To be worried about all this Euro crisis stuff

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Seriously, what's the worst that might happen to the UK?

What if loaves of bread end up being £100 or the banks refuse to give us our money?

Are we safe in our beds?

Moodys debt rating agency is rumoured to be considering a downgrade of French Govt debt. That is important because France is a guarantor of the EFSF bailout fund that is supposed to backstop debt repayments by the weaker peripheral countries. If France is downgraded it wil no loner be able to act as guarantor.

From Reuters:

"Ratings agency Moody's believes the recent rise in interest rates on French government debt and weaker economic growth prospects could be negative for France's credit rating, newspaper Le Figaro on Monday reported the agency as saying. "Presistently high financing costs combined with a deteriorating economic outlook could increase the difficulties that the government faces, with negative implications for credit," the newspaper quoted Moody's as saying. Reuters sought but was unable to obtain confirmation of the reported remarks from the the ratings agency. On Oct. 17, Moody's said it could place France on negative outlook in the next three months if the costs for helping to bail out banks and other euro zone members overstretched its budget." .

Problem with savings is interest rates are so low that the value is eroded by inflation. The best rates you can get are still below inflation, and rely on you locking money away, so you can't get at it quickly in a crisis...

I have noticed that sarkozy has been very quiet all last week, while Merkel has been very visible. Don't know if it was significant, but rumours of trouble in France have been around last week, with rising bond yields.

Do the markets take much notice of the ratings agencies, or have they made their own assessments prior to the public announcements of Moodys et al?

Sinical - a very good article by Toby Young who did a good job in the Telegraph explaining how France's power in Europe has waned dramatically this week as French bond yields sharply rose compared to those of Germany. The lower its credit rating goes, the higher its bond yields and the less investors trust France to repay its debts and the more Germany becomes the major power in Europe.

The entire EU was fundamentally set up to balance the power of Germany and France and prevent another major war in Western Europe but now that delicate power balance is very clearly being torn apart by the financial crisis and Germany is exerting its influence. Toby Young also pointed out that the UK ability to influence Europe depends on our ability to keep our bond yields low. As history shows, it always falls to the UK to offset the power of Germany as France fails.

If UK bond yields rise, the UK will be in thrall to Germany as well.

What will happen is that unemployment will increase and there will be much bigger public sector cuts.

thanks MoreBeta, I will read that.

Another view of the EU is that it was set up initially to counterbalance the larger blocks of the US and uSSR,( nowadays it's the rise of the BRICs that we need to counter balance). This would explain the move towards 'closer political union', in Merkels' own words from last week.

Now Hungary has requested IMF 'help' They entered a programme in '08, according to that link, but need it extended. Has the iMF the capability for that, or will they be hoarding their funds for possible bailouts of Italy et al, I wonder.

I did quite a lot of reading on previous major recessions over the last few months, nothing to add that hasn't been said apart from summarising my thoughts:

(i) Unemployment rises
(ii) Governments have no money so services disappear
(iii) Generally Gvmnts debase the currency/inflate their way out of debt.

As others have said, its the mddle class that gets totally nailed as (i) they get taxed white and (ii) they need to work to afford their mortages, so if they become unemployed they lose them as savings are eroded by inflation. Good news in the medium term is their mortgages are worth nothing in new money

The absolutely critical thing to do then is be able to minimise outgoings in inflated money, but to earn in inflated money.

Then there are some more worrying things - there is civil unrest, countries often turn to the Draconian Strongman, whoembark on foreign wars. Britain has historically not been as susceptible to this as other countries, and the channel has meant that the unpleasant neighbour is not right on the border.

Edam I don't mean savings as a form of long term investment. My concern would be that a lot of normal middle/working class people in the UK don't even have the recommended minimum of 3 months salary in an easily accesible savings account should they lose their job. A lot of people I know have just lived hand to mouth, and relied on credit for so long. I was the same but bitter experience has turned me around.

I live in Switzerland now, and interest rates have been historically low, but realistic. Following the crash of the Icelandic banks (and I had money in Icesave and Kaupthing Singh) I am now a firm believer that if it sounds too good to be true, it probably is.

I have to say as an aside, I keep seeing these payday loans advertised in the UK with 1000% apr plus and it makes me so angry. The people who really need help have to resort to these kinds of companies, and will end up in awful cycles of debt. Why isn't the government stepping in to control this!

This thread is very scary, but after what has happened in Greece, unfortunately the lesson is that these things can and do indeed happen. And quite suddenly: in Greece 3/4 years ago nobody could have predicted things could get so bad, and they've gone downhill dramatically and very quickly.

Based on the example of Greece, it's very true that those who are in the worst position are the middle classes, particularly the lowest middle classes. The poor become poorer but the middle classes have become poor and/or unemployed to such a large extent in greece: it's tragic. I suppose the wealthy aren't hit quite as hard, as they can put their money into property (eg in London!) which is a much safer investment. They can also buy property in Greece for really really low prices & benefit from that in the long term...

whatmeworry - Yes the rise of the right does worry me as well.

Like the Greek Orthadox church! They are great at land deals I believe.
blogs.reuters.com/faithworld/2008/09/23/greek-scandal-as-monastery-linked-to-shady-land-deals/

whatmeworry - Yes the rise of the right does worry me as well

Not just the right - Stalin was a dictator of the left. Watch these "technocrats", after gaining power Step 2 is always to dismantle democratic voices.

This is an eye watering opener.

US debt is currently 13 trillion dollars and they could go the same way as Greece in a month.

sorry that should be 15 trillion dollars

the 'technocrats' worry me as well. It is reading more and more like steps to the dismantling of democracy, such as schoolkids will memorise in the years ahead and wonder Why didn't they stop it, while they could? that is likely me being over dramatic.

Indeed sinicalsal, more than anythng else, the placing of unelected technocrats in greece and Italy is extremely worrying... Feels like moment in history has just passed without anyone saying a word.

It is reading more and more like steps to the dismantling of democracy, such as schoolkids will memorise in the years ahead and wonder Why didn't they stop it, while they could? that is likely me being over dramatic

I agree - everything I read about 1930's Germany was it was done in incremental steps until it was too late, but there were a few times (Reichstag fire, Kristalnacht) where it was clear where things were going in hindsight.

I think you are all absolutely right, Sincal, meworry & stellar. We live in interesting times, all right.

I don't know by the way if you know Golem's blog - apologies if you do, but if not it is worth watching & reading I think.

Yes, the overthrow of democratically elected governments is a terrifying development. By the EU, ffs! In Greece, of all places - the birthplace of democracy. And for the 'crime' of proposing a referendum... you couldn't make it up. The 'technocrats' (that's a euphemism if ever I heard one) all have form in creating this crisis - ex-bankers, ex-Goldman Sachs, ex-every effing organisation that brought down capitalism in the first place. And their solution? Get rid of democracy and follow the economic ideology that got us into this mess in the first place. God help us all. (Especially now we don't even have any warships to protect the British Isles...)

And the "intelligent" mass media is largely silent or supine - there have been better articles in Rolling Stone than inthe FT, Times, Economist et al

Excellent blog takver thanks for linking.

Mind you, Spain has been allowed to have their elections. New conservative government installed.

Yes Spain had an election but I fear the bankers and EU bureaucrats will determine what happens next because of Spain's crushing debt load and its banks weighed down by bad debts from the property sector that have barely been written off or accounted for.

Unless and until these peripheral countries default on their Govt debts the bankers wil demand ever larger interest payments and EU bureaucrats excert ever more harsh austerity measures.

Something has to give. Iceland showed how it can be done. Default on Govt debt, devalue the currency, refuse to bail out the banks, impose capital controls.

No just three years later, Iceland is growing again. It really is the model of how to deal with the crisis.

I suspect Gtreece had technocrats installed precisely to prevent them doing an Iceland. Ditto italy?