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10 May 2010 |
Justin Urquhart Stewart is one of the most recognisable and trusted market commentators in the media. Originally trained as a lawyer, he has observed the retail market industry for 20 years whilst at Barclays Stockbrokers and developed a unique understanding of the market's roles and benefits for the private investor.
Justin Urquhart Stewart is one of the most recognisable and trusted market commentators in the media. Originally trained as a lawyer, he has observed the retail market industry for 20 years whilst at Barclays Stockbrokers and developed a unique understanding of the market's roles and benefits for the private investor. Justin provides financial advice to clients of Kester Cunningham John Financial Planning LLP.
I am sure you have seen in those natural history programmes those mini sand twisters that dance around with seemingly little impact - that is until they hit you. Well last week we saw what happened when several of such sand devils combined to cause a global fear of a devastating financial tornado. Each on their own could have had an effect but their combination suddenly brought markets up short as they saw the potential for something worse.
It was not just a sand devil of the fear of sovereign debt and default from Greece and the others on the fault line, but also the actions by the Chinese to try and rein in parts of their galloping economy. Add to that the other sand devils of the new Australian tax on the miners, the worries about BP and its Gulf disaster and we had all the making for a global market shudder. Suddenly our parochial election didn't seem so important and even the Icelandic volcano couldn't get its picture in the paper.
The sovereign debt question has still yet to be properly addressed. The key issues come down to the very structure and operation of the Euro. As the USA perfectly demonstrates, you can have at least fifty different economies but all operating under a generally common financial set of disciplines. Some of those states can and do, like California, get into financial problems, but as they are part of a cohesive common political structure, it works!
In contrast the Eurozone does not have much commonality and certainly very little discipline. It is thus going to be fundamentally flawed until such fissures and cracks in the system are addressed. This though is not to say that the Euro has been a failure. Certainly not. After all it managed to dispose of the world's most useless currency, the Belgian Franc. In fact as a mark of its success it is held as a reserve currency to a much greater extent by overseas governments (roughly 14% I understand) then say Sterling which now languishes at some 4%. However the talk of some two years ago that the Euro could potentially replace the US Dollar as a global reserve currency now seems laughable.
The answer must not be another Euro fudge, but rather some currency surgery either to establish formal financial disciplines across its members or restrict membership to an inner core of willing participants, leaving the rest still members of the Euro zone, but with a form of 'Euro-lite' of a domestic currency pegged at a lower level until such time as they can mature into full membership by way of qualification rather than whimsical Euro |
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