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Saturday, 21 October 2017

On VE Day, UK politics and today's Europe

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  • Peters 475px June 2014

Anthony Peters considers the promise and problems of a troubled continent.

Today marks the 70th anniversary of the end to hostilities of the Second World War in Europe. To me this is still close for I was born just 9 years later. My old Dad who turns 93 in 10 days time was part of it all. He joined up in early 1940 and was, when the war ended, not yet 23. After five years of war he was still younger, though married and about to become a father for the first time, than most of the graduates we interview for their first job in the City.

We think of May 1945 as being when the sun came out again, when the black and white world became colourful again and when all was good and positive. Wrong. Very, very wrong. Europe was destroyed. Although many rural areas were untouched, cities had been laid to waste, infrastructure was as good as non-existent and millions and millions of displaced people were milling around with nowhere to go. They had to be fed, clothed and housed. This was not just a matter concerning the survivors of the concentration and death camps but affected many millions of prisoners of war and forced labourers who were being released. All the while new civil administrations had to be created where there was nothing left. Bitterness, frustration and resentment reigned and revenge murders of collaborators and the like took place by the hundreds of thousands. Bitter local rivalries broke out as new national and ethnic boundaries were fought over. In many respects, the first years of peace were more vicious and more violent than the years of war.

I quite recently read a book on the subject called “Savage Continent; Europe in the Aftermath of World War II” by one Keith Lowe. It is one of the hardest reads I have ever had; not because it is badly written which it most certainly is not but because of the incredible painful subject matter. It might do both Eurosceptics and Euroenthusiasts the power of good to pick up that book and to remind themselves of what the founding fathers of the European Union had gone through and what they might have had in mind when they strove to build a single, borderless Europe. In my view it was about tolerance and respecting one’s neighbour and not about creating a single, one size fits all super-state.

Should the Conservatives come out of today’s British elections victoriously – it’s barely news that I am inherently Conservative but that I have little truck with David “call me Dave” Cameron, my own MP – and should the referendum on our membership of the Union be called, I will be happy to dedicate my time to campaigning to keep us in. The greatest protector of democracy is and remains a healthy disrespect for authority. Of that I have plenty and I owe it to my old Dad and all of his comrades in arms to let it rise when the suits in Brussels (and Westminster, Paris, Athens and so on) become too pompous. Sadly, they seem to be on a 24/7/365 pomposity drive…. “Soyez rasonnable, demandez l’impossible”.

Greek cheek

Back to everyday matters. The Syriza dominated Greek parliament yesterday promulgated the promised law which mandates the rehiring of civil servants laid off during the austerity drive. This is not what a country which is running out of money should be doing and the IMF will not be impressed.

The IMF, despite having a French Managing Director, does not necessarily share the ideological agenda which two purely European Troika members are obliged to observe. Its differences with the EU resemble those of the parents and the teacher of an errant child where the key objectives might be the same but the lengths to which the two are prepared to go before taking severe sanctions will surely differ considerably. Anyone who thinks we might be getting closer to a happy ending of the Greek story is either asleep at the wheel or smoking something for which they should be arrested.

More bond bashing 

Meanwhile, the bond meltdown continues and this morning French OATs are knocking on the door of 1.00% while Bunds are again weaker at 0.64%. I was tapped on the shoulder yesterday by a Berlin based think tank which pointed out that the ECB has all the firepower it might need in order to put an end to the sell-down which is, surprise, surprise, being blamed on those nasty Anglo-Saxon hedge funds who are supposedly busily shorting the Bund in line with Bill Gross’ recommendation.

Longer dated bond yields are now clearly higher than they were before the QE programme was announced, let alone launched, but the killer is the currency. Wasn’t part of the objective to bring the euro lower? At US$1.1350 it might still be significantly lower than the US$1.2100 it was trading at for year-end but it is certainly a lot further away from the dollar parity which had been broadly forecast and even further from the US$0.8200 all-time low which many had pinned as being the medium term target.

Recent US figures haven’t been dollar supportive and it is not surprising that some of the one-way bets have been taken off, thus leading to a correction in the $/€ rate as much from the American side as from the European. If Europe is less weak than it has been priced at, and the US not as strong, then there is still a lot more of a correction in the pipe-line.

Having the two economies moving so clearly in opposite directions is something few of us know how to deal with as we simply don’t have the experience. Friday’s US payrolls will not make it easier, especially if they are stronger than the 230,000 which represents the consensus forecast. Put on that blindfold, turn around three time and then try to pin the tail on the donkey.

Within British politics, by tomorrow morning many of the unknown unknowns will have become known unknowns although I doubt that we’ll be much the wiser. The days when the gilts market remained open overnight are now over. The fun of trading the elections has gone and whatever happens in gilts and UK equities tomorrow will probably end up as having been more part of the ongoing global asset price readjustment than it will have had anything to do with how George and Charlotte Six-Pack have voted.

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