Europe; Coming Unglued

The financial media have, as usual, been watching a different movie.

The financial media have, as usual, been watching a different movie.

A friend recently said in reply to a comment, 'I think we're going to hell in a basket.' She is probably right but not for the reasons she thinks. My friend was referring to the consequences of Brexit. I am referring to the structural issues which are baked into the Eurozone and which are coming unwound at a pace which is very likely to accelerate throughout 2017. Standing close to an exploding bomb is never a good idea. The further away we are the better although it will take more than the English Channel and the political aspiration, if not commitment to leave, to save us from at least some of the backblast.

Political risk in Europe appears to be growing. The truth is, it never went away. It was simply subdued temporarily by successive ECB bailouts which have rescued (some) ailing banks but have done nothing to correct the systemic flaws in the Euro which have ruined southern European economies. Now, as political risk takes front and centre stage with Le Pen soaring in the polls the underlying economic risks which have been fermenting for years are at risk of ripping loose. The means of transmission are again, most likely to be the banks. You see, nothing has really changed.

We saw during the last period of Euro stress in 2011-12 that a sell off in bonds hit the balance sheets of European banks who tend to hold their own governments debt which increased their need for bailouts. In turn, that hits depositor and investor confidence which damage the banks even more creating a death spiral requiring direct central government intervention. As you may have guessed, the three countries with the banking sector most exposed to their own governments debt are Italy, Spain and Portugal.

With the ECB scaling back its bond purchases and the rising incidence of inflation yields have been rising. More importantly, spreads have been widening reflecting growing risk between member states.

Markets have so far placed a low delta on a Le Pen victory in France. Markets are being naïve. The French electoral system is designed to keep the door firmly shut against extremist parties but with the other candidates carrying baggage of their own her defeat is far from certain. Italy’s election meanwhile could result in a government under the influence of the Five Star Movement of the Northern League, both of which are committed to leaving the EU. Markets would not wait for an EU referendum result in these countries. Merely scheduling one will result in financial chaos. Meanwhile another Greek crisis similar to 2015 looks baked in when they run out of money in July.

Investors are hardened to serial crisis in these countries but are broadly complacent in their thinking that after a lot of fuss there will be another bailout and normal business will resume. Italy’s banks still hold 276bn in bad loans and the countries debt to GDP ratio stands at 134%. With 12% of the country’s bank assets being held in national debt there is a financial death spiral just waiting to be triggered. A small issue here is that Italy is the third biggest economy in the Euro block. That won’t be an easy fix.

Portugal meanwhile is back where it started with debt as high as it was in 2010. The 78bn Euro bailout there did not reverse economic trends. It did though, save the banks, for now.

The ever sensible and cautious Germans have been trying for years to neutralise this threat, first with a proposal to limit the amount of domestic sovereign debt that a bank could own. Germany failed. The second German proposal was adopted. That was to require that bank bond holders take a draw down, to zero if necessary, before government money could be used to bail out. Unfortunately, when Banca Monti Dei Paschi ran onto the rocks in December the rules were bent out of shape by using out of date stress tests and reimbursing debtholders saying they had been misled. That prevented a political fuss in Italy but has left the potential financial death spiral in place.

Other ideas, mostly based on the ‘bad bank,’ approach have circulated in recent years and include creating two classes of bonds, pooled together from the Eurozone countries, and divided into ‘safe,’ and lets call it ‘less safe.’ Loosely, that would be Germany plus one or two other countries and the rest. Unfortunately, the Germans are not big fans of either of these plans or any of their derivatives. The Germans in fact have been playing a quite crafty and streetwise game and who could blame them. German banks have pulled back their lending to non-German companies in the Eurozone over the past few years. Their appetite for shared risk is diminishing and the banks preference for keeping their money inside their national borders reflects this.

Germany itself has its own handcart of problems. Germany will of course work hard to keep the Eurozone together but it is not without its critics from both within and from outside. Germany is under constant criticism for having the largest trade surplus in the world, something that has not gone unnoticed by the Trump administration. It is ironic that Germany is the most powerful member of the very institutions that were imposed upon it in post war Europe. Indeed, the Euro was created years later in part to tie a reunified Germany to France and losing the Mark was the price paid for reunification. The trade off for Southern Europe in being unable to devalue was access to Northern European borrowing rates which allowed much needed structural reforms to be put firmly on the back burner.

Monetary union with fiscal union blocked potential wealth distributing mechanisms and acceptance of risk sharing required Southern Europe to gift their fiscal policies to Brussels. The Eurozone crisis and subsequent austerity measures have created fertile ground for growing resentment which has fanned the flames of populist movements which are gaining traction across the Eurozone. The refugee crisis and local political scandals have poured kerosene on an already politically volatile state. Growing recent civil unrest in France, (not much reported in the UK), and less violent demonstrations in Germany, reflect the heightened political volatility.

Political and economic structural tensions in Europe will continue to rise across the Continent in the coming months. They may well be contained and then abate. Protectionist rhetoric from Washington however complicates matters somewhat and are anathema to Germany’s export led economy. How the global economy, which has been designed and built around the free movement of people, goods and services reacts to fundamental changes driven by Washington remains an open question. Certainly, a much stronger dollar would be deflationary and wipe out the glimpses of inflation we are now seeing and that has a world of implications starting with Emerging markets and the $9tr of foreign dollar denominated loans which are ticking away.

With, for the moment, inflation at the gates and with bond yields rising in France and the periphery, the increased cost of debt repayments will do nothing to stabilise matters. Equities meanwhile have been skipping along without a care in the world. They may be about to stumble. For what it is worth, I firmly believe that the whole rotten construct is closer than most believe to coming completely unglued. Let’s hope that the financial boffins at the Bank of England are earning their money and are stress testing the banking and clearing system to destruction. It won’t be so very long before risk managers across the City are once again obsessed with counter party risk.

As a quiet postscript, those investment banks such as HSBC and Morgan Stanley who are making noises about moving some staff to Frankfurt and Paris, good luck. You are going to very much need it.

Wo ist unser Gold?

Sorry Fritz, it's all been weiterverpfändung'd.

Sorry Fritz, it's all been weiterverpfändung'd.

“Rehypothecation : The practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients.” Investopedia.

You’ll remember the fuss about the announcement from Germany that it intended to repatriate it’s gold reserves both from the US and Paris. It’s not moving very quickly, probably because it’s not there. Why? The answer again, probably lies in rehypothecation and is explained in this good clip by Glenn Beck. His premise is that Germany’s call to repatriate threatens what he describes as a Ponzi scheme.

We don't need big words like "rehypothecation," to explain why our gold isn't where it should be. We just say, "Gordon bloody Brown."

Five Years On; Damage Report

Thus, it is crucial to identify the primary causes and implement effective policy to avoid future episodes whose magnitude could exceed even the staggering costs and consequences of the most recent financial crisis.
— Dallas Fed

All politicians, central bankers and regulators should read the above quote three times a day and ask themselves, "have we done everything we can do to prevent a re run of the crisis and to protect our citizens?"

Voters, who mostly know what the answer is, should be asking their politicians the same question. Perhaps though, voters should simply ask themselves "have we done everything we can to stop these idiots dropping the ball again?"

Markets; Headwinds Abound

The papers abound with upbeat copy about UK growth and politicians are scrambling over each other to claim participation and responsibility.  Growth though, is anemic and there are substantial headwinds out there for investors. Many of those investors are very probably, and rightly, just getting on with their lives. It's time though, to join the Wide Awake Club. 

Markets will ebb and flow but structurally, they are weakening. The equity bull is anyway, growing mature and is into the normal timing zone for a cyclical bear mark to take hold. The coming months will be very choppy and conservative investors, widows and orphans should be extremely cautious and focus on capital preservation, not media headlines.

One man who has a good handle on events is Grant Williams, the author of the newsletter "Things That Make You Go Hmmmm." In this well worth reading piece he takes a look at some of those September headwinds.

Any passing reader for whom the whole financial press reads like something written by a mad Aramaic monk may wish to brief themselves with this video, also by Grant which, although a few months old, represents a good briefing on what has gone wrong in the past and how financial recovery may be nothing more than a mirage with the crisis about to intensify, once again.


If it leaves you slightly concerned.... it should; I am.  We're not quite at Defcon 1, Tin Helmet time but it's closing in.

The Curious Conundrum of Cypriot ATM's

Why are Cypriot ATM's throwing out so many Portuguese printed Euro's?

Since the financial crisis broke, a curious & some might say paranoid acquaintance in Cyprus has taken to checking the country identifier codes on Euro notes. He makes sure that anything issued by a PIIGS printing press gets spent first with Angela's Euros staying firmly at the back of the wallet.

Common sense he says, tells him that the percentage of notes from each country should be correlated to (a) who issues the most (b) where visitors come from.

So,  he theorises, he should expect plenty of German ones, quite a few French & Italian & lots of Greek.

When the banks closed in Cyprus, the ATMs were being topped up daily and all the notes were German. That makes sense, they flew in a Jumbo full of them.

Once the banks re-opened the composition of notes issued stabilised in a curious pattern. My acquaintance always take the maximum & does so frequently, (emptying his accounts there with a view to severing all dealings with local institutions),  thus the sample is quite good.

He usually withdraws €300 which is delivered as 15 X €20. 3 or 4 of those 15 notes will be German, 1 or 2 will be from any other Euro state, most often Greece.

Here's the weird bit. At least 10 of them will be Portuguese. Every time. It's not unusual for him to receive more.

Portugal is a small economy so shouldn't issue many notes in the Europe wide scheme of things. There are no direct flights between Cyprus & Portugal. He has have never met a Portuguese citizen there yet they’re apparently awash with Portuguese Euros with no apparent as to how or why they are getting there.

Unless........ There are some potential explanations. None of them good and I emphasise, none of them has any basis in evidenced based proof, except for the proliferation of Portuguese banknotes in Cyprus.

Summarised, they are;

Version 1 (Limited corruption)

The Portuguese are illegally printing notes way over and above what they are admitting to the ECB. Cyprus & Portugal are both “flexible,” enough that each country could find the required senior politician, banker & lawyer at each end to wash the money.

Version 2 (Full On Black Ops in which the ECB/Troika are complicit)

This is founded on the assumption that the bailout in Cyprus, and perhaps in Portugal is formally deemed doomed to ultimate failure and the banking systems in both must collapse entirely and the country/countries will exit the Euro.

It is often said that if a country exits the Euro then € holdings on deposit will be rebased to the new currency, effectively a massive haircut on everyone including those with sub €100K in the bank. It's important to note that whilst Cyprus technically has the ability to print notes the presses are private companies in France & Holland so they have no scope to pull a number like that outlined in conspiracy theory 1 above.

What is rarely if ever mentioned in the overnight euro exit scenario is that there must surely be legitimate grounds for legal challenge if a depositor can prove that they paid in physical Euros issued by a solvent state then they can say they are ineligible for conversion to the new trash currency. You can have a USD or GBP account at a bank in Cyprus. Nobody for a second suggests that those would be compulsorily converted into CY£, so intuitively it'd be equally wrong to suggest that an account full of German Euros should be converted into a less good currency. So they need stats showing that a high % of the Euros people pay in are from a less good issuer, (perhaps the one that the ECB bounces on the same day that they trigger Operation Olive Fire). Perhaps not even this. They know full well that everybody in Cyprus is emptying their accounts & filling home safes with notes. Perhaps they just want to be sure that these cash stockpiles are largely denominated in low quality issuer paper so when people show up after Euro exit they are holding Escudos not Deutschemarks and so they don't escape the devaluation haircut.

Paranoid loony tunes fool or someone who has stumbled on something which although might be correct optically, with so many box fresh Portuguese printed notes coming out of the ATM’s, nonetheless has a very pedestrian explanation? If the answer was more nefarious it does seem to be a very unsophisticated way of approaching a challenging problem.

It's probably nothing but I'd be interested to hear any input. 

Man Up France FFS


Enquiring minds might find this table from SocGen of passing interest,


The standout lines are that the French and Belgiums earn more per hour than do German workers, which is a straight turnaround from 2000 when the Germans made more per hour. 

That of course suggests that the Germans suffered relatively poor wage gains but stayed competitive with low unemployment and strong exports.

Everyone else saw wages go up, and competitiveness reduce and now they're looking for German handouts.

 Except the UK where earnings per hour have fallen dramatically since 2008 which is demonstrative of the British taking their medicine.

Onlookers should remember, many things have gone very wrong in the UK but to our credit we started to face up to problems immediately after the crisis. There is a ton of unfinished work in the UK but at the time, the French swept most of their bad news under the carpet and hoisted a sign that said, "no problems here (especially in their banks), nothing to see, move along now." 

Guess what.... your problem, grow up, stop whinging and deal with it.


Frederick Forsyth's open letter to the German Chancellor


I'm a bit late with this but it's good to have it on the blog, both for those who may have missed it and as a matter of record.

Frederick Forsyth, author of some thundering good reads and Express colunmist, has penned an open letter to the German Chancellor, Angela Merkel. Couldn't have put it better myself; this should be a mandatory read for Cleggites and their ilk.

"Dear Madame Chancellor, 

PERMIT me to begin this letter with a brief description of my knowledge of, and affection for, your country.

I first came to Germany as a boy student aged 13 in 1952, two years before you were born. After three extended vacations with German families who spoke no English I found at the age of 16 and to my pleasure that I could pass for German among Germans.

In my 20s I was posted as a foreign correspondent to East Germany in 1963, when you would have been a schoolgirl just north of East Berlin where I lived.

I know Germany, Frau Merkel, from the alleys of Hamburg to the spires of Dresden, from the Rhine to the Oder, from the bleak Baltic coast to the snows of the Bavarian Alps. I say this only to show you that I am neither ignoramus nor enemy.

I also had occasion in those years to visit the many thousands of my countrymen who held the line of the Elbe against 50,000 Soviet main battle tanks and thus kept Germany free to recover, modernise and prosper at no defence cost to herself.

And from inside the Cold War I saw our decades of effort to defeat the Soviet empire and set your East Germany free.

I was therefore disappointed last Friday to see you take the part of a small and vindictive Frenchman in what can only be seen as a targeted attack on the land of my fathers.

We both know that every country has at least one aspect of its society or economy that is so crucial, so vital that it simply cannot be conceded.

For Germany it is surely your automotive sector, your car industry.

Any foreign-sourced measure to target German cars and render them unsaleable would have to be opposed to vetopoint by a German chancellor.

For France it is the agricultural sector. For more than 50 years members of the EU have been taxed under the terms of the Common Agricultural Policy in order to subsidise France’s agriculture. Indeed, the CAP has been the cornerstone of every EU budget since the first day.

Attack it and France fights back.

For us the crucial corner of our economy is the financial services industry. Although parts of it exist all over the country it is concentrated in that part of London known even internationally as “the City”.

It is not just a few greedy bankers; we both have those but the City is far more. It is indeed a vast banking agglomeration of more banks than anywhere else in the world.

But that is the tip of the iceberg. Also in the City is the world’s greatest concentration of insurance companies.

Add to that the brokers; traders in stocks and shares worldwide, second only, and then maybe not, to Wall Street. But it is not just stocks.

The City is also home to the “exchanges” of gold and precious metals, diamonds, base metals, commodities, futures, derivatives, coffee, cocoa… the list goes on and on.

And it does not yet touch upon shipping, aviation, fuels, energy, textiles… enough. Suffice to say the City is the biggest and busiest marketplace in the world.

It makes the Paris Bourse look like a parish council set against the United Nations and even dwarfs your Frankfurt many times.

That, surely, is the point of what happened in Brussels. The French wish to wreck it and you seem to have agreed. Its contribution to the British economy is not simply useful nor even merely valuable.

It is absolutely crucial. The financial services industry contributes 10 per cent of our Gross Domestic Product and 17.5 per cent of our taxation revenue.

A direct and targeted attack on the City is an attack on my country. But that, although devised in Paris, is what you have chosen to support.

You seem to have decided that Britain is once again Germany’s enemy, a situation that has not existed since 1945.

I deeply regret this but the choice was yours and entirely yours. The Transaction Tax or Tobin Tax you reserve the right to impose would not even generate money for Brussels.

It would simply lead to massive emigration from London to other havens. Long ago it was necessary to live in a city to trade in it.

In the days when deals can flash across the world in a nanosecond all a major brokerage needs is a suite of rooms, computers, telephones and the talent of the young people barking offers and agreements down the phone.

Such a suite of rooms could be in Berne, Thun, Zurich or even Singapore. Under your Tobin Tax tens of thousands would leave London.

This would not help Brussels, it would simply help destroy the British economy.

Your conference did not even save the euro. Permit me a few home truths about it. The euro is a Franco-German construct.

It was a German chancellor (Kohl) who ordered a German banker (Karl Otto Pohl) to get together with a French civil servant (Delors) on the orders of a French president (Mitterrand) and create a common currency.

Which they did. IT was a flawed construct. Like a ship with a twisted hull it might float in calm water but if it ever hit a force eight it would probably founder.

Even then it might have worked for it was launched with a manual of rules, the Growth And Stability Pact. If the terms of that book of rules had been complied with the Good Ship Euro might have survived.

But compliance was entrusted to the European Central Bank which catastrophically failed to insist on that compliance.

Rules governing the growing of cucumbers are more zealously enforced. This was a European Bank in a German city under a French president and it failed in its primary, even its sole, duty.

This had everything to do with France and Germany and nothing whatever to do with Britain.

Yet in Brussels last week the EU pack seemed intent only on venting its spleen on the country that wisely refused to abolish its pound.

You did not even address yourselves to saving the euro but only to seeking a way to ensure it might work in some future time.

But the euro will not be saved. It is crumbling now. And since you have now turned against my country, from this side of the Channel, Madame Chancellor, one can only say of the euro: YOU MADE IT, YOU MEND IT."

Clegg The Ungrateful


Nick Clegg's Political Career Takes An Unexpected Turn

After a weekend of bluster Nick Clegg has failed to appear in the House of Commons this afternoon for the Prime Ministers statement on on the EU treaty. Aides say he didn't want to be a distraction. Poor lamb.

Like it or not Clegg is part of the government and should be there; the deputy prime minister can't cherry pick only the fluffy warm user-friendly announcements that he wants to be associated with. In fact, Clegg has done himself enormous damage this weekend. Flip flopping between different views doesn't sit well with voters who, like and agree with them or not, prefer men of conviction and loyalty. Clegg meanwhile is displaying all the characteristics of a political and moral coward and in effect is ensuring his own political end.

What he may have failed to appreciate is that if Cameron had gone along with the treaty, the subsequent referendum would have kicked the EU firmly into touch in the UK and the subsequent and inevitable general election would have signed off himself and the rest of his lie-down-and-cry party into deep oblivion for a generation. Cameron's act of defiance therefore was in fact in the Liberal's best political interests.

It is anyway a common talking point amongst Liberals that Clegg will get the heave at the next general election from the good people of Sheffield. He may find that the EU commissioner job he was pencilled in for is off the scorecard now and so should it be. 

The best thing that Clegg can do is to man up and stand firm for the government and for Britain. If it alienates his party members then so be it. His only alternative is immediate resignation. Any compromise between the two will leave his reputation and future in tatters and regardless of what some of his more naive colleagues and flapping BBC journo's may think, the same will be true of his party's electoral prospects.


UK Position on Europe Explained


I'm afraid we must roll back the pages of history to explain where we are and how we got here but don't worry; it won't take very long. We're travelling back all the way to the 24th March 1980 and deep into the golden age of British televison comedy to Episode 5 of "Yes Minister," entitled "The Writing on the Wall." (hat tip to Mish for the reminder).

Sir Humphrey: Minister, Britain has had the same foreign policy objective for at least the last five hundred years: to create a disunited Europe. In that cause we have fought with the Dutch against the Spanish, with the Germans against the French, with the French and Italians against the Germans, and with the French against the Germans and Italians. Divide and rule, you see. Why should we change now, when it's worked so well?

Hacker: That's all ancient history, surely?

Sir Humphrey: Yes, and current policy. We had to break the whole thing [the EEC] up, so we had to get inside. We tried to break it up from the outside, but that wouldn't work. Now that we're inside we can make a complete pig's breakfast of the whole thing: set the Germans against the French, the French against the Italians, the Italians against the Dutch. The Foreign Office is terribly pleased; it's just like old times.

Hacker: But surely we're all committed to the European ideal? 
Sir Humphrey: [chuckles] Really, Minister. 

Hacker: If not, why are we pushing for an increase in the membership?
Sir Humphrey: Well, for the same reason. It's just like the United Nations, in fact; the more members it has, the more arguments it can stir up, the more futile and impotent it becomes.

Hacker: What appalling cynicism.
Sir Humphrey: Yes... We call it diplomacy, Minister.


Kyle Bass on Europe


In every disaster movie there is one character who exudes calm and an air of common sense whilst all around him are losing theirs. In the rolling car crash that is the European financial crisis, one such beacon of rational thought is Kyle Bass of Hayman Capital Management. You may wonder, as I do on a daily basis, why it takes a fund manager all the way over in Dallas to articulate the massive issues at stake for Europe and the Global economy when so few of our leaders seem able to. Perhaps, some simply don't understand the enormity of the problems we face or more probably, lack the moral and political courage to face them.

In his latest newsletter, (linked with permission), Mr Bass lays out the challenge in simple and straight forward terms. For students of economics, taxpayers and market professionals alike it's well worth taking the trouble to read.

His blunt assessment that, "We are saddled with the largest accumulation of peacetime debts without any playbook for what happens next," ought to leave most people shifting restlessly in their chairs. Mr Bass, now getting into his stride moves on to say, with a bluntness that would have great resonance with most of our grandmothers, 

"Given the enormity of the debt burdens of the PIIIGSBF, (Portugal, Italy, Ireland, Iceland, Greece, Spain, Belgium and France) coupled with those of Japan (and at some point the US), lending schemes designed to lend more into an intractable debt problem are destined to fail miserably. There is no savior large enough with a magical pool of capital to stave off this unfortunate conclusion to the global debt super cycle. We think hard defaults are imminent."

"If we are correct regarding our hypothesis on the outcome of the debt crisis, the world will have it social fabric ruffled or even torn for a period of time. Be mindful that we are not talking about the end of the world as we know it; we are simply saying that it will be a different and slightly more difficult place to live in for those of us in the developed and indebted West."

Now, moving the family down to the basement with candles, tinned food and bottled water might be something of an over reaction but then again................. you can never be too prepared.



Osborne; Gliding Down The Dark Side of the Laffer Curve

George Osborne gives his Autumn statement today in which he is likely to give us the good news that UK public sector net debt in Sept 2011 was £966.8 billion, equivalent to 62.6 per cent of GDP. This excludes financial sector intervention.

If we include all financial sector intervention is included (e.g. Royal Bank of Scotland, Lloyds), the Net debt was £2266.3 billion (148.0 per cent of GDP).

That gives us a hefty interest bill this year of £48.6 bn (3% of GDP).

He is also likely to tell us that his original plan of tax rises and cost cutting to take us to salvation has taken the trajectory which, on a plane, would see the oxygen masks falling and the passengers donning life jackets. This is because there was a fundamental flaw in the plan and that was, (in the words of Black Adder), the plan was bollocks.

Government cost cutting has been insipid and half hearted. A sense of urgency has been lacking from the very start and as we've discussed on multiple occasions, what should have been a brutal but cathartic exercise in descaling government has been diluted many times over by political dogma and a failure of political courage. Instead of amputation, we're slowly bleeding to death. I expected entire government departments that are surplus to requirement to be axed; instead, the services have faced a vicious scythe and precious little else. 

Having dodged the early opportunity for which the electorate might have forgiven the government, Osborne, pushed along by the Liberals, resorted to draconian tax increases which are strangling the consumer and therefore the economy. It's all very well Vince Cable, possibly the most inept individual ever to walk down Whitehall, taking a "tax them till they squeal," approach but here's a newsflash Vince; the poor don't pay any more and nor do the very rich. The middle class, the spending engine of the economy, are on their knees. A real rate in the order of 60% is the financial equivalent of euthanasia.

Some may contend that high rates of taxation are bad for entrepreneurs. Nothing could be further from the truth. Every week I meet people who are setting up their own businesses and becoming self employed. Only, they're not employing anyone, they're mostly doing the same job but switching from PAYE and halving their tax rate in the process. Actually, it's madness not to.

This is an example of the Laffer Curve at work. So George, I reckon you're well past the optimal point of taxation, the point of equilibrium, and you're gliding down the other side.


If today all we hear about is help for small business then you're missing the point; you're treating the symptom not the cause. 

A brave man would slash the higher rate, all the way to 35%. A genius would introduce a flat rate for all of 20% on a six month trial basis. Inward investment would turn into a deluge, Europeans would head here by the planeload, businesses would flower and people would spend. 

This is important because the level of debt in itself is not the big problem, (it's was very much higher in post war Britain); it's an abscence of a commensurate level of growth which is killing us.

Moreover, there is one more important point to make. Europe is in disarray. Germany took full advantage of our industrial problems in the sixties and seventies to move into and exploit our tradtional markets. We now have a generational opportunity now to restore the economic balance against our competitors. If we only stand off and rely on falling tax receipts and marginal spending cuts we risk being dragged down with the rest of them.