The debate is getting more heated by the day. One minute, European Central Bank (ECB) head Mario Draghi is preparing the ground for full-blown quantitative easing (QE) to try and dig the eurozone out of the depression into which it seems to be slipping. The next, a senior official at Germany's central bank, the Bundesbank, pops up with a robust defence of thrift and sound money, and dismisses talk of money printing as idle speculation.
One way or another, the debate will eventually be resolved, and the eurozone will be on tenterhooks until it is. Looking over from London, however, we can relax about what is going on in Frankfurt. Why? Because this is a win-win situation for the UK. If the ECB launches QE, much of the money created will spill over into Britain. But if it doesn't, the eurozone will be plunged back into a crisis and money will flee to the closest safe haven, which happens to be us.
Win
In the course of 2014, the eurozone's woes have grown from what looked like a few debt problems in the peripheral countries into a wider economic crisis. The economies of France, the Netherlands, and now Germany, are stagnating. Greece and Spain are suffering outright deflation, and France and Germany are also close to seeing prices fall, with all the catastrophic consequences that will have for nations that are already heavily indebted. Unemployment is still rising and industries are still losing competitiveness. And there is surely the nagging realisation that this is all happening at a time when the global economy is doing relatively well. When the global economy turns down, as it will at some point, the eurozone could plunge into a worse crisis.
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Even so, there is little agreement on how the ECB should respond. Draghi has been urging both a loosening of fiscal policy (ie, more government spending), and a blast of QE. After last week's council meeting, he promised the ECB would act soon, possibly as early as next month, to stop the continent slipping into deflation. But the Germans have been resisting. Bundesbankboss Jens Weidmann warned that QE probably wouldn't work in Europe in the same way that it has in America. Draghi retorted that the ECB council does not need agreement from all its members to start the presses rolling, implying he would overrule the Germans. Yet if he goes ahead without agreement, he may face a legal challenge. There has even been speculation about Draghi being ousted, or resigning from an increasingly impossible job.
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In the UK, our natural reaction is to look at the chaotic way policy is being formulated in the eurozone and despair. Europe is our biggest export market so we fret that as long as its economy remains depressed, we will struggle to maintain our current momentum. But in fact, we will probably be the main winners from the arguments in Frankfurt. Either the ECB presses the button on QE, or it doesn't.
If it goes ahead, what happens next? Economists will probably spend the next 50 years debating whether printing lots of money creates genuine growth or not. But there are two things we know for certain. The first is that it boosts asset markets. And the second is that it spills out of the country where the money is printed after all, we live in an open global economy, without any currency controls, and once you start printing money you have no idea where it might end up.
So when the Japanese started printing money, much of it flooded into Europe and the US. And when the Federal Reserve did QE, a lot of that cash ended up in emerging markets. The same thing will happen in the eurozone. The money won't necessarily end up in Italy or Spain, even if that is where it is most needed. Where will it go instead? All over the world, probably. But as the UK is the largest developed economy close to Europe, a lot of it will certainly wash across the English Channel, and end up boosting our property and stockmarkets.
win
The markets have already priced in QE, and the bond markets take it for granted. Italian and Spanish ten-year yields are now below 2%. That only makes sense if you assume the ECB is going to wade into the market and buy all that paper from you. If the ECB doesn't, those bonds will be dumped faster than one of Taylor Swift's boyfriends. In short, the eurozone will end up back in crisis.
If that happens, money will flee into safe havens. Italian and Spanish and French investors will get out fast. Gold will benefit, and so will the Swiss franc. But the most obvious safe haven will be the UK, just as it was during the 2011 crisis. All those wealthy Greeks who were buying London property will be back, as will many other Europeans. Even the higher rates of stamp duty won't deter them. When they aren't buying property, they will buy stocks and bonds solong as they are in sterling, not euros.
So we should sit back and relax amid the eurozone squabbles the UK will come out ahead whatever happens.
