Over the last few months there has been nothing but bad news with regards to the euro and the Eurozone and the crisis seems to lurch from one disaster to another. Despite the fact we have seen a variety of “false dawns” there is still hope that the issue can be resolved in the short term but many people believe it could take decades to pay down the excessive debt which has been built up. We therefore thought it would be interesting to see whether UK expats believe the euro crisis will be resolved by the end of 2012 and indeed what the future holds for the Eurozone, the euro and Europe as a whole. The survey, conducted in conjunction with Barclays International, revealed some very interesting answers.
It is no secret that the UK economy is struggling despite the fact it is seen by many as something of a safe haven with regards to its currency. Indeed it was confirmed that the UK re-entered recession in the final quarter of 2011 and there are serious concerns as to whether 2012 will see the economy move back into a growth phase. Over the last few days we have seen George Osborne’s austerity measures come under significant pressure and the IMF as indeed put the UK government on “warning” with regards to continuing to introduce more and more austerity measures.
Across Europe there is now a movement towards more fiscal stimulus as opposed to cost cutting although there is something of a fine line to tread. If excessive debt is built up by the UK government, in order to stimulate the economy, this may well hold back medium to long-term growth and could see the UK government paying back debt for many decades to come. However, if the UK government continues to introduce more and more austerity measures this will reduce the amount of funding available for the economy, increase the benefits bill and see unemployment rise significantly.
While initially the UK government’s plan to introduce multi-million dollar austerity measures was well received by many investors and economists there is a growing feeling that the goalposts have moved. Ongoing problems within Europe are now spreading across the world and indeed the air of scepticism and pessimism is everywhere. As a consequence it is likely that the UK government will perform something of a U-turn in the short to medium term and reduce the number of austerity measures and introduce more fiscal stimulus programs.
We will now take a look at the results of the vote and see how many people believe that the euro crisis will be solved by the end of 2012.
It will come as no surprise to those who follow the European markets that just 4.96% of expats in the UK believe that the euro crisis will be solved by the end of 2012. This is well below the average for the overall vote which came in at 13.36% and certainly illustrates the scepticism with which UK expats view the situation.
While the UK is not part of the Eurozone, and indeed has not adopted the euro itself, it is still an integral part of the European market and has been very active with regards to rescue packages and ongoing talks. David Cameron has been talking tough with regards to the euro crisis and has demanded a resolution sooner rather than later to help the worldwide economy. However, his hopes and his thoughts for the future do not appear to be in line with UK expats with just a small fraction under the illusion that the situation will be resolved by the end of this year.
Yet again we have a resounding thumbs down for the European economy, the euro and the European market as a whole. This comes at a time when European leaders are trying to instill as much confidence and optimism in the European economy, and individual economies, to try and drag markets from their downward spiral. However, it seems that very few expats in UK see a short-term resolution to the European crisis and indeed there is in fact talk that it could take decades for the European economy to recover.
In many ways the conclusive no vote with regards to this issue perfectly reflects the underlying concerns across the UK. There is a great fear that the UK economy will be dragged further and further down as Europe struggles to recover which could lead to a significant change in the UK government’s current fiscal policy which is dominated by austerity measures. There is also no doubt that optimism and hope for the future will play a major role in reversing the downward spiral of investment markets and the euro but at this moment in time there seems little hope of an immediate about turn.
While there was a conclusive no vote with regards to a potential resolution of the euro problem by the end of 2012 it seems that 8.26% of those who took part in our online vote are undecided as to whether the issue will be resolved. This is perhaps no surprise when you take into account the various upbeat statements released by European leaders over the last few months although the fact that many of these plans have yet to be put into action is a concern. There is no doubt that European leaders would prefer to put in place a long-term strategy, as opposed to fighting fires in the short term, but at this moment in time they are only able to look forward months if not weeks.
There are a number of experts in the field of economics who believe that we are now coming towards the end game for the Eurozone, the euro and the European market. The reality for many people is that the cost of dismantling the euro and reverting back to former local currencies has never been done before and would wreck any remaining investor confidence. As a consequence, many people believe that the euro will be saved, the Eurozone will survive but Europe as a whole may be very different in the future compared to today.
Before we take a look at recent developments and hopes for the future it is worth noting that one by one the various major economies of Europe are becoming the target for speculators. Indeed, it may seem some time ago but the Irish and the Greek economies have been hit hardest having been forced to go cap in hand for a European bailout. The press coverage today is dominated is by the likes of Spain and Italy which have seen their economies go into freefall and unemployment go through the roof.
Germany, and France to a lesser extent, has been effectively holding up the European economy in the short term although there are even signs of problems with regards to these economies. There is no doubt that Germany is the current backbone of the European economy and indeed Chancellor Merkel is most certainly pulling at the strings in relation to future financial bailouts. A number of stimulus programs have been introduced, alongside austerity measures, and there is even speculation that interest rates will fall further despite their record lows at the moment.
One of the major problems beginning to materialise at the moment is the issue of worldwide economic confidence and the fact that the Eurozone crisis is impacting upon other non-European economies. It has to be said that without the ongoing economic growth of countries such as China, India and Australia the worldwide economy numbers would be far worse than they are today. The reality is that while America has for many years been the engine room of the worldwide economy, the ongoing Euro crisis is hitting all corners of the globe and until it is resolved in some shape or form we are unlikely to see the worldwide economy return to a confident growth path.
The euro was for many people seen as a potential competitor to the US dollar and while a number of people believed the dream there were many sceptics behind the scenes although their voices were drowned out. A number of prominent economic experts stepped forward to suggest that the euro was fatally flawed because of the varying costs across different European member states and the fact that it was almost impossible to integrate these. However, amid concerns that European leaders were looking to build a federal Europe the euro was born and initially it was well supported.
Over the last few years, in the aftermath of the US mortgage market collapse, the whole principle of the euro has come under the spotlight. It is becoming more and more evident that a number of countries who adopted the euro did so with “reports and accounts” which were perhaps stretching the truth and may well have hidden significant debts. This has only come to light after the Greek debacle where it emerged that billions upon billions of euros in income tax remain uncollected. This has impacted the overall strength of the Eurozone, European economies and eventually the euro.
While the currency continues to fluctuate there is no doubt it is still on a downward spiral with the Australian dollar hitting a near-record high against the euro just a few days ago. There is a lack of confidence amongst investors with regards to Europe and the euro and this is being reflected in the ongoing demise. Some believe that the euro will not survive in its current form while others are confident it has gone too far to fail. Over the next few months we should find out what the future has in store for Europe and whether the euro itself can survive.
Only a few weeks ago it seemed that the German government was unwilling to give way on its austerity measure stance and was unwilling to commit yet more funding to the European bailout fund. However, in light of major pressure from European counterparts it seems that Chancellor Merkel has softened her stance and seems willing to introduce more funding which will go directly to local banking sectors, to improve liquidity, as opposed to through local governments which would increase their debt levels yet further. While this may well be seen as a “smoke and mirrors” solution it should assist with credit ratings in the short, medium and longer term.
Elsewhere we have seen the interest rate on Spanish sovereign debt rise significantly above the critical 7% level from which many experts believe there is no turning back. Amid signs that the Spanish banking rescue package is set to be signed off there are many who believe it is almost inevitable that Spain itself will require a full bailout for the economy in the short term. Speculators are most certainly running the markets at this moment in time and confidence in the Spanish government is now at an all-time low. The fact that the interest rate on Spanish sovereign debt has now topped 7% shows that many believe a bailout is inevitable.
The UK government has also come in for some criticism with regards to increased austerity measures with the IMF performing a U-turn this week. George Osborne has had his monetary policy questioned by leaders of the IMF amid suggestions that if the UK economy does not improve towards the end of 2012 then the austerity programme should be cut back. This has of course given opposition political parties more ammunition in their plan to bring down the coalition government and few would bet that the coalition will run its full term. Even though the UK situation is nowhere near that currently being experienced by Spain, Italy, etc there is concern that economic growth could well be stunted in the short term unless more proactive and positive fiscal policies are introduce.
One of the major problems which European leaders have at the moment is the fact they have promised time after time that these issues will be resolved only to disappoint investors when push came to shove. As a consequence, all of the positive talk in the press and speculation about a bailout package and increased funding means nothing at this moment in time with investors looking for actions rather than just words.
The future of the euro, the Eurozone and Europe as a whole is very much under the spotlight and in all honesty there is nobody who can predict the future with any confidence. While many experts believe that the situation has come too far for a U-turn there are also many who believe that the introduction of the euro was always fatally flawed. Whichever opinion turns out to be true it seems inevitable that the euro crisis still has some time to run and we may see many more twists and turns before a resolution is agreed.
There are few positives to take out of the ongoing European crisis but the fact is that it may well allow European leaders to tackle the problem of “off balance sheet debt” which some countries seem to have adopted. We may also see the introduction of a federal European budget and more hands-on control by the European Parliament on individual country budgets. Even though this is something which the UK government is almost certain to reject the reality is that a convergence of European budgets is almost inevitable. Indeed, it also looks as though the German government will yet again strengthen its position at the heart of Europe and become an even more influential player in the future.
David Cameron has suggested a referendum on the U.K.’s future membership of Europe although this is also something he promised prior to the last election only to reject calls as soon as he entered office. There are many questions to be answered in the short, medium and longer term.
It will come as no surprise to those who follow the UK economy and the UK expat market that there is very little in the way of confidence in European leaders. A resounding majority believe there will not be a resolution to the euro crisis in 2012 and indeed there is even a suggestion it could take decades for the situation to run through the system.
Despite the fact that the UK is not even a member of the Eurozone and has not adopted the euro the ongoing European bailout has already cost the UK taxpayer tens of billions of pounds. This is a problem which many European governments will be facing in the weeks and months ahead and some governments such as the UK will be pulled in many different directions by various opposition groups and allies. There is still no certainty that the euro crisis will be resolved and the euro will survive but even contemplating a breakup of the euro and the Eurozone is frightening in principle let alone practice.
There are likely to be many more twists and turns to this ongoing financial crisis and when a resolution will be reached is anybody’s guess.
To find out more about the euro crisis and how it will affect you, read the Barclays International guide: Challenges facing the Euro.