If Greece goes bust....

Boris Johnson's vote-attracting column in today's Telegraph might get a few knowing nods from the anti-coalition chapter but is this just his love of Rome clouding his vision?

Having read his book comparing the Roman Empire to the EU, I am a bit lost as to where he puts the Greeks in the same scenario being as most modern civilisation, law and sophisticated language in Europe originates from the Greeks. It now seems he has nailed his colours to the mast. Let the devils sink.

The Euro is defunct, the EU fiscal policy is to be shredded and let any country that cannot hold its own whither and die. Heath was a traitor for taking us into the EC, Brown a genius for keeping us out of the Euro. Oh Boris, where do you stand? It's dog eat dog out there, survival of the fittest and one less mouth to feed at the table means more for the rest of us, perhaps?
There is a slight problem with this noble argument. Firstly, should we let Greece fail then they take all that nice money we lent with them down the creek without a paddle. Secondly, where does a bankrupt country go? Do we all pick over the assets and choose which relic we want, how many olives can we carry away, which Greek island becomes ours and do we eat all the moussaka we can? Thirdly, where does it leave the global financial system?

To think that Greece can fall into oblivion peacefully all by itself is naive in the extreme. You play the game of high risk finance in a globalised money market and you pay the price. Now we are into the realm of picking and choosing who we want to cull. We saved our banks who participated in this craziness, now we think we can play God in the world in which we allowed them to participate. Think again.

You see, we could not afford to see Dubai go down - far too many Brits have interests over there. We couldn't let Ireland go down, they represent a large trading partner. We wouldn't let Portugal or Spain go down as we have properties, holidays and wine interests to protect. Italy is far too nice a place as we like their fast cars, low sense of morals, football and fashion. Greece? What have they ever done for us bar a few nice holiday resorts and feta cheese?

So it's a nice vote winner to pick on Greece. Easy target, no one cares if it disappeared off the map.

Or would they? It's a small fact but if Greece went down an estimated 7% of entire EU financial liquidity disappears. Drachmas have no value if they were to start again so who would trade with them? Here's a thought, when you look at the 'Law of Unintended Consequences', when Argentina defaulted on its debt back in 2002, 20% of the Italian pension system went with it meaning hundreds of thousands of Europeans lost their life savings. For the UK, we have around £14bn of lending exposed and £3.4bn of Government debt. Money we can afford to lose?

The resultant aftermath of a major default let alone bankruptcy is the cost of borrowing goes up for others. For the other members of the PIGS (Portugal, Italy, Greece and Spain) this would be disastrous as they would be the next in line to be cut off. But hovering precariously around the edges are countries like the UK. As we battle our own issues, what a lovely idea that we can be cold-hearted to those in a worse position? The way I Iook at it is that that just bumps us one place forward in the queue of countries next to go on the Credit Rating black list. And what joy that would be for us all.

On this subject, France and Greece each have exposure of $79bn to Greece and Germany a further $43bn. For the knock-on PIGS debt, Britain's exposure to PIGS Government debt is actually the largest in Europe. Of all the PIGS countries, the total debt exposure in the banking system is a mere $2.9 trillion, so no worries if there is a domino effect.

So as we sit here pontificating and gloating as the Unions prepare to make our lives hell as we suck in our breath to make our girth fit our financial belt, we are but a few steps away from a similar fate. The Euro was wishful thinking at best but it's way too late to start bleating about it. We live by the sword in financial terms, we die by it. This isn't like a bank failing, there are no insurance schemes, it is the slippery slope into financial gloom.

Beware, Boris, what you wish for.......

Tax To The Rescue

Today's furore on the Government's proposal to add 1p to National Insurance is caused by a letter signed by 23 top business people in the Daily Telegraph which says that they back Tory plans to scrap the increase.

Ostensibly, they believe it is a 'Tax on Jobs' and that after steering their companies through the recession, now is not the time to compromise corporate recovery by increasing tax burdens. Naturally, the Government says that they have to cut the budget deficit and so how else are they to make inroads as this would raise £19bn toward that goal - and is actually only a fraction of the ever increasing problem.

I think it is more fundamental than this. On the one hand, the Government finally recognises the need to cut the deficit and then argues that it should not cut spending as this jeopardises Britain's economic recovery, so it says it must raise taxes and therefore individuals and business should make the necessary compensation for lack of cuts. So the burden is transferred to business to make the cuts in order to afford the amount needed - the circular argument here is that the payroll bill rises and this threatens jobs which in turn puts an increased burden on the Welfare State if Unemployment rises again.

On the other hand, if Government does not tackle the budget deficit, they have at least realised that Britain risks major issues on the bond market where it is so heavily reliant on raising debt - if our credit rating gets affected by market confidence in our ability to repay then we join Greece and Dubai as being the world economic pariahs and our bonds will become junk.

But the real issue is this, to my mind. The whole economic mess we are in came from appalling hubris and suicidal economic policy over a long period. The Credit Crunch arrived with the recession and banks rolled over like nine pins. Who had to come to the rescue? The taxpayer. We have been used as the crutch for the economy and the banking industry is making the same mistakes all over again at our expense. As we still reel at the magnitude of the problems and gasp in awe at the incredible cost of the bailouts, we are the ones expected to have to pay for more stupidity - the basic mismanagement of the economy as well.

Even successful businesses strive to contain the growth in costs and gain efficiencies at the best of times, let alone the worst. There is no point in spending money if it does not give a tangible return in that vain. And so to Government. The now ingrained belief is that if we stop spending a single penny then the whole economic recovery will implode and we would be plunged back into recession is clouding the need to re-evaluate what is important in terms of spending in Britain. And this is a typical economic dogma from the Government who seem to go to bed each night to read the same pages of the same economics book that got us into the mess we are in.

The stupid voters seem to take it all in. As we foot the bill for all this, the banking idiots who got us into this mess are making bumper 'profits' and are making huge bonuses once again thanks to us resetting the levels of debt they clocked up - we actually created the money for them to earn, it is that simple. It could not have been more stupid. But that's economics for you - it isn't for logical folk like us. We are the ones who sit bemused and just keep paying more of our earnings back into the pot to be wasted all over again.

The point that these business types make, which they do not make loud enough, is that the Government should go find the inefficiencies and save some money first before coming to the supposed limitless trough that is the taxpayers' pockets and goodwill. If this is just the start of it, would it not be nice to know before the Election just how much we are to be fleeced for over the next 6 years to get to the mythical halved deficit?

Because if it goes not come in spending cuts, guess who will be paying.

How Much Is A Greek Urn?

The old Morecambe and Wise joke doesn't seem so funny anymore as one of the beneficiaries of the modern innovation of a single European currency is virtually bankrupt - Greece is on its knees and the Eurozone is having to bail it out.

It sounds chillingly familiar. I blogged on the subject of National Debt being the new sub-prime and Greece was not the first to succumb as arguably that was Dubai. In both cases to date, rich neighbours or alliances have had to bail the countries out, but in the case of Greece they are part of the Eurozone unpleasantly known as PIIGS or Portugal, Ireland, Italy, Greece and Spain where National Debt is about to send the countries into crisis. Greece, having gone effectively belly up first, is the beneficiary of a bailout but can the Eurozone and the Euro currency sustain a long, hard attack on it from all those countries? Can the rich, like Germany and France actually have deep enough pockets to help them all? Will it affect us in Britain?

As we sit here making pithy jokes at the expense of the Greek economy it's worth a thought that part of Greece's huge budget deficit problem was the cost of the Olympics and guess what is just around the corner for us. While we sit here doing nothing about our budget deficit in case the frail recovery falters, we share with Greece the nasty fact that both our deficits are over 12% of GDP. We are both in the current state through stupid spending, low savings and cheap money.

On a league table I saw of currency debt swaps, Britain's position in the league table is just behind Austria who, in turn, is just outside the PIIGS zone. In other words, speculators are beginning to rate our Sovereign Debt and our ability to pay as weakening and only marginally worse than those in the PIIGS zone.

While we sit here contemplating a General Election and the possibility of a hung Parliament leading to a further period of economic inertia and all the while no-one actually tackles the growing budget deficit, we are sending further alarming signals to the world markets that our National Debt is not only a huge problem getting bigger but that we really see paying it off as a low priority. That will not help us if a) we need to borrow more - even as we speak the cost of borrowing for Britain is far higher than say that of Germany whose economy Gordon Brown scoffed at for so long and b) if the frail recovery starts to falter as it has done last quarter in Germany.

Our current hope that growth will lead to our recovery alone has already been dented by Germany's latest figures of flat growth while France's advance of 0.6% last quarter was only slightly more encouraging. The fact of the matter is that Britain is not that far different to Greece and time is running out for us to address our problems.

In the week, we saw a cleverly timed documentary on Gordon Brown designed to show him in a more human light just two months before an Election and to dispel his imagine of a granite-faced, humourless old fart with about as much feeling as an ice cube. Yes, we saw that he has feelings - to be frank he has suffered tragedy and to have not been emotional would have been strange beyond belief. The program's aim was to present an alternative view to the PM than hustings or debate - this was a sugar-coated sell worthy of the masters of spin themselves, Blair and Campbell, stage-managed by the obsequious Piers Morgan.

I just wish he would take his eye off the Election and act. Britain is sinking fast - Dubai and Greece are the warning signs of a potential domino effect and we are in the line of dominoes waiting our turn.

Will someone not do something about it?