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The Euro - behind the headlines
Evening Standard11 Dec 2008
Why has sterling collapsed so fast?
LARGELY because Britain has been, after America, probably the worst hit of the major world economies.
This makes it a less attractive "safe haven" for the funds sloshing around the globe. International investors feel much more nervous about holding their assets in Britain, particularly as the returns have been slashed to the bone by the deep interest rate cuts from the Bank of England.
Longer term, there are increasing anxieties about how the British Government will fund the vast borrowing programme it has unleashed to "reboot" the economy.
Who are the losers?
INITIALLY, the losers will be the millions of people who take their holidays in the 15 countries of the Eurozone or in America. They will find their living expenses are 20 or 25 per cent more than last year.
People who get paid in sterling but have their costs in euros, such as many expats in Spain and France, also face a horrible squeeze.
The cost of many imported goods and raw materials will also rise, although how much of that is eventually passed on to the hard-pushed consumer remains uncertain. Exchange rate "inflation" is in many cases more than offset by the plummeting world price of basic commodities that we're seeing.
And the winners?
FOR many exporters who price their goods in sterling, the fall in the exchange rate has meant the difference between their survival and failure.
Manufacturing still accounts for about a quarter of the economy and Britain is still a big exporter of chemicals, steel, machine tools, medical equipment, cars, aircraft, defence equipment, pharmaceuticals and whisky, among other things.
Many of its key markets are on their knees but the huge competitive advantage bestowed by the fall in sterling has meant exporters have just about been able to keep their heads above water.
Tourism is also a winner, with Americans and Europeans flocking to a London that has not been cheaper for them in at least 20 years.
Is the fall likely to continue?
CRYSTAL ball-gazing time, I'm afraid. Some analysts say yes because the news from the British economists keeps getting worse.
However, others say no - sterling is now at historic lows against the euro and the European currencies that preceded it.
These people argue that the Eurozone is in just as big a mess as Britain but that it has not yet been cast into the global spotlight in the same way.
Reader views (4)
I don't see how the UK could be, after the US, the worst hit of the major economies. The all-knowing wise one, Gordon, has assured us we are better placed than anyone else to weather this storm - assuming of course we are not bankrupted by his attempts to save us.
- James Elliott, Eastbourne UK, 11/12/2008 18:18
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Another winner you left out is of course the people who have bought property in Eurozone who have seen capital values rocket by as much as 50% in £ since July 07. As long as you can still sell to another EU buyer then you are quids in if you bring the cash back into £.
However, the Eurozone is far from immune and I would say is more like a bottle being pumped up with air until eventually it explodes. Because the £ is not in the € its value is being reflected daily on the markets.
These pressures exist just the same in EU countries like Greece(riots) and Spain unemployment rising at 40,000 per week!! But because they are in the Euro there is no immediate effect.
BUT soon the bottle will burst, and one or more weak currencies will crash out of the € and everything will change. When, how, God knows. But this will not last as it is. Then we will be bloody glad we are not in the € and retain control of our own economy sick and wrecked by G Brown as it is.
With any luck it will happen just after the Tories get reelected in a landslide and they will reap the benefit. Rough justice for Bungler Brown.
- Mikey, Guildford, 11/12/2008 11:16
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The high unemployment and riots in Greece are partly caused by the misalignment of the euro. These symptoms will be exported to Italy and Spain.
- Bingham Macnamara, lymington, hants, 11/12/2008 11:03
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As reported on CNBC "The euro may not be here in the same form in 10 years as richer Germany will not want to pay for the weaker PIIGS (Portugal, Italy, Ireland, Greece and Spain) anymore, wages in these countries will have to fall in nominal terms to counteract the lack of flexibility in monetary policy "and that creates the anarchy that we see on the streets on Greece today, we have gone to economic war and the euro won't survive the economic war" reported by a trader from Wall St
- Wallytrader, London, 11/12/2008 11:01
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