We are in the middle of a perfect financial storm with sovereign
debt and banks very closely linked, which has required governments to batter tax payers worldwide to try and find the eye
of the storm and some tranquillity. This pommeling of tax payers has of course quickly impacted the high street bringing forth
a slowing of the economy and almost certainly a second recession. The Bank of England has weighed up the pros and cons (are
there any pros) and has reverted to quantitative easing (QE) as a method of trying to stimulate growth or at least slow down
the inevitable.
QE worked to a certain extent the first time round and cushioned
the recession for many but it had the inevitable impact of increasing inflation. With interest rates at record lows for a
record time there is very little that Bank of England can do to affect the raging worldwide financial inferno that has almost
neutered the current financial system.
Politically if anything the situation
is worse. In the EU, the folly of implementing the euro without fiscal harmonisation has sadly proven what we Euro sceptics
warned about ten years ago. I feel no joy at having my predictions fulfilled.
When
the financial crisis started in 2007 I was interviewed and said that I feared that the world was entering into a new dark
age, where capitalism as we know it will be smashed against the rocks of political whim and nationalistic opportunism and
this is what has happened in Europe. We now have a Europe that is massively unequal with Germany and France dominating. They
have enjoyed enormous benefits from the construction of the modern EU. Soon Germany will assume the mantle of the most powerful
country in Europe. A financial blitzkrieg that few envisaged but many now have to come to terms with.
The current crisis in the Euro has centred on Greece misfortunes and now Italy but soon Spain. Ireland has been doing
a very good job in managing its economy and it deserves credit for that. I am sure it will reap future benefits. Portugal
at the moment is the poor relation in this maelstrom but has slipped under the radar, as Italy is taking most attention at
the moment.
We have seen civil unrest in Greece with communist and fascist
rioting, giving us a glimpse of what happened in Spain in the thirty's. This will be nothing if Italy and Spain go the
same way. Remember it's not that long ago that the communist and fascist party were strong in all these countries.
How will Europe respond?
Well it could split
up into two separate financial areas; the original seven, being now ten and all those not in the Eurozone being in the second
group. However, that may be a political split, rather than the financial and market separation that is really called for.
The Euro could be unwound. Well this would be a disaster for everyone on the planet and so
I don't think this likely. The EU could do what it should have done in the first place and bring together all Eurozone
States into fiscal harmony and in effect move towards a single State. But this would mean that Germany in particular would
have a major controlling interest. How would France see this? This looks politically an impossible situation and one that
might not be resolved peaceably and the EU and possibly the world would sink into a depression.
What of the East?
China could become the biggest winner out of
this turmoil, it has the muscle and I think the desire to be expansionist, India too has a strong hand to at least win a piece
of the pot.
How will the world react?
America of course is almost powerless in financial and economic terms at the moment and Russia does not have the
economic power to be influential. In South America, we are seeing Brazil in particular becoming stronger but they are too
isolated from much of the world's markets and economies to have much effect.
The UK could also benefit providing it keeps it political powder dry and steers carefully through the storm and maintains
its influential role via the City.
There are far more questions than answers
today and we are not anywhere close to getting out of this crisis and it is likely we will feel the effects for at least the
next decade. A decade where at times it will be dark and scary and where we will need to find new solutions and probably define
a brand new form of capitalism. If we don't and we do not have good strong leadership from politicians and we do not move
forward as a world in union, I fear the financial storm will manifest into something very nasty with winners determined by
the size of their armies and effectiveness of their weapons.
