If Britain Goes Bust

Expatriates Facing the Abyss

Hi Mike,

It beggars the imagination to think of the social effects if the exchange rate should drop to a predicted €0.86. It is best not to think of the pound being de-valued to as little as €0.50.

This would actually be fantastic for the UK economy if it did happen.  It would make UK exports ultra competitive and would provide a massive boost to the economy.  This is already happening with the recent devaluation of sterling.

As for all the doom and gloom about the UK economy, don't believe the hype.  The data is now showing that the UK economy is recovering strongly and on a recent trip back to the UK, this is certainly the impression I got.

I respect you opinion, Sanchez; as I respect the opinion of all. Time will tell   ...   yes, old Father Time. The only additional points I would make are the massive nationwide receiverships now taking place; household name companies and retail outlets First Quench and Boulders to name the most recent, going down in domino-effect. Wait until after Christmas! See them drop like flies then.

Great for exports? Britain's manufacturing base has disappeared. Where would the shipbuilding, manufacturing orders go to? Visit any British store and look for a Made in Britain sign. 'British car making? Foreign owned. Foreign shareholders and speculators. All very sad, amigo.

Hi Mike,

Retail sales in the UK are on the up and it looks like it will be a very good Xmas for retailers.  From the BBC:

UK retail sales in October rose at the fastest annual pace since May 2008, government figures have shown.Data from the Office for National Statistics (ONS) showed sales in October were up 3.4% from a year ago.

The retailers going bust are the weaker ones that deserve to be bust e.g. Woolworths, which struggled to make a profit during the good times.

Great for exports? Britain's manufacturing base has disappeared. Where would the shipbuilding, manufacturing orders go to?

Manufacturing still accounts for around 15% of UK GDP, so it's still a significant part of the economy.  We tend to focus on the added value, higher end manufacturing and let the Chinese make the widgets and bolts.

We may not have any British car manufacturers left but there a still a lot of car plants in the UK, which, with the devaluation of sterling, have just become a lot more competitive.  Put it this way, if a company decides to open a new plant, is it more likely to open it in the eurozone with it's expensive currency, or in the UK?  I would say the UK.

Sanchez1

For the demise of First Quench and boulders do not read recession, rather Tesco, Asda, sainsbury's etc.etc. People will no longer pay 'over the top' in the new competetive markets.

I`m up in Scotland at the moment having the weekend off at my brothers while lorry is in getting serviced .Walking round the shopping malls yesterday and today I kept thinking "What Recession" the shops were heaving,empty spaces in car parks at a premium.Somebody is making money,but if all the purchases are on the "flexible friend" there could be more grief ahead for people when the credit card need to be paid.

Jimbo

If you are referring to the James Palumbo, night-club entrepreneur and current owner of the Ministry of Sound,amongst other venues, it's surely stretching credulity to describe him as a leading economist???   He's made a lot of money, true, but so has my Uncle Bert and that doesn't mean he knows anything worth passing on about the state of the economy.

Britain is in no worse a state than most large economies and is doing much better than many. 'The Economist' today described Spain as the new 'sick man of Europe'. Ireland, Greece, Portugal and Italy aren't doing that well either. France's public sector debt is a huge percentage of GDP. Canada in the '90s was in a much worse state, took drastic action and had a speedy recovery.

The best way of ensuring that the £ will depreciate is to talk it down. I'm left wondering whether the current crisis has been exacerbated by 24-hour rolling news. Credit crunch as nail-biting entertainment......

Any one who knows anything about economic history knows that boom and bust are inextricably woven into the fabric of the capitalist system which has on the whole given us the prosperity we enjoy today, no matter how vulnerable some may be.  The decoupling of economics from history has a lot to answer for. I'm truly sorry for those British pensioners who are currently suffering from the drop in the £ but anyone starting a new life abroad has to factor in all contingences in their financial planning. That may sound harsh but I have myself experienced a drop of 30% in my UK income which has limited my options but left a comfort zone in which to live.

The UK has so far kept its Standard and Poore triple A rating and the City -which is our major earner, well above any manufacturing -is still ranking number one in the world.  Talk of gloom and doom may well go down well with those who enjoy a daily dose of uncertainty and fear but that's all it is....talk.

Hopefully.

First to put right a BIG misconception. The only problem with the loan to RBOS & Co by the B of E was the fact that it was done secretly. Actually it was more than fully secured against assets.

During the 3rd quarter of 2009 the UK economy did actually shrink a little but there was no corresponding rise in unemployment. Curious, I wonder why? Could it be that the Brits have had a bit of a scare and are sensibly exercising a bit of caution? Perhaps they decided to cut down on spending for a bit in order to reduce their exposure to the banks? My mob are what you would call fairly "well-heeled" and have secure jobs with banks and the government and that is exactly what they are doing. The Christmas message is that adults don't buy each other presents this year - only for the kids!

If you read the financial press Spain is more likely to default than any other country. Yes, Spain's exit from the Euro is being bandied about as the only solution for them. Unthinkable? Not really! There was a big devaluation of the Peseta within EMS during the recession of the 1990's and that solved the problem fairly quickly. You will remember that the £ pulled out and was allowed to float down, which had almost the same effect. The problem now is that Spain cannot devalue and have to do it the "hard way" but that might not even work.

Germany, France and Holland are coming out of recession fast. They will need to increase the interest rate fairly soon in order to avoid inflation. Such an increase will bang the last nail in the coffin of the Spanish economy because they won't even be able to pay the interest on their debts. If that happens, can you imagine the French and Germans bailing them out?

Up the barranco without a remo.

Homefinder

Yes, I've often thought about that. Spain's problems would certainly be eased considerably if the currency could be devalued. After all, considering the state of the economy, the current £/euro rate is unreal.

Greece may be in a similar position as I understand they have invested in Dubai bonds - may have got it wrong, though.

But in reality, could Spain leave the eurozone?  I'm no Eurosceptic, quite the opposite, but I've often pondered the practicality of economies as diverse as Slovakia, Germany and Greece sharing a similarly valued currency.

I have been reading about this for months now, some of the writers even tried to guess how it would be done. The theory is that they would issue the new (say) Peseta currency and hold it at 1:1 whilst all the Euros were swapped in. Then it would float, perhaps down to 60% of it's value. That would be the big rip-off for those who had invested in Spanish bonds.

The repercussions for Spain would, of course, be herrendous and the only way they could borrow (for generations) would be at super-high interest rates. On the other hand it could work wonders for Tourism and Construction. Spain is a fabulous country, with a perfect climate and an attractive easy-going lifestyle. If the cost of living, realtive to other coutries, could be reduced then a lot more would visit for holidays and retirement. Could be like the "good old days" again.

Can it possibly happen? If it turns out that there is no alternative then it has to happen. It has happend before! Argentina did it in the 1990's. Britian did it in the 1920's when they pulled out of the Gold Standard. My personal view is that the Euro has little hope unless they can come up with a solution to the divergence in the different European economies.

The big problem for Spain, of course, is the quality and cost of labour and the labour laws. Even as late as 2001 it was not so important because wages were relatively low compared with now. The fact still remains that a Spanish person on a fixed contract (after 6 months) costs the employer 15.5 months salary for 10.5 months work + 28% social security. In other words, if the actual salary is 1,000 per month the true cost is 1,889.52 per month.

Sr Zapatero is running a socialist government and obviously hoping to win the next election. He has the almost impossible task of persuading the unions that the Spanish worker has to do a lot more for less in the future. Currently he is failing miserably. As time goes by and unemployemt increases, along with the need to increase taxation in order the balance the books, he is going to be falling out with everyone. IVA for example, will be increased on 1st January to 18% 18.50%.

Homefinder

But Argentina and Britain were not tied in to a single currency zone so they could take independent action . I do agree with you, though. Devaluation would certainly be a great help to the PIIGS. As you rightly point out, tourism and construction would immediately benefit.

But if Spain or any of the PIIGS were to exit the Eurozone, the knock-on political and economic repercussions would be huge and horrendous. I've already said that I'm far from being a Eurosceptic but I'm beginning to wonder whether the 'one size fits all' approach to foreign policy as well as currency integration can accommodate states with such varying economic conditions and at such different stages of development as well as the very many geo-political tensions, especially in the Balkans and the former Soviet bloc states.

The rigid employment structure and the aversion to risk are also factors holding back Spanish recovery. An article in The Economist this week points out the difficulties experienced by many SMEs in having to retain staff they no longer need or can afford. Zapatero seems reluctant to take on the powerful unions but at some point in the not too distant future reality will bite. This situation bears resemblance to that in late '70s Britain, when it became clear that the Government could no longer afford to subsidise full employment.

In the meantime, 1.6 million homes wait to be sold, and I believe that figure does not include those under construction or left unfinished.  I am so pleased that we didn't go with the flow ten years or so ago and purchase property here. Instead we bought property in Canada which we rented and later sold at a very respectable post-tax profit.

We chose instead to sell all our properties, both domestic and commercial, banked and invested the cash and have rented in our journeys around Europe.  This has meant that we have been able to live in properties we could not have afforded to or indeed wished to buy, with no worries about legality, repairs etc.  We had enough of all that in the UK.

I agree that Britian and Argentina were not tied to a single currency zone. I was just saying that they were forced to break contract, default and that is what they did. If Spain, or any other country for that matter, leaves the Euro what will be the difference apart from the costs of issueng the new currency? Obviously after that a situation of total distrust and lack of confidence would exist but there may be no other option in the end.

I believe that the 1.6 million new, unsold properties is correct. I wonder how many resale properties need adding to that figure. At least in other countries that suffered property bubbles had a population to live in them so that, when prices adjusted, they had potential occupiers. Not so in the case of Spain. I read somewhere that the present population, of around 45 million, live in 12 million properties. That makes 3.75 people in each home. To fill the 1.6 million they would have to increase the population by another 6 million, either that or increase tourist visitors by around 50% Currently both the population and toursit arrivals are decreasing.

The silly thing is that it was clear for everyone to see, if they wanted to look. I actually wrote an article about it in 2004, which fairly well said "Stop right now, before it's too late". The only thing I did not forsee was the world economic crisis.

What a mess! What is the solution?

Homefinder