Hell Postponed
Once more the European Union has decided to postpone the day of reckoning by producing yet another fudge for the recalcitrant eurozone economies (i.e., most of them). Hell is postponed and we continue in purgatory.
If you wondered what the expression ‘kicking the can down the road’ meant, this is it. Countries were supposed to comply with strict economic rules such as limits on government debt levels before they even joined the euro.
Compliance was not enforced, which is how the eurozone got into the mess it is in today, and attempts to impose belated discipline have wreaked such havoc that various countries, most notably France, have had to be given more time to get their affairs in order.
France in particular will not do so and in two years’ time when the period of grace elapses the EU will have to give more leeway. The only sanction is to drum members out of the club. Cyprus, which could easily have been sacrificed as a lesson to the others, was saved rather than let one sinner fall into the abyss, so we can assume that no lost sheep will be left out of the fold.
There is something rather amusing about French President Francois Hollande complaining that he will not be dictated to on economic matters by the European Union. Dictate is what the EU does and France is in more need of a stern warning than any other EU member. Its status as deputy leader to Germany makes it all the more important in setting an example in financial righteousness.
Strangely, I feel some relief as an investor. It means that the inevitable eurozone crisis has been pushed further into the distance and may not happen until the UK is reasonably well on the road to recovery.
I place little store by news that the Organisation for Economic Cooperation and Development has reduced its forecast for economic growth for the UK. The change is very small – down just 0.1% over this year and next to 0.8% and 1.5% respectively – and that is still heading in the right direction.
In any case, how much notice can we take of these twice-yearly projections? The OECD also revised down its 2013 forecast for the eurozone from a shrinkage of 0.1% to a decline of 0.6% yet it still expects eurozone growth of 1.1% next year, which looks highly fanciful.
As far as the UK is concerned, I prefer to follow Bank of England Governor Sir Mervyn King, who edged his 2013 forecast up fractionally, or the British Chambers of Commerce, which has substantially upgraded its outlook for the next three years, moving from 0.6% growth for 2013 to 0.9%, which supports King’s view.
UK shares were admittedly overpriced and I felt no inclination to invest further with the FTSE 100 index above 6,700 points. This week’s fall back below 6,600 is an opportunity to buy.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
Market Performance: May 27-31
FTSE 100 Index: -1.07%
FTSE 250 Index: -0.29%
FTSE All Share Index: -0.93%
FTSE Small Cap Index: +0.30
FTSE AIM 100 Index: +0.63%
FTSE Fledgling Index: -0.51%
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