September 5th 2011 – “Abandon ship!”

If you could hear the sound of breath being held, as we await the next instalment in the ongoing drama of “Making the Euro work; a fine piece of fiction”, it would be deafening. The German election results show conclusively that la Merkel is fighting a losing battle (likely to be confirmed by the German constitutional court later this week), the IMF team have left Greece totally unconvinced that the Greeks are in any way serious about cutting their deficit and the Italian finance minister, Guilio Tremonti, has unexpectedly returned to Rome; not I suspect, as one wag put it, because “one of his mistresses is pregnant”.

Normally on a Monday when Wall Street is shut (today is “Labor” Day in the States, following with much irony some dreadful “employment” numbers on Friday) European markets drift sideways, but today they are down hard, lead yet again by the banks after their euphoric dead cat bounce of only a week ago. In the UK the “People’s” Bank of Scotland (and they are welcome to it) is off 12%, UniCredito and Intesa are both minus 6%, Soc Gen is off 8% as is Deutsche Bank. And you still can’t short European financials; yet another entry in the Book of Duff Ideas from EU Politicians now encompassing ten volumes…

It is now time for the politicians to get serious or the markets will do it for them. And please let’s not have any clap trap about “rocking the boat” in case confidence in the financial system is undermined. It’s been mined and torpedoed already, the crew have started to mutiny and there is an Excocet (they are made in France by the way) approaching off the port bow. Bailing out the boat has been a dismal failure so now is the time to “bale out”, but unfortunately there aren’t enough parachutes to go around, if you can bear my mixing of sea and airborne metaphors!

There will be casualties and it’s no use pretending that because the UK is not a eurozone member it won’t affect us. Our only slim advantage is having a “pound in our pocket”, but how much will that be worth given that it is just another fiat currency backed by absolutely nothing? Along with your gold bars (you have got some haven’t you?) I hope there is more than one tin of spam in the larder…