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Buddleia

Whither Sterling?

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This is something that has been weighing on my mind a bit recently. I earn Euros, but hold some Sterling that I might need in the future converted to Euros. So I have been miffed to see the inexorable decline of Sterling against the Euro.

I'm no currency expert - but if the southern satellites like Spain and fantasy lands like Ireland are forced out of the Euro-zone ... won't that make the Euro STRONGER as it will be more tightly bonded to the German economy and other work-horses like Holland?

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This is something that has been weighing on my mind a bit recently. I earn Euros, but hold some Sterling that I might need in the future converted to Euros. So I have been miffed to see the inexorable decline of Sterling against the Euro.

I'm no currency expert - but if the southern satellites like Spain and fantasy lands like Ireland are forced out of the Euro-zone ... won't that make the Euro STRONGER as it will be more tightly bonded to the German economy and other work-horses like Holland?

A few points to note:

(1) GBP/EUR is not directly determined by New Labour or other lunatics; in fact, the currency rate contains bazillions of views, demand/supply, GBP and EUR interest rate forecasts etc etc etc u name it. Currency markets are some of the more efficient ones to reflect true value of a particular (freely floating) currency. Those who are very assertive about further decline in GBP/EUR may be right, but then it won't be because the market is blind and stupid not knowing where GBP/EUR should be. It'll be because of future flows, new economic information etc that 'the market' is currently unaware of.

(2) More interestingly, what is it that makes so many Englishmen (I'm not English myself, have been working in the UK for >3y) overly sceptical about their currency? I mean, it's gone down since the collapse of Northern Rock by 12% or smth like that against EUR. Fair enough. I'm not telling it won't go down any further, but Eurozone - do you think it'll stay immune? Do you think that there is any country in the EU that is not to experience the hungover created by debt binging? Anyone aware that a bank, not a big one but still, has been bailed out in Germany? Anyone ever thought of a collapse of EUR as a curency system due to disparities in the economic set-up, cycle, monetary policy needs of varioues EU species? Anyone read a recent article in Telegraph where an Irish economist moaned that Ireland can't devalue to sort out its mess? And I could continue like this.

(3) Anglo-saxon capitalism is much less resistant to change in economic resource re-allocation as it has more fluid labour market bla bla bla. In contrast, civil law countries (the rest of Europe except Nordic countries and the Netherlands) are much more heavy and resistant to change often required to sort out long run prospects via short run pain. I'd tend to think that the current weakness of USD and GBP against EUR puts both the US and UK ahead of Eurozone. And Eurozone is about much more than just Germany.

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I'm no expert either but the ones that I deal with are saying sell US, sell Uk and sell Euro in that order. Admittedly they are Asian Bulls.

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'Englishmen' are NOT sceptical about their currency - that's the whole problem. Unfortunately they ARE sceptical about the euro, which is where our future should lie. Maybe when the pound sinks to the value of 1 euro, it would present an opportunity lock the exchange rate and join on the cheap!

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A few points to note:

(snip)

These points are well-made IMO. But it leaves the question hanging: what will happen to the euro if countries like Ireland, Spain and Italy withdraw? Among other things, what about 'orphaned' government bonds; will investors face a currency switcheroo, or will governments commit themselves to servicing and repaying their sovereign debt in a stronger, alien currency?

The whole thing could be shaping up to be a nightmare. But as far as the core euro countries are concerned, I suppose it will be a bit like having the deutschmark back again.

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'Englishmen' are NOT sceptical about their currency - that's the whole problem. Unfortunately they ARE sceptical about the euro, which is where our future should lie. Maybe when the pound sinks to the value of 1 euro, it would present an opportunity lock the exchange rate and join on the cheap!

People keep claiming that joining the euro is some kind of solution (or conspiracy) for the UK, without researching the possibilities or the downsides ... look across the Irish Sea for examples.

But putting those aside, we didn't manage to meet the entry criteria in 1992 before we'd been on this world-class borrowing-binge, why would we better placed to meet then now, let alone a few years down the line when things have gone down the pan to the point of £1 = 1 euro? The euro is not a life-belt thrown by the kindly Germans and Dutch to countries drowning in debt.

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  • 295 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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