According to the Royal Horticultural Society, it is a bad year for UK pumpkins. A dry spring and a cool damp spell in late summer combined to cause underdeveloped root systems and mildew. Spokesman Leigh Hunt tried to put a positive spin on the situation, explaining that smaller pumpkins are easier for children to carve into Halloween lanterns.
And smaller banks are certainly easier to rescue than big ones when they get into trouble. The latest move in the European debt crisis (formerly known as the Greek debt crisis) has seen the governments of France, Belgium and Luxembourg step in for the second time in three years to rescue Dexia bank – this time because of its exposure to Greece – and provide a €90bn financing guarantee.
The rescue has actually been a positive development for the euro because investors were heartened that the bank was not allowed to fail. They were further inspired by a joint statement from President Sarkozy and Chancellor Merkel saying they would beef up the capital of European banks to make them more resilient to a default by Greece. Although the details of the recapitalisation were as sketchy as usual, investors now feel that after months of inaction somebody, at last, is doing something. But in today’s weird world, what is good for the euro is bad for the US dollar, the Japanese yen, the Swiss franc and any other would-be safe-haven currency – including sterling.
A UK survey, meanwhile, suggests that more than one-third of parents let their children snack on chocolate or crisps instead of fruit. Apparently it’s simply less hassle to give the youngsters what they want than to resist their requests for unhealthy pap.
The Bank of England has a much firmer idea of what constitutes a balanced diet, at least as far as the UK economy is concerned. Like the US Federal Reserve and the Bank of Japan it believes that near-zero interest rates are essential to the financial health of the nation. The Old Lady’s Monetary Policy Committee (MPC) lowered the benchmark bank rate to 0.5 per cent in March 2009 and has kept it there since. In all likelihood interest rates will still be down there in a year’s time. Because there would have been no beneficial effect from lowering rates any further, the mpc also decided in 2009 to increase the stock of money through the purchase of £200bn in bonds, a process completed in February last year. Eighteen months on, the MPC came to the conclusion this October that more of the same was necessary to get the economy back on track and it announced a further £75bn of asset purchases.
Although quantitative easing is a hit with equity investors – because it makes more money available to spend on shares – it is not so popular with the foreign-exchange crowd. By printing new money (and that is what it is doing) the Bank dilutes the value of what is already in circulation. It is easy to imagine that the move is a deliberate attempt to devalue the pound, with the aim of making UK exports more competitive.
It might just work, but other forces are working in sterling’s favour. Well, one, anyway. Britain has an uncontested top-level aaa credit rating. America, Japan and most of Euroland have no such thing. While a triple-A rating is not a precondition for a safe-haven currency, it does provide a level of moral support. The ratings agencies are having a field day with national ratings in the euro zone, slashing them right, left and centre. It is even possible that Germany and France will lose their AAA ratings if the Greek debt resolution process is fumbled. Although sterling struggles in the land of the blind, it still at least has that one eye.
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