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Friday Five: how the euro crisis could be re-ignited

More muddling through in 2013? Maybe, but don't ignore these clear threats to European stability this year.


by Chris Marshall on Jan 04, 2013 at 13:14

Friday Five: how the euro crisis could be re-ignited

Thank you Mario Draghi. Without the president of the European Central Bank – and the FT’s person of the year 2012 no less – we may not have managed the shift from full-blown crisis to ‘muddling through’ that took place in the eurozone last year.

Draghi’s promise to ‘do whatever it takes’ – as well as some stubborn progress towards reform by the leaders of some of the eurozone’s weaker members – could ensure more of the same this year: stumbling closer to integration, cutting debts, but at the expense of stagnant economic growth.

Crystal balls are for lunatics and economists, but there are some clear threats to this widely-held relatively upbeat base case scenario.

1. Political wobble

Italian and German elections represent the most obvious threat to stability in the eurozone this year, and subsequently to a wobbly stock market that is also having to contend with ongoing budgetary uncertainty in the US and questions over Japan’s political future.

The eurozone's paymaster is Germany where polls are scheduled for later 2013, with the euro crisis – and particularly the cost of bailing out Greece – expected to take top billing. Current leader Angela Merkel’s center-right Christian Democratic Union (CDU) is expected to remain in power somehow.

The election will no doubt test market nerves – as to a lesser extent will state elections in Lower Saxony later this month. Economists expect a politicking Merkel will refrain from rushing into any quick decisions on bringing eurozone members financially closer together.

Italian elections are due to be held by April at the latest, although probably as soon as next month. With uncertainty whether incumbent Mario Monti will remain in a position of power, onlookers will be concerned that the country can continue on its path to reform, especially if anti-euro sentiment is stoked by politicians.

Here lies a contagion threat. Renewed market pressure on Italy, pushing up government borrowing costs, could prompt more of the same in Spain. This would in turn renew questions on whether Spain overcomes its reluctance and seeks a bailout…

2. Austerity fatigue

Spain is after all still on the precipicio. Budget targets may be missed even as prime minister Mariano Rajoy turns the screws on the economy. The slight drop in unemployment in December that hit the headlines this week was thought to be a one-off, with economists expecting the unemployment rate to remain above a staggering 25% this year.

A fundamental problem remains. Despite all the efforts of the ECB and politicians to provide a backstop, the reforms must continue. And these will come at the expense of economic growth and jobs.

The result could be more social unrest in Spain, and other eurozone members, adding pressure on politicians to not sacrifice their populace’s economic health in the name of harsh eurozone-enforced austerity.

3. Slow path to (dis)integration

Disintegration of the euro, particularly a 'Grexit', or Greek exit, may look less likely than it did 12 months ago. But that of course does not mean integration is an assured success.

Further integration could in fact dominate newspaper headlines on the eurozone in 2013, with markets still slavishly following every twist and turn at meetings between EU leaders.

Barclays economists expect the discussions to be ‘lively and chaotic’, potentially leading to renewed market tensions.

In particular, European Council president Herman Van Rompuy is due to provide a timetable on closer fiscal policy coordination among eurozone members at a June meeting.

In addition, plans for a single eurozone banking surpervisor, agreed in December, still need to be firmed up in order to be put in place by early 2014.

4. Not by austerity... but by growth?

Their electorates may not like it, but leaders in countries including Portugal, Ireland, Spain, Italy and Greece have shown some progress in reforming their economies. France sits in the naughty corner, however.

To the growing ire of investors – and actor Gerard Depardieu, who prefers the ‘great democracy’ of Russia – newish French president Francois Hollande (pictured) is persevering with his plans for a 75% top income tax rate. It’s the most public step from a man who has vowed to tackle the second largest economy in the single currency bloc’s problems not with austerity, but growth.

As a result, France is now deemed the biggest threat to eurozone stability by many investors.

5. Brixit?

British prime minister David Cameron, under pressure to repatriate powers from Brussels, will use a speech later this month to reveal whether he will offer a referendum on UK membership of the European Union.

The prospect of a referendum would at once refocus attention on a potentially fracturing Europe – even as eurozone leaders attempt to forge a stronger core. It could even make the EU fall apart, according to a Guardian interview of Van Rompuy.

Recent polls show that a narrow majority of Britons would now vote for the UK to go it alone if they were given the chance.

25 comments so far. Why not have your say?

Chartered Accountant

Jan 04, 2013 at 14:57

Until we have a proper debate with all the advantages and disadvantages thoroughly costed and I don't count the self-interested pleading from bankers, I remain among those who would vote to go it alone.

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Jan 04, 2013 at 15:08

Dear "Chartered Accountant" ... so you are happy that this would probably tip the Scottish into going for independence from the UK ... followed shortly after by Wales ... leaving just England outside the EU?

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Chartered Accountant

Jan 04, 2013 at 15:43

Dear Gwil, Your offer is a very tempting one and I write as someone with Scottish ancestry. I am sure the Labour party would worry about this, but for those of us who pay taxes, it might be quite nice for the Celtic fringe to face economic reality for a change. Yes, there are major issues such as Oil and Fishing rights and division of the National Debt but as I suggested, let us have an honest debate in which all these issues are aired rather than seizing on one or two isolated issues.

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Graham D-C

Jan 04, 2013 at 15:58

If the electorate in Scotland and Wales want to become independent of England and become full members of the EU, euro et al, then that is up to them. England would be quite happy for EU countries to trade with it, but without the myriad of regulatory and legal restrains not of its choosing. If the EU were then to stop goods from England being sold in the EU, then clearly two can play at that game.

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Ian Lewthwaite

Jan 04, 2013 at 16:50

As long as the politicians both here and in the EU think it right to provide non jobs/ sustinance to hinder those who do work, rather than just talk about it. The EU will fail, the southern states think they should have a free ride whilst their own upper classes move their money out of the country.

I am sure that coming out of the EU and stopping our financial support in any way to it, will be to our advantage.

To hell with the City financiers,they must adjust to the new order, and I think there are stll some bright lads in Finance, but earn too much money for very little effort, and MEP's ---

No one signed up for POLITICAL integration, merely a free trade area- the UK will survive on the basis of trade only, once we get rid of the deadwood still coming into this country. Many come to work and better their families but too many come to better their families without work.

Regarding Scotland and their referendum, the scots I talk to think Salmon is crackers, wasting time and money on his pie in the sky, whilst the Scots economy shrinks. He is banking on the oil price increasing and the flow to be constant for the next 20 years together with his foisting windfarms on D& G which the locals dont want.

The money that is being wasted in the windfarm developement plans has never been revealed, neither has the KWH produced over a 365 day period.

However, Scotland may have a winner with the tidal generation.

Against all odds if Scotland do decide to leave, kick out the Submarine base whilst continuing to spend on freebies

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Jan 04, 2013 at 19:14

Well some interesting comments. I'm not much of a nationalist and I think England without Scotland and Wales would be much diminished in many ways. I think all underestimate the issues that would be have to be faced in the many possible scenarios. However, if the UK left the EU and Scotland and/or Wales was in I think you might see migration of many jobs from England to Scotland and Wales. There are many companies and organisations that want/need a base in the EU. So it might not be so bad for the smaller countries. The interesting thing would be UKIP would become EIP ... which if it became part of a future English government then net migration to Scotland and Wales would be massive!

P.S. I shouldn't forget Northern Ireland so maybe it would still be the UK ... but England and NI doesn't sound that united.

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David Rowse

Jan 04, 2013 at 20:43

Chartered Accountant,

I believe that you are absolutely right in logically requesting a considered and thoughtful debate on the pros and cons of joining Euroland.

On many occasions I have asked various 'knowledgeable people' to provide me with reasons why such a move into the Euro would be beneficial for me and my family: to date I have not received one reply.

Until I know what I might be voting for I find it impossible to make any kind of informed decision: all too often it seems that the most vocal in terms of joining can only provide reasons which are specific to their own individual/corporate gain rather than to what might be seen as a more general and common 'good'.

A well informed debate would at least allow voters to make a rational decision about the future of this country in particular and the UK in general regarding the Euro question.

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Ian Lewthwaite

Jan 05, 2013 at 11:28

BUT LOOK AT THE situation as a "marriage " the referendum should not be restricted to the Scots alone, but the UK as a whole.

If one partner in the relationship wants out ( a majority I assume which will include rational and thinking from all 4 cornersof the UK) perhaps England might just say as you, Salmon and noisy minority have moaned so long and loud about now't ) GO,

but take the total bill for RBS etc with you and all the other benefits it derives other than the disputed oil revenue, disipated in the main by scotsmen? who we foolishly later allowed into England and Parliament like Blair, Brown etc in buying votes willy nilly with money they didnt have,#

and themselves blame the English for buying the Scots nobility with gold (them were the days)into agreeing the Act of union way back 1700s

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Ian Lewthwaite

Jan 05, 2013 at 13:41

Hi Chartered Accountant

This is what everyone wants - just the truth, no spin,or bias,or behind the scenes chicanery.

Governments must be more OPEN, now, they have reached the end of the road!. and are so far from pleasing the people who voted for them.

With the FOI, I thought things would get aired, but there are so many exclusions, lazy civil servants who treat the public like idiots, Data protection and downright Government dishonesty.

Only when everything is out in the open with no exclusionswill we ever get the populus and fairness in Government - even when you are paying their salariesetc there is no loyalty to the taxpayer.

Look at the various scams Govt have used - the roadfund tax - just how little goes on roads, NHI everyone and his dog are included in the UK, whether they have contributed anything or not,

How much is this so called Green energy tax GOING TO costing us to give to the energy companies.- just tax by any other name - a load of rubbish!!!

If I am paying a levy for THE NEXT GENERATION of power generation then I want to own part of it, not give someone else the money so they build and own it, and charge me including their profit on our money forever, for something I contributed to.

Tax has been frittered on daft ideas, but not infrastructure, roads, cheaper railways, where was all this freebie money lent to the banks for Bombardier - did it all go to Siemens, so they could undercut due to the cost of their finance? including the EU.

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Jan 05, 2013 at 16:16

Dear "Chartered Accountant" ... I presume you are one ... be careful for what you wish for ... if government was highly efficient they would long since have moved from PAYE/NI to IA (Income Accounts) doing away with half of HMRC pretty much all payroll company staff and half of the countries accountants! See the likes of ... they won't do it as they are lazy and afraid of the banks so they stick with the status quo!

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Jan 05, 2013 at 16:20

My apologies for the quick typing typo ... that should of course have been "half the country's accountants" in the last comment.

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william eddy

Jan 07, 2013 at 16:40

Until we know what the outcome of the closer integration of the EU results in we have no real idea of what we would leave or stay in. No meaningful discussion is possible at present. We need to remember that all divorces are messy and our present approach seems to be that of a spoilt child who has lost it's toys.

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David Rowse

Jan 07, 2013 at 17:13

William Eddy:

I believe that the general public of this country know absolutely little or nothing about the pros and cons of joining Euroland; we have been intentionally kept in the dark by polititcans and others because we are likely to make the 'wrong' decision.

How sad that in the mother of democracies the general populace are treated as complete idiots who are not capable of reaching a rational decision about anything. Gove, what is the point of education if the result of at least eleven (and increasing) years of statutory education results in a population incapable of making a rational decision about such matters? But then, are our political masters making rational decisions about such matters or are they overly influenced by minority pressure groups: who can tell? Perhaps we live in the political dark ages?

A little enlightenment would not come amiss at this point.

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Ian Lewthwaite

Jan 07, 2013 at 17:34

If the UK pulled out of the EU and stopped paying into this unaccountable heap of nonses, it would fold shortly after, the UK and EU think that with Govt Induced inflation, the economy will pick up and our debt become manageble.

However, we are to far into Johnny foreigner's ( include the UK citizens living abroad) ribs to ever get a balanced budget.

The great unwashed, on the Govt handouts will riot if their freebies end - so all the Govt can do is perloin all savings- its wonder that exchange controls aren't back- drug money, bankers bonusesexcepted of course.

The Govt will when all their mates/school chums have got out from under, a bit like the Greeks

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Graham D-C

Jan 08, 2013 at 10:27

As UKIP's Farage and the extremely knowledgeable wide ranging Christopher Booker(Telegraph) repeatedly point out, unless Cameron reneges on Article 50 of the Lisbon Treaty which is designed to stop members leaving, there is no chance of the UK wihdrawing from the EU. Thus, if Cameron is going to hold aRreferendum onUK membership of the EU, he must also be prepared to renage on the said treaty. I don't hear anyone in Parliament challenging on the this point.

I do not know the sums of money involved, however I believe Cameron/Osborne have missed a huge opportunity to bring back a large number of disaffected voters back into the fold, The reason for this might possibly be Clegg; however such are the rewards, the former would have needed to have told him where to go in no uncertain terms.

1. Obsborne should have applied at a week's notice a universal first two children only child allowance each at the full rate for new families. Existing families with more than two children would operate under existing rules.

2. One parent families and couples living together earning a combined £65k receive no child allowance.

3 Where couples with children earn less than a combined £35k, one partner can tranfer their full taxallowance to the other.

With a universal child allowance for the first two children only, it would stop people breeding like rabbits, unchecked immigration , high unemployment, a plague of benifits cheats and the overwhelming of services -schools, NHS, Social Services, social housing, transport, roads, courts and jails.

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Ian Lewthwaite

Jan 08, 2013 at 11:09

Hi Graham

on your item 1- the allowance should taper to nil at 10 children by equal cuts, also staring now.

item 2 there are so many couples who live together but separate for the requisite number of days so she can get whatever allowances are going. So insist they are married and entitled or shacked up and not.

But make the taxation for married worthwhile not this present day crap taxation non - system

Item 3 why penalise couples earning less than £35K make it the same £65K

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Graham D-C

Jan 08, 2013 at 11:56


Remembering we do not want to alienate swing voters, discriminating against unmarried couples living together and tapering CA for large existing famlies could do just that, as well as genuinely hurt children, whom as time went by would progressively no longer qualify.

Under £35k joint income couples suggests that in many cases only one is working full time with the other working part time and otherwise staying at home looking after the children, In whch case they should be rewarded by one being able to transfer up to their whole tax allowance to the other; they would receive CA under the existing rules. Whereas newly weds/couples- living together would know that having more than two children would be entirely at their own expense.

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Jan 08, 2013 at 12:56

Graham D-C and Ian ... the main problem is that the way tax and benefit is currently administered is stupid, expensive and anachronistic ... whatever policy a government chooses it is expensive to administer. Only a system based on "income accounts" (aka tax and benefit accounts) sorts out the current mess providing one place where all can be seen and controlled by distributed software (i.e. not a huge expensive national system). Until a government realises this and how it ties in with bank modernisation then we will not be able to fine tune the tax and benefit system and stop so much fraud. It would also give the UK a lead in banking and census software systems for the 21st century. Shame we have such a lame and lazy government ... should be right up their philosophical street. Incidentally the system trivialises the bureaucracy of employing someone. See the likes of for more info. if your interested.

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Graham D-C

Jan 08, 2013 at 13:31


Lets go one further then, lower benefits which are taxable to the point where they could be made tax free at no loss to the recipient, or the Treasury ?

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Jan 08, 2013 at 15:27

Graham D-C ... I'm not quite sure what point you are making but with an 'income account' (IA) system where you put everything into "one individual's pot" you can choose either to place items in there to be taxed or not to be taxed depending on how they are marked that would be a policy choice. I'm just talking about a system that is flexible and efficient to achieve the aims of any government whilst providing maximum clarity for individuals and zero bureaucracy for employers.

It should be noted that under the IA system the debacle of child benefit would not occur as the linkage of accounts allows a computer system to modify to any level of granularity.

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Ian Lewthwaite

Jan 08, 2013 at 16:04

I have to agree with you Graham -DC on your comment, but surely every time the Govt of the day, with supposely a brain amongst them, initiate any changes it just get more complicated they do not seem to understand the KISS principle, there is no logical reason that the PAYE should have bands 20%,40% as though there were no intermediate points.

The living wage should be the starting point, incorporating whatever actual children you have with no phantom ones, in this country, or abroad if you are a paid up UK citizen within the mothers PA , or fathers if he has been left to hold the baby, this could be free of all taxesand then commence taxation, less what ever is deemed to be Prudent like Pensions, health insurance etc.

But it makes liars and cheats out of" the normally honest" whose income is just over any band set, to get in the rate below for pecuniay gain, just because the tax office dont appear to know what they are doing, when setting the rates

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tony williams

Jan 08, 2013 at 17:08

we do not want any more immigrants in this country arriving for freebees, i am 69 and grafted all my life and brought up three girls who sre married working grafted and have children. they do not want to pay extra taxes because we are part of the eu. its a bad diabolical club----------------VERY BITTER

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Jan 08, 2013 at 17:08

Ian ... have a look at ... if you understand what they are saying you will see that it is the way to go ... anything else just is too complex + too centralised. One can create all sorts of policy but if you have a useless system you simply cannot implement it. It isn't the tax offices' fault really apart from those at the top who collude with the government of the day to carry on with the current expensive and useless system. Basically it is simply lazy government to carry on with an expensive, centralised, outdated system ... the ConLibs have simply screwed up in an area they should have been good at. After all the Cons were talking about scrapping employers NI a prerequisite to what is being talked about at

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Graham D-C

Jan 08, 2013 at 17:28

Perhaps anything remotely like an efficient, simple and fair system of taxes and benefits would allow cuts in staff at HM Revenues.- turkeys voting for Christmas. The Tories need a miracle in 2015 - an outright majority.

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Jan 08, 2013 at 17:44

Graham D-C agree about HMRC turkeys ... if only they realised their new role as a retail bank inspectorate would make them actually fairly popular for a change ... mind you only the highly skilled systems and fraud experts would end up with a job at HMRC. If the Tories get in again then I think we can say 'over and out' read "Britain’s naked economic frailty could be harshly exposed" published in CityWire an hour ago!

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