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So our “Dear Leader” Gordon Brown shuffled off to Paris to discuss the economic crisis with Sarkozy, Merkel  and Belisconi in a meeting at which nothing was decided – par for the course for the EU. I totally agree that the EU is an undemocratic bit of pooh loved only by the mentally challenged and those on the “EU Gravy Train” already, the UK should get out of it immediately.

However and in a sense over this meeting in Paris, one should be fair, what could they do and indeed apart from saying in effect; “This is important, so are we and together we will do important things, if we can think of them.” What else could they say ?

What is the Problem ?

The reality is that before you can design a ‘solution’ you first need to understand the problem and not only these EU ‘leaders’, but nobody else does either. Janet Daley writing in the DT is quite right about the American bailout package, it was publicly debated vigorously, the politicians did listen to their constituents unlike the EU where everything possible is done to avoid democracy and always behind closed doors. Okay but whether what the Americans did in the end is any kind of a ‘workable solution’ is highly debateable.

The key problem and Brown is the classic example of it, is that politicians cannot resist having opinions on everything and must be seen to “do something” even if the doing as the meeting in Paris demonstrates, is pointless. And of course the simple fact is that there is no politician or national Leader from any country on the planet who can solve this anyway and most actions they do take will just make matters worse for a certainty.

The Problem was Hot Money

I am no expert is these matters but my guess based upon what we already know which is that Western Banks borrowed short and lent long, makes me suspect that “American Sub Prime” is really the symptom rather than the actual disease. This money that has been sloshing around the global financial system comes mainly from China, possibly India and definitely from oil producing countries and represents their trade surpluses with the West that they cannot invest domestically.

Rather than buying into businesses and ‘opportunities’ in the West through equity participation they have put their cash into the market on a short term loan basis, hence the major problem.

Rather than bailouts, it might have been more effective to just shut every Stock Exchange in the World down for a week to allow people to cool off because people running round like headless chickens only makes things worse, the thing needs to play itself out and politicians need to learn the art of “masterly inactivity”. As this crisis seems to have been caused by human greed and stupidity combined with Governments like ours being asleep on the job, it is most likely that only human greed and enlightened self interest can resolve it.

Would the UK Be Better Off in the Euro Zone ?

The strength of the Euro is wholly dependent upon Germany and the German economy, as a currency the Euro is an oddity that could implode at anytime because of its “one size fits all” construction as opposed to reflecting the actual economic diversity of the Euro Zone. The Euro was a political rather than an economic project so if things get bad, Germany could “bail out” and return to the Mark, the Euro would collapse immediately as I am sure most would agree.

In comparison, the UK having its own currency which floats on the global market, could easily issue blanket guarantees on personal savings and all that might happen would be a devaluation of the £ Sterling which may not be such a bad thing. As in getting kicked out of the ERM, such devaluation would give a lot of immediate pain but it would be short lived unlike the current prognosis which may be a decade of pain with people locked into negative equity properties.

So, being outside of the Euro Zone is actually a big benefit to the UK and gives a lot of flexibility if, the current Government has the wit to use it. Too early to say because both here and across the Globe currently, people, Financial Institutions and Governments are trying to cling to ‘yesterday’ which is silly because it was based on overvalued capital assets that need to be “written down” immediately, devaluation, inflation, take your pick.

In the end it will all pass away because like water will always find its own level, so do markets and once the capital to earnings ratio is back in kilter, we will all be ready to start again.