Bazman
        November 24, 2011

        Seem to be doing a good job of building daft flats and cramped houses.

      2. davidb
        November 24, 2011

        Today I was working near the Red Road flats in Glasgow. These were icons in the 60’s when they were built. Tallest in Europe at the time. People do not want to live in them. They will be demolished early in the New Year. I know the contractors who are bringing them down. They bring lots of these 60’s monuments to the brave new world down. Because people don’t want to live in them.

        Try going to 3 or 4 different places on the same day by bus or train. Try getting from one rural village to another late at night or on a sunday by public transport. Sure its fine if you are going between two cities, or if you live in one of the giant metropolitan areas like London or Edinburgh, but many ( most? ) people in the UK dont. So for most of us public transport does not work.

        British people want to live in low rise buildings, and want to drive their own cars on cheap fuel. All those folks being made to feel guilty by champagne socialists or green nutters have hard enough lives. In an ideal world we’d all be rich and live forever in perfect health and in a land of milk and honey. But that land doesn’t have bus drivers or high rise toweblocks.

      3. wab
        November 24, 2011

        I think you’ll find that most people prefer cars and houses. But why would Government care what the people want, eh. Teach those peasants a lesson about who rules and who is ruled.

  2. Antisthenes
    November 24, 2011

    The only way to solve this crisis is to address the one thing that caused it in the first place and that is not just for the euro-zone but for most other Western nations as well. The cause is the lack of competitiveness until that is addressed everything else is wasted effort. Austerity for most is necessary now as debts have grown so large but that only tackles a symptom. What hampers competitiveness is the size of government and the multitude of roles it has taken upon itself. I see little attempt or at best half hearted attempts to reduce the size of government and jettison most of what it does. If politicians are not prepared to take the necessary actions then market forces will eventually do it for them. Bit by bit the size of government and things it does will shrink as the wealth to sustain them dries up.

    1. Oldrightie
      November 24, 2011

      An excellent comment. Why we have so few sensible people in Government is the mystery.

      1. Simon 123
        November 24, 2011

        How can the Conservatives be an effective force when they are held in an arm lock by the Liberal Democrats? It is fashionable to say that this is what the electorate wanted, but I don’t believe that. The UK is just as near to the brink of the precipice as the Eurozone and there is every chance that we might fall over the edge.

    2. G.A.B.Edwards
      November 24, 2011

      Very true,well said .GABE

    3. uanime5
      November 24, 2011

      Can you name any parts of the Government that are no longer needed?

      1. Winston Smith
        November 24, 2011

        The Audit Commission, The commision for racial equality……….quango after guango.

      2. APL
        November 24, 2011

        uanime5: “Can you name any parts of the Government that are no longer needed?”

        It’s difficult but only because the fashion to rename a department in an attempt to bury its disastrous record.

        But the Department of Trade and industry, what may now be called the Department of Enterprise bla bla bla.

        Close it down.

      3. davidb
        November 24, 2011

        Border agency. We should be in Schengen.

      4. Michael Gilbert
        November 25, 2011

        Yes, easily, starting with Diversity Outreach Workers and moving on to Equality Liason officers etc.

        That and the Deputy PM

  3. Ralph Musgrave
    November 24, 2011

    Perhaps the failure of Germany to sell debt, which JR mentions, does not result from Germany’s lack of creditworthiness so much as uncertainty as to whether the Euro will survive at all.

    Re other allegedly ‚Äúoverborrowed western economies‚ÄĚ, I don‚Äôt see much of a need for the US, UK or Japan to reduce their debts. They are currently paying their creditors a zero or negative real rate of interest (i.e. after adjusting for inflation).

    But if these countries want to reduce their debts, it‚Äôs easily done. As to structural debt, this is debt, the build up of which (by definition) has no stimulatory effect. Therefor paying it off has no anti-stimulatory or ‚Äúausterity‚ÄĚ effect.

    As to the other part of the debt, the ‚Äústimulus‚ÄĚ part, that can be converted to monetary base: i.e. either country can print money and buy back this debt. It‚Äôs called ‚Äúquantitative easing‚ÄĚ.

    1. Brian Tomkinson
      November 24, 2011

      Glad you ‘don’t see much of a need for the UK to reduce its debts’, as the government plans to increase them by over 50% during the 5 years of this parliament!

    2. The Realist
      November 24, 2011

      As in Allistair Heath’s editorial today and I quote ‘ German Public debt was 65 per cent of GDP in 2007, rising to 74.4 per cent of GDP last year, and to 83.2 per cent this year, according to Strategy Economics. This is not that different to Belgium‚Äôs 96.2 per cent, Ireland‚Äôs 94.9 per cent and Portugal‚Äôs 93.3 per cent. Germany‚Äôs national debt is higher than France‚Äôs (82.3 per cent) and Spain‚Äôs (61 per cent), both of which have seen bond yields rocket in recent weeks. The situation is not good ‚Äď and that is before the European Financial Stability Facility or any plans for Eurobonds to federalise more Eurozone debt and hence for the German taxpayer to shoulder part of the burden of others‚Äô profligacy. In theory, Berlin has a plan to slash the deficit and stabilise the national debt as a share of GDP; but its forecasts could easily be derailed. ‘ Iam not so sure in fact that Germany can bail out the EUROZONE. Interesting to note that Germans still pay 5.5% Solidarity taxes, 20 years after re-unification and still the old Eastern Germany is not anywhere up the same level of Western German wealth So think that multiplied 100x at least – wouldn’t bear thinking about!

    3. Robert Christopher
      November 24, 2011

      Ralph Musgrave: “But if these countries [US, UK or Japan] want to reduce their debts, it‚Äôs easily done.”

      Please tell us how to do it!

      1. Mike Stallard
        November 24, 2011

        This government – Liberal and Conservative – was elected by the people freely. Its major aim was debt and deficit reduction. It has the mandate therefore.

        So why is it not doing just what it proposed? Ministers, the Cabinet and the Civil Service must deliver and it is simply (as our host demonstrates every day) quite possible to do it without drama.

      2. Ben Kelly
        November 24, 2011

        Print money!

        It is not inflationary to print this money as it is being created by bonds in the first place. Ergo no effect on inflation.

        QE and continuing to borrow is however inflationary.

        1. Robbie
          November 24, 2011

          It is not inflationary to print this money as it is being created by bonds in the first place. Ergo no effect on inflation.

          Hang about. The Bank of England creates money to buy bonds from existing holders. These holders are usually banks and large investment firms, right? They then take the QE money and then what?

          My guess is they invest it freshly minted bonds and also other stuff that they assume will give a greater return – such as commodities. This helps create a bubble in oil, agricultural products, mining etc. Maybe I’m a clueless idiot, but isn’t that inflationary? QE also weakens the pound, and since we are a net importer, that’s also inflationary.

          Furthermore, us peasants can’t print money to pay off our credit cards. We’d be bunged in jail if we did. So why is it right for the Bank of England to do it on a much larger scale?

          Wake up, mate. QE is the debasement of our currency. It’s a moronic policy and has NEVER worked.

      3. Ralph Musgrave
        November 24, 2011

        Hi Robert,

        For my – ahem – “inspiring” ideas on debt reduction, see here:

  4. ian wragg
    November 24, 2011

    I can’t see any respite for the PIIGS in the Euro. Continued austerity will depress tax revenues and prevent them servicing their debt.
    Compound interest will keep increasing the debt until default is the only option. It seems inevitable that a return to national currencies will offer salvation.
    Murky wants to veto national budgets and dictate to sovereign governments which will eventaully result in the poulations rebelling.
    Rather than cementing relations within Europe the Euro may very well be the catalyst for the nexy conflict.

    1. uanime5
      November 24, 2011

      If the Government makes cuts then it can survive with decreased tax revenues. Thus preventing all the problems you identified.

  5. lifelogic
    November 24, 2011

    It seems unlikely Germany will now take on any more liability fpr these countries and splits in the mechanism area will just have to happen. It is the least worse option as you have said before. Will Cameron protect the UK’s interests as all this absurd political construct collapses?

    Will we ever get any apology from the Libdems, Clark, Huhne, Cameron and all the Euroloon MP’s?

    1. uanime5
      November 24, 2011

      Cameron won’t be able to do anything to protect the UK if the EU collapses, so no.

  6. Mike Stallard
    November 24, 2011

    Is Germany just about to go under – if people do not want their government bonds? They are already paying out for East Germany. You can only do so much, even in pursuit of a dream.

    What is the future for the three countries at the top of the list? What are they meant to do? Are the Irish meant to start up new companies like Bosch, Mercedes Benz and BMW? Their agriculture is already tightly controlled by the CAP and so I cannot see what they can do to get solvent. I suppose their future is a grossly over-regulated poverty with endless, underpaid little people clutching clipboards?

    I just cannot see the vision. Can anyone else?

  7. Duyfken
    November 24, 2011

    Just how long can these circumstances prevail? It is agonising even for the likes of me just reading day after day of the plight the EZ finds itself in, but those who are directly affected – the citizens of the countries under the Brusssels’ yoke – must surely find it unbearable. The riots in Greece and sporadically elsewhere may do little to change the one-track minds of the German and French leaders but I wonder when the men in grey suits will come to visit and remove the Merkozy squad to save us all from Armageddon. How serious does the situation need to become before that occurs? No, I do not expect anybody to venture an answer!

  8. alan jutson
    November 24, 2011

    Yes its all about Country’s living within their means.

    Living within last years actual tax take, not some pie in the sky expectation of the tax take in a few years time.

    I see it is reported that all Benefits are due to rise by 5.2% shortly due to inflation.
    I guess that means even more borrowing, or tax rises to pay for it.

    Its looking less and less attractive to go to work, and try to save for a rainy day.

    Time perhaps we really do take the bull by the horns, have a personal tax allowance of £15,000, and cap the sum of all benefits available to a family no matter what their circumstances to the net average wage, single people to the net minimum wage.
    The only exceptions, those who have a mental, or real physical, or medical problem.

    Yes it is harsh, very harsh, but we have to change the mindset of many people in our country in order to survive.

    For too long, too many people are contributing too little, and are being subsidised by those who are working and paying tax.

    Also a complete freeze on all public sector recruitment, other than in exceptional circumstances.

    1. The Realist
      November 24, 2011

      Fully agree – harsh yes but it is in reality the only way!

    2. Disaffected
      November 24, 2011

      It is not harsh. It means that it should pay to work not pay to stay on welfare. Gibraltar has changed its tax thresholds and instead of a reduction in tax, as some predicted, tax revenue actually went up. Sweden has changed the tax threshold for low earners to entice them into work and it has increased the amount of people who work. In America some states have forced people on welfare to work by accepting any job and paid the difference between what they got on welfare and their wage. Crucially it changed the mindset of people who had spent years on welfare to want to work.

      In fairness to public sector there is a huge increase in services from immigration when they are being told to cut back. The government could help and should help.

      For example, our NHS is a World Free Health Service. The last time I sat in a hospital waiting room I did not observe one check of a person’s entitlement to the NHS who was an eastern European, not one. Children are being given one-to-one help because they cannot speak English. Some children are being used as translators for their parents! There are increased demands on our public services- where is the extra money coming from? There is simply no joined-up thinking between government departments or enforced joined-up working by the government.

      1. The Realist
        November 24, 2011

        I don’t disagree in fact – harsh but fair is only a semantic!

      2. uanime5
        November 24, 2011

        This plan won’t work in the UK as there are 500,000 jobs and 2.6 million people unemployed. Any plan to get people back to work must include a large amount of job creation.

        Ironically the Conservatives do have a plan to withdraw benefits at a rate of 66p for every ¬£1 earned to ensure work always pays more than benefits but haven’t implemented it yet. This would make even part time work beneficial for low paid workers.

        1. alan jutson
          November 25, 2011


          If we could stop immigration into this country it would leave the 500,000 jobs which are created each year to be filled by the unemployed.

          Simple really, all we need to do is get ou of the EU and we would be back in control of our own destiny.

      3. sjb
        November 24, 2011

        Disaffected wrote: “The last time I sat in a hospital waiting room I did not observe one check of a person‚Äôs entitlement to the NHS who was an eastern European, not one.”

        That is because anyone who is deemed to be “ordinarily resident” is legally entitled: see R v Barnet London Borough Council ex p Shah [1983] 2 AC 309, 344, 349

    3. uanime5
      November 24, 2011

      “Its looking less and less attractive to go to work, and try to save for a rainy day.”

      Which benefits the Government as it needs more spending to increase growth.

      “cap the sum of all benefits available to a family no matter what their circumstances to the net average wage, single people to the net minimum wage.”

      This will give those who don’t work much more money. Also what happens to those who work low paid jobs and currently claim benefits? If they lose their benefits then most won’t be able to afford to work.

    4. Bazman
      November 24, 2011

      Are you Implying that millions of unemployed are bone idle and do not want to work, or is this just another misguided idea to get people to work by making them more desperate?

      1. alan jutson
        November 25, 2011


        Certainly not implying that all of those out of work are not trying to get work, but some on benefits choose not to work, because the amount of benefits they get each week is considerbly more than they could ever possibly earn, given their skills and attitude.

        Just for the record, I have been made redundant three times in my life, as has my wife also three times, and my yougest daughter once already, so I am aware of some of lifes problems, but none of us sat on our backsides an be-moaned our lot.
        We all did tempoary work or became self employed, until more perminent work could be found.

        If fact on three occassions, temporary work turned into a full time job.

        If you phase in the changes I suggest, say over a three year period, then everyone gets time to adjust.

        The longer you leave it the harder the choices will become, face it, we are simply running out of money, and cannot afford to pay people to just stand/sit around when they are perfectly capable of work.

  9. Stephen Almond
    November 24, 2011

    “Spain has just elected a new conservative majority government on a platform of imposing greater austerity, but this has not yet impressed the bond markets who want proof that the deficit is going to come down and stay down.”

    So DEFICITS to come down, but overall debt to continue rising. Is there any end to the constantly rising debt of our European governments?

  10. A.Sedgwick
    November 24, 2011

    We appear to be at a “put your money where your mouth is” moment for the German Government.

    Perhaps the German Government and Establishment are beginning to realise that they are in a club and like all clubs there are rules. If an individual lies to get into a club he is thrown out, unfortunately in Euroland this is political heresy, so like the Muskateers – all for and one for all – if the Euro/EU club is to survive German wealth must be used directly or through the ECB to pay off others’ debts. The reality is if the EU entry rules had been strictly applied it would never have got off the ground. The ECB could soon become a real central bank at the expense of the individual central banks and for that matter national governments.

  11. JohnW
    November 24, 2011

    John, would it be possible to include the UK 10 year gilt yields in your future lists of interest rates? It would be an instructive comparison. Thanks.

    Reply: It’s around 2.2% from memory

    1. The Realist
      November 24, 2011

      Current ———— Spread in Basis Points
      Yield Today Prev Day Week Ago Month Ago

      Germany 2.009 %
      Austria 3.618 % 160.8 160.5 160.4 99.4

      Belgium 5.200 % 319.1 318.3 295.4 234.7

      Finland 2.640 % 63.0 62.9 70.4 40.7

      France 3.528 % 151.9 151.5 168.2 113.2

      Italy 6.844 % 483.5 482.3 495.1 378.4
      Netherlands 2.576 % 56.7 56.9 62.3 47.7

      Portugal 11.075 % 906.6 904.3 928.2 1,128.4
      Spain 6.645 % 463.6 462.7 473.9 344.5
      U.K. 2.074 % 6.5 4.0 11.3 33.4

      U.S. 1.883 % -12.6 -7.0 4.9 14.9


      Source: ICAP

    2. Bazman
      November 24, 2011

      Might as well just drink it.

  12. Richard1
    November 24, 2011

    It seems to be coming down to 2 simple alternatives: 1) a cross-guarantee by all Eurozone taxpayers on all Eurozone sovereign debt (= eurobonds); or 2) a break-up of the Eurozone. Probably the best option is a combination, with only those countries remaining in, whose taxpayers are happy to assume each others’ liabilities. It should mean at least 6 exits. I would think these need to happen simultaneously in order to avoid contagion. Given that even Germany is feeling the heat in the bond markets, this sort of solution cant be far away. What I hope you and other right-thinking public commentators will watch like a hawk, is how much UK taxpayers are asked to pay. A huge bung to banks to cover losses is the biggest risk. It musn’t happen again!

  13. zorro
    November 24, 2011

    Here’s a quick link for your internet favourites……


  14. Edward.
    November 24, 2011

    Government investment expenditure keeps on rising, Labour wants more ‘investment’, the Unions are striking to ‘protect’ their pensions and meanwhile the EZ goes into a death spiral. Our banks are still overloaded with debt and some will crash when the EZ goes.
    Cumulative, .gov debt in Britain will rise to 1200 billion and that’s a guess, personal debt is 1.4 trillion +/- and then there’s the rest – off the books government liabilities.

    Chris Huhne says, more windmills will do the trick.

    One thing is for certain, this model is unsustainable, so if you think it is bad now, you ain’t gonna like what’s coming.

    1. The Realist
      November 24, 2011

      Agree, sadly the mainstream MSM, Establishment and Politician wre either in denial or are hiding their eyes behing their hands hoping it will all go away – sadly it won’t and the fires will keep burning and consuming!

      1. Edward.
        November 24, 2011

        I am afraid so [and I am afraid for the future].

        Most politicians are in a very deep denial.

  15. George Stewart
    November 24, 2011

    John, as you have formally and informally studied such economic measures in depth.

    It looks to me that in some of these sovereign debt situations that nations have literally crossed the point of no return.

    With the UK I can see that austerity measures can be taken and though very tight they will not lead to widespread civil unrest. As such, austerity is still a possible solution and we can grow ourselves out of the mess.

    But with countries like Greece, Portugal and maybe Spain, I can not see how they can continue with the debt loads.

    Do the mandarins in Brussels seriously think that austerity can be imposed on nations for long periods of time without violent social unrest? Do they really think they can grow out of their debt?

    Decouple, default, start over seems to be the least bad alternative for some of these countries.

  16. English Pensioner
    November 24, 2011

    It is interesting how, up to now, the UK media and commentators have been giving the impression that Germany’s economy is rock solid, whatever happens, Germany will be safe. But when you look at the facts, Germany’s borrowing is in the order of 80% of GDP, not significantly different from Spain.
    I found this article “Germany’s Finances Not as Sound as Believed” in Der Spiegel very interesting

  17. Nick
    November 24, 2011

    The cause is the lack of competitiveness


    The cause is politicians. It is government.

    They have been running a set of fraudulent books. If you take money up front for something, and promise to pay it back latter with interest, its a liability. For John Redwood to say, look, we don’t have to account for accrued pensions rights, it’s really spending, isn’t it, is just admitting to the plan. The plan is not to pay the pensions. Period.

    However, since they are running a Ponzi, they still need the money coming in, so they they won’t admit to any debts. It’s a con, where the money is extracted with force.

    So what have politicians built compared to what they want?

    The Tories are going to get a smaller government. Massive cuts are inevitable.

    Labour and the Libdems are also going to get a large proportion of what they wan’t, increased taxes.

    The public however are going to get shafted. Large taxes for bugger all services.

    Reply: That’s a gross distortion of what I wrote. I said you could capitalise the basic state retirement costs if you wish, but then you could also argue you should do the same for the “health insurance” pledge of the NHS and the unemployment insurance costs etc etc. The question is where do you end with capitalising future expenses. If you capitalise the costs presumably you should also capitalise the tax receipts as an offset. All political parties have promised to pay future basic state retirement pensions, subject to arguments about the rate of increase in the pensions promised.

    1. Gary
      November 24, 2011

      If you were assessing a business that is exactly what you do. Let someone capitalise the all of the future income and outgoing steams and let’s get the true picture of the solvency of UK plc.

      Just keep an eye on the deflator that chosen.

  18. Brian Tomkinson
    November 24, 2011

    JR:”Mrs Merkel is right to say you cannot solve a debt crisis by borrowing more.”
    Most readers of this blog agree with that; in fact I have heard Cameron and Osborne say exactly the same thing whilst happily planning to increase our debt by at least 50% during the life of this parliament! I wonder what UK bond yields will be after next week’s statement by the chancellor. I don’t suppose he is too worried as he can always ask his pal Mervyn to print another ¬£100billion or so to help him out.

  19. oldtimer
    November 24, 2011

    The UK is also living in a fool`s paradise if it thinks that the current 2.2% yield on gilts is the mark of a strong economy. It is purely the result of manipulation of QE and the state imposed requirement for the banks to hold more equity in the form of gilts. Many overseas investors fled after the Lehman crisis thereby contributing to the sharp fall in the UK fx rate at the time. From time to time the Chancellor speaks of the 2.2% with a sense of satisfaction. This is premature. He has yet to get a proper grip on government spending, the deficit and the ever growing mountain that is the national debt. I fear it is going to end badly in the UK too, despite the flexibility afforded by QE and a floating fx rate. The politiicans in charge are failing in their duty.

    1. The Realist
      November 24, 2011

      Clearly and absolutely, we do not have the men of vision or backbone leading our Government in this national time of need to do what is necessary to shatter the illusiary bubble that the population has been brainwashed with this last 40 years or so. We are in an economic sense on the edge of a precipice and the sands of time are nearly running out. Sorry to be so negative and depressing, but until reality hits it seems nothing is or will be done in terms of taking our destiny into our own hands!

  20. javelin
    November 24, 2011

    First they came for the Greeks …

    Yes all Governments will have to live without deficits. There is a buyers strike and will be for several years until the markets believe the Governments can pay for themselves. This will NOT happen gradually over a year, but overnight – it is NOT WITHIN a Governments power to control this. DEFICITS are the markets choice – not the Governments – they can switch off suddenly (like the North Atlantic Drift) and bring a political Ice Age.

    Politicians need to start finding the words to explain this to the people.

    And YES once the markets have dealt with the EU then they will come for the UK.

  21. javelin
    November 24, 2011

    The German bond auction is interesting because the German Debt Agency held onto 39% of the bunds (usually they hold onto 15-20%). The agency normally holds back a lot of bunds to control the supply (and hence price) in the market. It could be that they are following the UK debt agency by selling a tranche of the bonds privately directly to life / pension companies. Or it could be that the price is simply too low and investors are on strike given the risks of contagion OR the high inflation meaning investors are losing money. OR it could be low liquidity in the markets meaning traders want to buy covered bonds (these were uncovered) which are more liquid. Until the German Debt Agency comes clean we’re all left puzzling why they would damage their own reputation by not telling us.

    1. Javelin
      November 24, 2011

      What worries me is that Germany is paying a 5% income tax into a consolidation fund for Eastern Germany. It is claimed their GDP is 10% better off by being in the EZ. If this is so they may be asked to pay 5% to a EU consolidation fund.

      As I understand it the rise if the right wing comes from Eastern Germany. This means the EU fund may compete with the existing fund and fuel nationalism and anti EU in Germany

  22. Richard
    November 24, 2011

    For balance , it is right to point out that the recent Italian bond sale was oversubscribed with investors piling in.

    Clearly a considerbale number of people think they will get there money back at the paper rate, we shall see.

    Italians have 8.2 trillion euros in assets. who’d have thought it those feckless Italians , not poor are they ? perhaps they should have paiud more tax , or the Gov’t made them !

    That said ,the spending party is over for many

    This is a debt crisis ,smothered in a polictical sclerosis

    Reply Italy did offer a high rate, and has plenty more to sell

    1. Richard
      November 24, 2011

      Just on an admin matter……There is a Richard1 who posts here and as I already post as Richard you need to be another name altogether or may I suggest Richard2 in future to avoid confusion -thanks
      the real Richard!

      1. De Recardo
        November 24, 2011

        er? I”m Brian and so’s my wife.

        won’t people be able to judge by the factual content who is who? I have a certain elan’

        I trace my heritage back to William the Conqueor and am in all likleyhood aristoracy !

        To separate myself from plebian society I shall henceforth be known by my historical accurate nomenclature of De recardo

        Please curtsy on the way out of my chamber

        1. Richard
          November 25, 2011

          De Recardo, I bow to your new found and unique title and admire your car choice
          I always liked the elan

  23. Mark
    November 24, 2011

    At the moment the Bank of England is buying ¬£5bn of gilts every week, or over ¬£20bn every month. The true cash deficit in October was probably very small (it may even have been a small surplus), allowing for big quarterly receipts on VAT and CT, and a minimal cash payout on gilts coupons compared with September: the data presented by ONS on the budget deficit do not reflect the true cash reality, but use an “accrued” basis instead.

    According to the DMO, gilts issued in October were £17bn, while the stock of Treasury Bills was reduced by £3.4bn, so funding was £13.6bn, leaving the state as a net purchaser via the BoE. It is perhaps not surprising that yields remain low: the market is a net seller and is extracting top price from the BoE. When QE purchases cease, the market may be rather less willing to pay those prices.

  24. Bernard Otway
    November 24, 2011

    Govenments [Politicians] explaining to the people ????? .Yesterday I went to the Building Society with my wife [NOTICE WIFE as Title as opposed to that weasel PC word “partner” which I won’t even dignify with a Capital letter],we know the teller/clerk a pleasant probably literate and numerate young man of about 35,in talking to him about this subject for about 10 minutes,all I got was a Blank stare of incomprehension.Only the cognoscenti UNDERSTAND, the vast majority have either been hugely dumbed down [actually ARE]
    or are uninterested on the basis they think nothing can be done,OR [and this is very scary]
    believe a combination of Balls /Milliband/BBC leftwingspeak about TOO FAST TOO FAR
    sympathise with striking public service workers strikes.This is all a result of the political
    classes making politics and all it,s variables NOT understood [DELIBERATELY] by the vast majority so that all 650 Mp,s and all the other sucker fish can Parasite themselves on
    to the vast majority.I warn you all, out of these scenarios come the likes of Lenin/Hitler/
    Mussolini/Mao/ Castro and the denuemont all caused when seizing power off an absolutely aggrieved populace’s anger especially Castro.I watched an RT interview with the leader of the Austrian right wing yesterday in which he spoke of and described the build up of RAGE about IMMIGRATION growing all the time,which he said was increasing exponentially due to the brushing under the carpet by the same political class.Amazingly
    I have seen NOTHING of this interview in any other medium.We are truly being denied
    information and opinion and live in a Propagandised state,even SKY is now almost BBC
    in it’s coverage,having like a tortoise [because of the fall out from the Hacking scandal and
    the leveson enquiry] pulled it,s head inside it,s shell. I just despair and at 66 count the days till I meet my maker.

  25. Robbie
    November 24, 2011

    ” QE, changing bank regulation, devaluation and the other tools being tried in the US and UK ”

    QE is not a tool, it’s a con-trick. And a bloody disgrace.

    1. zorro
      November 24, 2011

      It is soft default (inflationary debasement)….for the moment. John mentioned on the prior blog that QE was the fashionable thing to do, which indeed it is for USA, UK, Switzerland and (covertly) Euroland. So, as a tool, it is staving off the inevitable. There are still more Euro countries to bite the dust before us.


  26. A different Simon
    November 24, 2011

    At least we have growth . Net immigration hit an all time record in 2010 , 252,000 people . That explains the increase in GDP .

    – 591,000 people migrated to the UK
    – 136,000 British Citizens left , mostly the economically active ones no doubt .
    – 203,00 foreigners left . This figure is lower than previous years showing immigrants are staying .

    Damian Green is succeeding in rubbing the British Citizens noses in it .

    1. zorro
      November 24, 2011

      This is the risk of relying on net migration with these economic conditions…..The level of immigration remains unabated. It is very much a matter of debate about the quality of the new entrants and if they are not just cheaper labour. The proportion of retirees in the emigration figures will be illuminating.

      It is scandalous that this country is not making huge efforts to get people off benefits and into jobs. There is no reason to be paying out interminable benefits when employment is available. It is available because people are migrating here in huge numbers and taking the vast majority of jobs created. This has to stop and people must realise that they work is not an option.

      People should be free to live their lives as they wish as long as they do not expect me to pay for it.

      If the Coalition with their planned reforms haven’t made a sizeable practical dent in these figures within two years, there will be no earthly reason to vote for them.


      1. A different Simon
        November 25, 2011

        Zorro ,

        It’s doublespeak .

        Do you think the Govt , Lib Dem or Conservative wants to reduce immigration ?

        Damian Green was caught by hidden camera advising transnational corportations how to abuse the ICT visa route .

        1. zorro
          November 25, 2011

          A different Simon,
          Do you have a reference/link for the incident you mention with Mr Green about the ICT route?


  27. Iain Gill
    November 24, 2011

    All the more reason to start getting serious with our finances
    Cut the international ‚Äúaid‚ÄĚ budget
    Stop giving work visa holders tax and national insurance dispensations
    Stop free NHS to anyone without indefinite leave to remain who is from a country which does not provide reciprocal cover for Brits in their country
    Stop free schooling to children of anyone here without indefinite leave to remain who is from a country which does not provide reciprocal perk to Brits in their country
    Significantly increase the cost of work visas, and I mean significant at least 10 K per visa. Only issue work visas to nationals of countries where it is similarly easy for Brits to go and work.
    Put together a senior task force to increase the amount of British intellectual property which is properly paid for in terms of licence fees, royalties, and so on by the rest of the world. Get the money we are missing by failure here top and front of international negotiations.
    Free our own fishermen up to fish properly in our home waters.
    Remove any anti-pollution measure which demands standards which would place it higher than in the top 20% of similar restrictions worldwide. Free our industry up to compete.
    Pull out of any military action not directly involved in protecting the UK or its directly dependant geographies.
    Make it much easier for anyone in any walk of life to work as a freelancer. Make it so trivial that anyone can do it simply without use of accountants and so on.
    Cut down the managers in all public sector organisations.
    Turn the NHS into a state backed health insurance company with minimal headcount. Fund it through taxes and payout according to need and not ability to pay. But give all hospitals and providers of medical care over to the private sector. Empower patients to take their health spend anywhere they like.
    Put someone with a clue in charge of any further government IT programmes (give me a ring I can point you in the right direction).
    Stop subsiding houses, if we need any subsidies subsidise the people
    And so on

    1. uanime5
      November 24, 2011

      Given how fishing stocks are collapsing it would be better if fewer people fished in UK waters.

      You have to keep accounts if you work a freelancer so the Government knows how much you earn and how much tax you need to pay.

      A health insurance company will be more expensive than the current model. Especially if people are allowed to opt for any provider.

      The private sector often offers low prices by cutting corners. Cheaper does not mean better.

      1. Iain Gill
        November 25, 2011

        Re “You have to keep accounts if you work a freelancer so the Government knows how much you earn and how much tax you need to pay” yes but it should be simple. Do it like many of the “umbrella” companies do it now, online portal to log any payments, expenses and so on. There should be no need for accountants for a simple one person freelancer.

        Re “A health insurance company will be more expensive than the current model. Especially if people are allowed to opt for any provider.” disagree, and there will be competitive pressure to lower costs if the patients can compare and contrast charges across providers, together with quality of provision, and so on, and have genuine choice. the nhs is not cheap and its not high quality either.

        1. Bazman
          November 26, 2011

          It will end up the way of banking. You make it sound like the local takeaways with one not providing good service and going bankrupt with the customers just going to another. This will really happen in the case of healthcare? Pure fantasy. Any ‘profits’ should be used to increase healthcare not put into the pockets of foreign companies. Privatisation of the utilities has lead to shocking service and bills. No one will be fooled by your apologist dreams.

          1. Iain Gill
            November 26, 2011

            problem is i have lived in many countries and the nhs is far and away the worst healthcare system i have ever seem, and i am a brit and it makes me so ashamed, the days of the nhs as a sacred cow are coming to an end, so many other countries do public health so much better

            the nhs is just useless at its core job

  28. REPay
    November 24, 2011

    One thing in the deficit reduction discourse that has never made sense to me is making public sector workers work longer. By retiring earlier (with less pension) if they can afford to, we could reduce overall cost and relief unemployment. Of course, an overall reduction of numbers in government would be welcome over time!

  29. BobE
    November 24, 2011

    BBC News – France and Germany plan changes to EU treaties

  30. BobE
    November 24, 2011

    The future of the Euro — John Redwood (Con)

  31. pete
    November 25, 2011

    Good article – spot on with the need to find those export markets in Brazil, China, Russia etc. Europe looks doomed for at least the next ten years but we shouldn’t need to get dragged down with them.

    If the Eurozone does collapse then that should be the trigger for us to get out of the EU but negotiate the retention of the mutual free trade links – SIMPLE!

    If it doesn’t collapse then ‘call me Dave’ will need to re negotiate – hard though with the Lib Dem poodles whos leader’s EU pension could be put at risk.

    That would save quite a few billion…

    In the UK we could do more to help ourselves in addition to the business stimulus measures being talked about by turning almost all public bodies like councils into public service enablers rather than enablers and providers. Clearly they would need to have people that can put together watertight contracts, but this has happened in many areas like defence and works well in most cases.

    Keep the teachers, NHS staff, police, etc – all those important bodies but the management of the functions that enable them such as buildings, back office, vehicle fleet management should all be carried out by the private sector on behalf of govt/local govt who become the gamekeeper.

    You could extend right across the board to bin collections, public building management, leisure centres, libraries shoud all be staffed and managed by private companies bidding for the work.

    This wouldn’t go down well in some political circles who dont believe in capitalism but the money to pay for these services comes from capitalism so why not use it wisely to get the most for your buck like good businesses do and put something back?

    Something on this scale would create huge business stimulation domestically, save our huge public sector pension bills in the long term and feed some of their profits back into the treasury via corporation tax.

    Another side effect would be the break up of these big union monopolies – but thats another story.

    This is one JR to put to the powers that be now your in government.

  32. Lindsay McDougall
    November 25, 2011

    I’m working overseas at the moment. Apart from its pro-Arab bias, Al Jazeera is a very good news station. It is very informative on European matters.

    It reminded me (I confess I had forgotton) that GERMAN government debt is 83% of GDP. Germany cannot afford to bail out others.

    Governments all over the world, but especially in Europe, are spending too much. And the expenditure can not be reduced enough without pruning the welfare state.

  33. Bernard Otway
    November 25, 2011

    To Uanime5 ,question? What is life like in Tellytubbyland,what does the Wizard of Oz look like,and lastly say hello to Mary Poppins for me.

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