No matter what news websites you read, no matter what newspapers you read there is no escaping the euro crisis which has been ongoing for many months now. There have been various attempts to play down the ongoing issues though the investment markets are growing increasingly concerned about the governments of Spain, Italy, France, etc. We have already seen Portugal, Greece and Ireland with their begging bowls out for European handouts but who will be next?
We thought it would be interesting to ask the question, do United Arab Emirates expats believe the euro crisis will be solved by the end of 2012? The survey, conducted in conjunction with Barclays International, revealed some very interesting answers.
Before we look at the specific replies from the online poll we will take a look at the economy of the UAE and how this has performed over the last few years.
The UAE economy
If there is a more volatile economy over the last decade than the UAE economy then we have yet to come across it because it has certainly been a rollercoaster decade for the region. As we moved into the new century we saw massive injections of investment capital across the UAE, specifically targeting Dubai, which led to something of an economic boom where property prices increased to unsustainable levels and employment opportunities were aplenty. When the eventual economic crash came it was controversial and it was very swift!
For some time now, despite the fact that the economy collapsed some years ago, the area has been under something of a dark cloud when in reality those who have called the death of the UAE may well have been premature. We have seen significant investment capital repatriated to countries around the world, in light of the economic downturn around the globe, but the economy of the UAE is nowhere near as damaged as many would have you believe. Lessons have been learned, the authorities appreciate that they took on too much debt and the boom and bust we saw at the turn-of-the-century is history now. It may be some time before the region is back in vogue amongst investors but it will come again, it does have attractions and hopefully second time round there won’t be as many mistakes.
A recent report has ranked the UAE economy as the third most competitive in the region, behind Qatar and Saudi Arabia, which does reflect the underlying strength which some people seem to have discounted some time ago. We will now take a look at the votes in relation to the question – Do UAE expats believe the euro crisis will be solved by the end of 2012?
Despite the fact that it seems to be all doom and gloom with regards to the euro crisis there is an above average belief that the crisis will be solved in 2012 amongst expats in the UAE. This is quite surprising when you bear in mind the 22.64% of the vote compares to an average vote of 13.36% and is perhaps even more surprising when you bear in mind the economic turmoil the region has felt over the last decade. Whether or not this optimism is misplaced or not remains to be seen but if this growing belief can be replicated across-the-board in other countries then perhaps the euro does stand a chance?
Confidence in the euro and the Eurozone will need to materialise from the investment markets first of all because many investors have lost confidence with European leaders. Time and time again we have been promised a resolution to the issue but time and time again these agreements have unravelled and fallen apart sometimes within just a few hours of their announcement.
As the only possible answers to the online poll are yes, no or undecided there are some fairly sharp swings in regional variations. It is blatantly obvious that there is more optimism within the UAE than there is in many other areas of the world although quite why this is so distinct is a matter for debate. These swings are perhaps even more surprising when you bear in mind the impact that the euro crisis has had, and continues to have, upon the worldwide investment markets. There is no market in the world which has totally escaped the turmoil!
Interestingly, as we touched on above, there is renewed strength within the UAE economy after the economic collapse which began in Dubai and impacted the whole region. It may well be that this renewed strength within the UAE economy has led to growing confidence regarding the worldwide economy and worldwide stock markets? It will be interesting to see how the UAE economy performs in the years ahead and whether indeed it is on the verge of a strong growth path yet again.
When you bear in mind the complexities of the euro and the Eurozone, the structure of the European Union, etc it is no surprise to learn that many people are still undecided about whether the crisis will be solved by the end of 2012. This is a crisis which some people believe can be averted in the short term while others believe it will literally take decades for all of these issues and financial problems to filter their way through the system. Whatever the truth, because nobody has been in this situation in living memory, the euro will be very different in the future assuming that it does actually survive the ongoing financial onslaught.
There have been suggestions for some time now that Greece is actually on the verge of exiting the Eurozone and the euro and European leaders are trying to put together a structured exit behind the scenes. This is the kind of rumour and counter rumour which does cause confusion and is perhaps one of the reasons why the undecided vote in the UAE is larger than the average of the overall poll. Many people are now losing confidence with European leaders who have introduced a number of false dawns in the past where hope has been given only to disappear fairly quickly.
The European economy
There are many European countries which are now experiencing the second leg of a double dip recession and even the UK, which has not adopted the euro and is not part of the Eurozone, has been dragged into the debacle. Economic growth across Europe is non-existent on the whole even though some countries such as Germany have still managed to remain positive. However, we recently saw the credit rating agency Moody’s step forward with a warning about German debt and a potential downgrade of the sovereign debt rating.
There is no doubt that the longer the European downturn continues the more chance that each and every individual economy will be dragged further down. Spain is literally on the precipice of a massive collapse with a suggestion that a bailout package totalling €500 billion might be required. This is on top of the €100 billion bailout package already introduced to the Spanish banking system to ensure liquidity in the short to medium term. Even that old bellwether economy of France is under pressure and indeed the credit rating agencies are looking over the shoulders of the new French government. It will be interesting to see how European leaders react to the ever growing economic pessimism as internal fighting amongst European leaders appears to be blocking any real attempt to put forward a viable and reliable economic policy. A number of experts believe that the authorities will need to structure a federal European economy in the medium to longer term with all local government budgets coming under the auspice of the European Union. Quite how this would work bearing in mind that different economies move at different speeds is a matter for debate and is also a major focal point of those who argue that the euro was bound for failure from the very beginning.
For many years there has been speculation and suspicion with regards to the real direction of the European Union with many experts believing a federal Europe is the ultimate goal of European powerhouses such as Germany, France, etc. The integration of Eurozone currencies into the euro was hailed as one of the major turning points with regards to the European Union and in the celebrations many of the doubting voices were drowned out and ridiculed by European leaders. However, over the last few months it has become apparent that in many ways the euro was flawed because of different regional variations and indeed the financial strength in depth appears not to be there.
The euro has suffered because not only has the European economy as a whole fallen back into recession but various financial guidelines appear to have been ignored by some member states. There is intense speculation that billions upon billions of euros in taxes are outstanding from Greek taxpayers despite the fact that public sector liabilities for Greek taxpayers continue to rise. All of these issues and all of these problems have come together to weaken the euro on the currency markets where it now stands at a record low against a number of major currencies. At this point in time it is difficult to find an underlying reason to go positive on the euro bearing in mind the fact that credit rating agencies are hovering over each and every European government and the debt crisis, not to mention the economic crisis, appears to be getting worse not better.
There is speculation that the euro may not survive this ongoing financial storm but if it does survive then it will likely be part of a very different Europe with many believing this has given the likes of Chancellor Merkel the opportunity to push for a federal Europe with central controls.
Over the last few weeks we have seen major developments with regards to the Spanish economy and indeed, as we touched on above, European leaders have been forced to hand over in excess of €100 billion to shore up the crumbling Spanish banking system. There is also a major concern that regional governments within Spain are on the verge of going bankrupt with daily requests to the federal government for additional finance and liquidity. As a consequence, the interest rate on Spanish sovereign debt has risen above the 7% tipping point at which many believe the country is in theory bankrupt and in need of a massive €500 billion bailout.
Contagion has been the keyword over recent times and unfortunately the Greek debacle has spread to other countries within the Eurozone. However, while bailout funding for Ireland, Portugal and Greece was seen by many as excessive at the time it will be miniscule compared to the potential bailout required by the Spanish government. There is already speculation that if the Spanish government was to fall, with unemployment over 20% and debt rising ever further, then the Italian authorities would be next in the firing line of investors. The reality is that there are very few strong countries within the Eurozone and perhaps with the exception of Germany they are all potential candidates for investment speculators.
One of the major issues which we have highlighted above is investor confidence in European leaders who have been taken on their word on numerous occasions only to fail to deliver. The investment markets within Europe and indeed around the world and now discounting “noise” from the Eurozone leaders and looking for action rather than words. We have seen the introduction of the likes of China, India and to a lesser extent Australia to the mix with all of these governments very keen to play their part in a European bailout fund in tandem with the IMF. But why would they do this?
The likes of China and India are two of the strongest economies in the world and Australia is not too far behind. Therefore, not only can they use this ongoing European crisis as leverage to improve their stance on the worldwide trading arena but they also have a vested interest in ensuring that the European Union remains intact and the euro survives. A collapse of the euro would lead to credit crunch part two and a freezing of worldwide money markets which would literally bring down the worldwide economy.
At this moment in time it is very difficult to predict the future of the Eurozone and the euro with any confidence because time after time we have seen promises from European leaders that new arrangements have been put in place only for these to fall apart. Investors are losing confidence and time is most certainly running out to save the euro and the Eurozone but ultimately if the euro was to be dismantled how could this be managed in a structured way?
The reality is that nobody has been in the situation we find ourselves today within living memory and the rise and fall of the euro is causing major concern. On balance it is probably likely that the euro will survive and the Eurozone will also continue but perhaps there will be very different structures with regards to local government budgets and government debt. Already we have seen Chancellor Merkel using the European crisis to further her ambitions for a federal Europe with Germany likely to be one of the powerhouses. There are other European Union members such as the UK that are set against a federal Europe with central controls but what is the answer in the longer term?
The euro was announced in a blaze of glory as a potential alternative to the ever powerful US dollar. However, at this moment in time it is difficult to see exactly what role the euro will play in the future and indeed whether investors will ever forget this ongoing crisis?
Despite the fact that there is doom and gloom across the Eurozone, and many other developed countries, there seems to be a greater degree of optimism amongst expats in the UAE than many other developed countries. Only time will tell whether this optimism is misplaced or indeed whether the Eurozone is on the verge of a major recovery which should in due course drag the euro back to life.
When the euro was launched in a blaze of glory there were many economic experts who doubted the bases of the currency and predicted today’s doomsday scenario. However, many of these experts were ridiculed and their voices were drowned out by over optimism about the development of the Eurozone, European Union and the euro. There is a real risk that the euro will collapse and be dismantled but on the positive side many believe that Eurozone leaders, and indeed worldwide leaders, cannot afford to let this happen.
The harsh reality is that the ongoing euro crisis could take decades to filter through the financial system and massive sovereign debt piles could take a lifetime to repay. Real damage has been done by this ongoing European collapse, not only to Europe but also the rest of the world, and investors will need further reassurances before contemplating a more positive attitude.
To find out more about the euro crisis and how it will affect you, read the Barclays International guide: Challenges facing the Euro.