Economic downturn: Where will it all end?

Posted on: 09 February 2010 by Gareth Hargreaves

Britain's economy has suffered throughout the downturn but how would we have fared in the Eurozone?

50Connect has been running a poll, asking: Has the Government's dithering on entering the European single currency damaged our chances of recovering from the recession? The majority of you voted No (63% versus 37%). I think the nays have it – a good decision!

We would be in terrible trouble had we had our economy linked to the Euro. Can you imagine the Brussels bureaucrats deciding what we could or could not do to get ourselves out of recession?

Look at the problems Greece and Spain are in and locked to a currency exchange rate that their economies can no longer sustain!

Think of the unfortunate expats in Spain and Portugal – it’s bad for them at present but it’s going to get a lot worse! What we are seeing is the price of building economies on the back of national debt. Both Greece and Spain funded their growth on borrowing and now these debts have to be paid back. Easily done if business is good – but it’s not!

The only way now to sort the problem is stop spending and tax the public - an austerity budget. This will come to both these countries in the very near future.

Of course had we been part of the Euro we would have had the advantage of a fixed exchange rate between EU members states. Good for exports for sure but not much good when nobody is buying!

Does this mean the UK is in a better place?
Not really, we just have a bag of different problems! Mr Brown and his mates have borrowed a vast amount of money over the past two years to such an extent that it is likely to take a decade to pay it back. But as well as borrowing we have been lending enormous sums to the banks (remember those – the ones with the big bonuses!).

In addition to bailing them out when all the crap sub-prime debt they bought from the Americans went belly up, a lot was used to fund the current UK housing market.

In total more than £310 billion (yes billions! That's about £15,000 per working person in the UK) was put out to the banks. This money has to be repaid - some as soon as 2012! The banks won’t easily be able to borrow money to replace this so the funds to give mortgages will dry up again and house prices will fall! This in turn will slow consumer spending as we won’t feel so secure.

Add to this the challenges any UK government will face after the General Election with public spending running out of control. The need to cut costs and/or raise taxes will stare them in the face! We still have a lot of pain to go through folks! How long will this all take to work its way through the system and settle back to some normality? Who knows – but it won’t be less than five years coming.

Were we right to stay out of the Euro – you bet your bottom dollar!

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