Catherine Blaiklock, UKIP Eastern regional chair
Just imagine if we all shared one credit card but all paid different rates of interest for borrowing on the card. It would simply be chaos. That is sort of what happens with the Euro.
Every night, there is a big ‘slosh’ around the Euro area to cover shortfalls in one area, against surpluses in other areas.
All nineteen countries that use the Euro, are bound by the same currency, the same political rules and the same European Central Bank (ECB) interest rate but then, spend different amounts, have totally different taxation systems and have economies that are radically different. Some countries need higher interest rates to curtail spending, some need lower interest rates to encourage growth. Some want a weak exchange rate to help exports, some want a high exchange rate to stop imports. Some are wanton spenders, some are frugal ‘scrooges’.
And some countries are perceived as a big risk - and some countries are perceived as somewhere you want to invest.
As when the European parliament was formed, the Euro was not very well thought out.
No one thought how this politically designed currency was supposed to work in times of stress. Political union without fiscal union was a massive design flaw. How is a currency supposed to work, when everyone is issuing their own bonds? How is it supposed to work when some bonds are yielding much more than others? How is it supposed to work if some countries have massive surpluses and others massive deficits?
The Euro is supposed to be the same risk but the market says, ‘Oh no it is not!.’ German 10 year bonds actually went negative for quite a long while and still only yield 0.3% for 10 years. Personally I would rather put the money under the bed than get 0.3% for 10 years for a piece of paper - but I would still rather lend to Germany at 0.3% than Spain, with it’s new radical, socialist, migrant loving government at 1.4% for 10 years.
Suddenly, at the beginning of June, everyone said, ‘We hate Italy’. Italian bonds collapsed in a big hurry - but they still only yield 3%. As a percentage, these yield differences are extra-ordinary. The yield on Italian bonds is 10 times, 1000% more than on German bonds and double Spain.
How about if I said, these bond yields could go to 10% yield or above? All of them.
Cracks always appear slowly. It always takes far longer for crisis to start but once panic starts, it escalates much more quickly than anyone can possibly imagine.
June was Italy, yesterday was Turkey, today the South African Rand which has started blowing out.
The Italian Popularists actually do understand the risk - they are some of the few. They are predicting the end of the Euro as well.
Don’t worry too much about the ‘remainers’ in Britain ‘winning’ the publicity wars. As I have been saying for a while, like the breakup of the Soviet Union, the writing is on the wall. By the time we finally exit, there will be nothing to exit from.
The financial crisis of the bond and currency markets will override all the politicians.
I leave you with the thoughts of Herbert Hoover in his memoirs of the great depression.
“Capital acted like a loose cannon on the deck of a ship in the middle of a hurricane. It went from one currency to the next. They couldn’t figure out where it was going next.”