Cover of MoneyWeek Magazine issue no 485

The euro crisis

7 May 2010 / Issue 485

What should investors do now?


  • Why stricter rules are good news for big tobacco
  • What we can learn from the Germans
  • Our fastest-growing fashion empire


I don’t envy the winners

As I write, I don’t know for sure who will be leading our new government. But I do know that I really don’t envy them. Why? Because for the next decade, running Britain will be about one thing: managing our deficit. With our national debt already at nearly 70% of GDP and rising to the tune of 12% of GDP a year, the person in charge will have a lot to do – if they have the strength to do it, which they may not.

Look at Greece. The third general strike in as many months this week meant that planes, trains and ferries stopped moving while most schools and hospitals shut down. Worse, three people died when protestors set fire to a bank in Athens. The austerity measures haven’t even begun to kick in and already there’s blood on the streets.

The point is that raising taxes and cutting spending into a fiscal emergency is a political night-mare. Do it and you risk hideous unrest. Don’t do it and you risk bankruptcy. Still, for most govern-ments, bankruptcy in a few years is a more attractive option than blood in the streets right away. So they take what GMO’s Edward Chancellor, writing in the FT, calls “the path of least political resistance”.

They keep spending and building up fiscal deficits. Then in the end they default. Odds are that that is what Greece will do in the end – unless the European Central Bank relents and allows much looser money and inflation to bail them out.

But what of us?

• Read the full editor’s letter here:
I don’t envy the winners