Fear is absolutley

[Suff]

the key.

If we needed proof that the Tories are more scared of the UKIIP than they are of offending all the other governments in the EU, then here it is.

Quite simply Osborne told the EU members: "Reform or we're gone". Not only in the EU treaties but also in their own economies and the economy of the Eurozone as a whole. Telling the rest of the EU that they are not fit to be in an EU which the UK is in; is the equivalent of throwing down a cast iron challenge gauntlet. It has crashed to the floor with a god awful noise and now it is lying there. Stony faced EU leaders are standing there looking at it and wondering how to make it go away.

If there was any one thing which tells me the internal Tory polling results, this is it. Simply put the UK does not go to a world wide forum like Davos and tell the rest of the 28 that they're a bunch of school room dunces and if they don't pull their socks up they'll be on their own. Also he told them something I've being going on about for a long time now but our politicians have been very coy about saying. Namely that the UK is the second largest economy in the EU and it's about time they started treating us as such. In fact he went further and trotted out the latest economy figures which are persona non grata in Brussels. Namely that with the UK growth average and the German growth average continuing as they are, the UK will be the largest economy in the EU by 2030. Which seriously did not go down well with the Germans who can't conceive of such a thing.

The only thing he didn't say was that more and more of UK business continues to go out of the EU because the EU is not a place where the UK can do business and make money. But he should have. Because maybe then the Germans would believe that the UK could overtake them as they have so slanted the playing field inside the EU so that no other country can overtake their position as the #1 economy.

I shall have some fun on Monday asking the guys at work what their local press made of it. I'm sure they will all spin it incorrectly as the UK angling for something the rest don't want to give and that the UK, like Greece, can get stuffed and go do it's own thing. They will never understand that it is pure survival which is driving the UK politicians to say this. The EU is incredibly unpopular with the people of the UK and as they take their own arrogant stance they become ever more unpopular.

The only thing I can say for the Tories is that they are going to wind up having to take us out when the rest of the EU refuses to back down and the people of the UK also refuse to back down. Something will have to give and I'm betting that it is our EU membership.

Just like the US with Lehmans and the Ooops factor when they threw the financial system to the dogs, the politicians of the EU have convinced themselves that the Greek debt and the UK income are of no consequence and that it won't really hurt them if they don't do what needs to be done to resolve both crises. We have France and Germany saying that if Greece wants debt forgiveness then they can leave and "take the pain" of the Drachma. At the same time senior German financial analysts are saying that the EU and Germany simply can't afford Greece to default. You can times that by 50 for the impact of the UK leaving when Germany winds up trying to fill the gap. Germany currently has debt to 80% of GDP, yet EU rules state that they must reduce it to 60%. How are they going to find circa 77bn for a Greek default and then the ongoing billions from the loss of the UK to the EU purse? France? They're in even more debt, so are Italy and Spain. Beyond them the economies are so small they simply can't even think of looking at either the Greek debt or covering the UK subscriptions.

In the last year I heard the climate changes in the Arctic described as being like a slow moving train wreck. Right now the ego's and tantrums of the EU politicians are driving them to the edge of a very large chasm. If they don't understand the problems in Greece or how they are perceived in the UK, is it our fault for tipping them into the chasm?

I must admit that it is refreshing to finally have some of our politicians standing up and saying "We are a world power _without_ the EU, shut up and listen!". I also don't believe that the room full of people really understood what they were voting for when their show of hands said the UK should stay in the EU. Most of them think of it always being as it is, with the UK being "in but out" and able to act as an independent entity whilst still within the mechanisms of the EU. Able to exert influence beyond our 1:28th of a vote. I'm sure that they don't realise that the UK would be consumed and marginalised in a fully federal EU. Something very few of them (outside the EU), would want. If they thought about it for a while they would probably want the UK in the EEA, inside enough to be able to talk to them but outside enough to still be a world power the rest of the EU would have to listen to.

It's going to be an interesting time unless Labour win the next election. Then all bets are off, we could even find ourselves in the Euro.....

[Workingman]

GDP, schmeedeedpee. GDP is about as a crude a measure of measuring, well, anything as could have been dreamt up. It measures economic activity within an economy and not much else. If I grow a cabbage and sell it to the customer directly there is not much economic activity. But If I sell it to a cabbage trader and he sells it to a warehouse and the warehouse sells it to a shop and the shop sells it to the customer there is loads of economic activity and a growing GDP.

However, staying with GDP, the UK debt to GDP is running at about 92%, roughly the same as France. It is also notable that some of the countries with high debt to GDP ratios are Japan 227%. USA 102% and the UK, all of which were the first to print money, or quantitative easing, as they like to sell it to us.

Then there is this by the same author of Suff's original link. The opening paragraph tells a whole other tale: "Britain's commercial deficit will be the highest in a quarter century next year, a sign that recovery is badly out of kilter and that the country is still living far beyond its means." We have the worst deficit of any major industrial country. He also mentions that the UK is getting into the bad habits of property inflation and credit based spending. We can all see that, many of us are actively taking part. The last time the UK had current account deficits of today's magnitude was shortly after WWII. We cannot run our own personal accounts that way and neither can the country.

So, I am sitting in Davos when Gideon stands up and makes his speech, and I sit stony faced, but deep down I am thinking: You might be right, for now, but it cannot go on, certainly not till 2030.'

There is nothing in EU rules stopping from the UK doing more trade outside the Eurozone, it is what Germany is doing, but we would have to be making things to do so. German balance of trade has been mostly in the black since the mid 1950s. During the same period ours has been mostly in the red. In fact it has always been in the red from 1998 when Germany was always in the black. So much for killing industry and relying on the service sector - thanks Maggie.

[Suff]

Here you say:

some of the countries with high debt to GDP ratios are Japan 227%. USA 102%.

Then our sage says....

We have the worst deficit of any major industrial country.

Now I'm aware that the two are not the same, but what do we call Japan and the US, both of whom have way more debt than the UK.. I thought they were major industrial countries?

Also another point not made was that our deficit has halved from £160bn per year in 2010 to £80bn per year in 2014 and it's still falling because the GDP is still growing and spending is not growing at the same rate.

So Osborne does have something to crow about. He achieved both Austerity and a significant increase in economic activity in parallel. Something no other country in the EU has done to date. Either 0% austerity and, in fact, the opposite, driving debt up from 72% to 92% in two years (France step forward and take a bow). Or heavy austerity with massive drops in GDP and economic activity up to 35% (Spain and Greece).

Anyway, the point of my post was that Osborne would not have been saying any of this, because he's as well aware of the points in your article above as anyone else is in the financial circles. He's saying it because he does not want to lose votes to the UKIP. He's going to lose them anyway but this is a panic reaction to that loss. To me it tells me just how much the UKIP has eroded the Tories and just how scared they are.

BTW, Germany has been in the black from 98 to 2014 based on loans taken by the PIIGS and other countries in the EU, for which they then bought German goods and services. The EU aided and abetted this by making it damned hard, or impossible, for any other country in the EU to buy out German companies and repatriate the profits to their home. Germany is about to have a rude awakening as the Euro drops, the cost of importing the fuel and other raw materials they use for manufacturing rises and their order books fall off (as they have been for the last two years), because of the Austerity of their EU Brethren. Without that solid EU market, they will find it extremely difficult to compete and make good profits in the non EU markets because they can't discount against the profits created by the EU markets artificially high prices. For instance take Solar panels, which now cost 50% more from China so that Germany can sell them at an inflated price. The cheapest place for solar panels in the EU is now Germany, but the cheapest place outside of the EU is China. Germany is not going to sell huge amounts of these panels in the EU due to Austerity, they're going to sell none outside the EU because China is cheaper.

Put it all together and the UK is still growing, spending less, is flexible and can compete outside the EU to grown GDP.

Osborne is quite correct. Germany is in for a rude awakening and the UK is in a strong position. I wonder when the German bankers will awaken to the fact that their existing wealth is worth less than the growth in wealth over the next two decades and that protecting that existing wealth has seriously damaged their chances of growing it in the future....

The biggest issue right now is that most reports available are based on 2011 or 2012 GDP for the UK. UK GDP grew strongly in both 2013 and 2014 and continues to outstrip the western economies. Except for the US who have the same flexibility of the UK but don't have an EU millstone round their neck. Whilst the Eurozone achieved virtual 0% growth over the entire life of this UK government and has fallen back into recession now. Germany could not keep the Eurozone growth high because the orders for them to show that growth mainly come from the Eurozone countries and Germany is telling them to stop borrowing money and cut their deficit. Nowe as Austerity strikes, countries (including Germany) are cutting or completely removing (France), subsidies on clean energy. So Solar panels are not being installed at all.... Load, aim at foot, shoot, reload, shoot, reload shoot. It's not the fact that they are shooting themselves in the foot, it's the speed at which they are reloading...

One final point. Our manufacturing index is up. Our balance of trade is hugely out of kilter mainly by fuel and material purchases. Fuel prices are dropping and the pound is getting stronger which makes material purchases cheaper. We also have a huge services industry too and that industry "services" a lot of clients outside of the UK. You don't need to make things to earn money and we earn a hell of a lot of money by being middle men or facilitating transactions between two parties. We're pretty damned good at that.

But he's still running scared and not of those at Davos...

[cromwell]

Greek election tomorrow. If Syriza win then I wonder how the Germans will react? Syriza have promise to get the Greek debt reduced by 50% and stay in the euro.

Will the Germans stand for that? Or kick them out of the euro?

[Suff]

The picture is actually a bit clearer than the press would have us believe.

Greece has already defaulted on 75% of their debt. They then took a €240bn loan, in several tranches, to allow them to service and roll over the 25% of debt that is left. The goal being that by 2025 or 2030 Greece would be able to pay back the €240bn and then service their debt without the aid of the EU. The real kicker being that even the 25% of debt is too large for them to fit within the debt and deficit limits of the Euro regulations. So Austerity would have to continue until they had paid this debt down by at least 50%. Which would take around another 15 to 20 years. So, for instance Greece would remain in Austerity until at least 2040, probably 2050, then they would spend the rest of the century paying off their debt they have to keep rolling over.

The Troika are clear. No new negotiations. They have to pay it all back and they have to restructure the whole base of the government finances and social services to do it.

If Greece wants to renegotiate another 50% of their debt, they're going to find it really hard to do because hard on the heels of Greece would be Portugal and Ireland. The EU could cope with them, but contagion would set in and Spain and Italy would want their cut too. Then the Euro would be destroyed and a third of the EU economy too.

The best that Greece could hope for is to have their debt rescheduled to pay back fully in 2100. However the Euro and the EU economy can't survive that in the short term (10 - 20 years).

So what is left? Greece reverts to the Drachma, redenominates all their debt in Drachma, print money like it's Christmas every day for a year and devalue the debt by 90%. It would be catastrophic in the short term, but no more catastrophic than what Iceland went through, but Iceland is now on a solid footing, growing faster than most economies and is founded on a solid public finance base which has no debt.

Of course if Greece did that, it would reverberate through the Euro and the Euro would lose a lot of it's value, devaluing German and French wealth.

It's catch 22. The only thing that can work is the PIIGS are punished for 100 years and everyone gets to keep the loot they lent to the PIIGS in the first place.... When I hear about the divide between the rich and the poor widening, this is an absolute embodiment of it. Yet nobody ever talks about it. Taboo.... What nobody wants is for the voters to get clued in. So they just lie to them, over and over and over again. On the basis that if you keep repeating a lie then everyone will believe it....

These are the very simple and very stark choices awaiting a Syriza win. German politicians have German voters to pander to as well. How do we think they will respond? In a way which ensures votes and what have they been telling the German people for 5 years? All these spendthrifts are wasting their money and it has to stop. Nobody ever mentions where their money came from in the first place. Cute!

Just to put it in perspective that people in the UK could understand. If we had the debt that Greece ran up, relative to our GDP, it would be £14trillion. Of which we would default on 75% and then borrow £1tn from the ECB to keep rolling over our remaining debt of £3.5tn for around 15 to 20 years until we could get it under control....

That £1tn is greater than the entire QE proposed by the ECB over the next 18 months....

That is the state Greece was in and why the UK is seen as a good going concern in comparison. Ten times GDP is some party, the hangover lasts more than a day...