It's time I did my annual review of real
estate in the world.
Unfortunately, the world is full of politicians who are not
concerned with their voter's needs, and have a particularly
low IQ quotient. However you look at things the average
politician across the length and breadth of Europe is
hopelessly incompetent. In the UK we are cursed with a
particularly boring bunch of complete incompetents. The labour
party is living in some hazy historical backwoods which has no
relevance to the twenty-first century. The conservative party
is committing suicide.
How they are managing to screw up
Brexit is beyond me.
They have an opponent (sadly, that is how the situation is
seen) in Europe that is itself committing suicide. Europe is
about to implode, and the UK government can't even stand up to
an opponent that is in complete disarray, and effectively on
the ropes.
Because of all this anyone who makes any predictions about the
next twelve months probably needs to be certified. But, never
mind predictions, what the heck is going on right now?
Brexit is really a side show. I don't think much will
change, but I am assuming that some common sense will prevail.
That is maybe a long shot. Probably the most obvious outcome,
if that is the right word, is that the confusion will just go
on and on.
What will be a major show is The Italian Job. Or will it be
the Australian property market debacle? Or will it be rising
interest rates? Or will it be the collapse of China, or maybe
even a war between China and the USA? The problem is, that
there are so many problems in the world today it is impossible
to say which one will hit the fan first, or which will cause
the most disturbance across the planet.
Let's start with
Brexit, which is the closest to home.
I take the view that
Brexit won't change anything. It
is in too many people's interest for things to coast along
pretty well as they are now for there to be much disruption.
The Germans want to sell their cars to the Brits. The French
want to sell wine and electricity to the Brits. The Spaniards
want Andalucia to be supported by the British ex-pat
community. Portugal has already said it wants to do business
with the Brits, after all, most of their foreign currency
comes from Britain. And so on, and so on.
I am completely ignoring
Brexit. I lived for decades
in Europe before there was an EU. It didn't affect me one jot,
and I don't expect whatever the stupid politicians have to say
will make much difference now. Trade will rule the day, and
the folks of Europe need to trade with each other. It is, in
any event, to the Brits advantage to
trade with the US and
China, which are the largest economies on the planet,
rather then foster
trade with the EU, which has been a
diminishing market for the past twenty years. Depending on
which stats you follow the UK's trade with the
EU has
dropped in the region of 25% this century, and the
EU
is economically on its knees, so there is no sign of growth
there.
Let's move on to something more important. As I write the
Italian government has refused to re-draw their budget, which
calls for massive spending, and a complete flouting of
eurozone finance rules.
During the first week in December the
EU will respond
to Italy's position. I don't see what way the response can do
anything but worsen the situation. And what is the point of
fining Italy for flouting the rules? Italy is broke and can't
possibly pay any fine. To slightly adjust an old saying: Italy
has nothing to lose but its chains.
We are now told that the two sides are in constructive
discussions. I'm not sure if that is supposed to raise a
laugh. Maybe that debacle will run and run rather like
Brexit.
One thing the Italian question does show, and that is that a
country without control over its own finances is no country at
all. The UK was about to vote to lose control over its own
budget, and its own economy. Fine, if you think that is a good
idea. If you think so, perhaps you should look at Greece, look
at Cyprus, look at Italy, France, Spain. All of these
countries are in ruins because they have no control over their
own finances. But let's stick with Italy for the moment.
In the middle of December the ECB could well have to stop
buying Italian bonds. That will leave Italy with its main
creditor out of the market. Interest rates in Italy could well
go through the roof. What's that going to do to the country's
finances? What is that going to do to the banking system? And
what is it going to do to the folk in the street? This is
serious.
Italy is broke. Italy cannot balance the books unless
it does so by going further into debt, which worsens the
situation. We are already at the point of no return. Either
Italy gets control back over its finances, or you might as
well say Italy no longer exists as an economic unit. As a
non-Italian you may not care. My feeling is that Italians are
going to care very much. There is real trouble ahead here.
The ratings agencies could well downgrade Italian debt. The
Germans could well insist on capping Target 2 repatriations of
deficits. Or maybe there will be more and more fudges. And
that is where we are in terms of looking forward. I think we
can confidently view the future as a continuing mess where
everyone is pretending that problems can be solved whereas we
all know they can't, and that the real problems are simply
being covered over with the pretence that if they are covered
we can't see them any more.
The trouble is, what is happening in Italy right now has
already ruined Greece and Cyprus. Greece's economy has shrunk
by 25% just over the past few years. Cyprus is already in the
same boat. Spain and France are rapidly heading in the same
direction, and both those countries hold significant amounts
of Italian debt, so they are ripe for financial collapse even
without any help from their struggling internal economies. (I
will deal with the French disturbances next week.)
In May the
EU parliamentary elections take place and
it looks as if the main parties are going to get trounced. The
latest news to cross my desk concerns the various uprisings in
France. The French economy can no longer support the cost of
the French government, and that is a picture that is showing
all across Europe. Italy is not the only major economy that
can no longer support itself.
The question for the French is: at what stage does France
descend into the same mess that Italy is now experiencing?
Already over half the French population dislike the current EU
stranglehold.
Let's stop there for this week, and take a closer look at
France next week, but if you want to buy real estate in Italy
I suggest you visit a psychiatrist first as there has to be
something wrong upstairs.
As I have said before, buying property in a country is the
equivalent of investing in that country. Would you invest in a
company that had the same economic prospects as Italy? Of
course not.