In his interview to BBC Business Editor Robert Peston, Great Britain’s former Prime-Minister Gordon Brown forecasted a new wave of crisis of the single European currency in early 2011. He believes that the first couple of months of the coming year promise the Euro a rapid growth till it reaches ‘its ultimate prime’ later to be followed by a substantial decline. This will involve more than simply problems of sovereign debt of Eurozone nations.
What are Gordon Brown’s estimates based on?
According to former Prime-Minister Gordon Brown, who also served as Great Britain’s Chancellor of the Exchequer for ten years, European banks should:
* get rid of the monstrous amount of debt as soon as possible (it includes loss-making assets and deficit of domestic capital for coverage of expenses);
* develop more structural flexibility as far as the single European currency is concerned.
The debt situation where banking institutions of Europe have recently ended up in, including many British entities, can soon result in a banking crisis of all over Europe, according to Mr. Brown. Its dangers become obvious when one remembers that the US banking crisis made a sizable contribution to the global economic recession that the world started recovering from over the past couple of months. Besides, one shouldn’t disregard recent statements by the Irish opposition which insists that the European Union's administration literally imposed a campaign for rescue of Irish banks on Ireland in an attempt to avoid the likely pan-European crisis by all means.
What will happen to the Euro?
As far as the Euro is concerned, Mr. Brown believes that its structural reform hasn’t been coordinated yet within the Eurozone:
* This prevents genuine development of the single currency. The matter is that gloomy expert forecasts made during the introduction of the single European currency are currently coming true: in order to enter the European Union, developing economies should have a much more flexible labor market than that of developed European nations and, as such, be able to maintain their competitiveness because admission of the Euro automatically puts an end to such a mechanism of economic self-regulation as devaluation of the national currency.
* The former British Prime-Minister warns that financial markets can ‘gnaw round' Eurozone’s nations one by one as a result of processes currently under way. So, now it is important, as never before, to have time and ‘take over the initiative from the markets’ and take comprehensive measures as soon as possible to solve problems in the financial and economic spheres of the EU. It is especially important to ensure that these problems are resolved at the same time. Otherwise, a misbalance in implementation of preventive comprehensive steps to weaken the Euro can provoke ‘a period of low economic growth and high unemployment rates and a degrading quality of life’ in Europe.
This scenario will also negatively affect Great Britain’s economy even though it isn’t part of the Eurozone because 60% of the total British trade is with Europe.
What does it take to solve global financial and economic problems?
In terms of dealing with global financial and economic problems, Gordon Brown is convinced that the single global strategy of economic growth must be approved. “The global financial system regulated by national regulators has never demonstrated efficiency”, - as he points out.
Mr. Brown shows a way out:
* creating an international ‘constitution for the banking sector” which will prevent transition of the banking business to ‘the shadow’ or countries with less strict regulations of the banking industry. Banks in general are prone, according to the former Prime-Minister, to manipulate with real data related to their activities, for example, by concealing true information about financial risks.
* as an example, he referred to a couple of banking institutions (Lehman Brothers, Northern Rock, Halifax-Bank of Scotland, Royal Bank of Scotland) accused, this way or another, of understating risks and financial problems.
Answering BBC Business Editor’s question of what results his work in the government brought about Mr. Brown, former Prime-Minister and the Chancellor of the Exchequer, said that they managed to avoid another occurrence of the Great Depression, including through his own effort – the drastic and comprehensive measures of financial and economic nature that he suggested and introduced at the height of the economic crisis stopped the economy from being ruined. Besides, as he put it, he has been advocating optimization and unification of financial regulation worldwide for many years.
Gordon Brown called today’s administrations of Great Britain, Germany and the Republicans in the USA, albeit implicitly, ‘modern Orthodoxies in economy' criticizing their policies of ‘mere reduction of deficits and hopes for return of investments’ with tools used during the Great Depression of the 1930s.
BBC Business Editor Robert Peston believes that Gordon Brown’s position is interesting, on the one hand, because he still keeps his finger on the pulse of all intra-European political and economic events, and on the other, he ‘expresses what many members of the British government have on their minds but never say’.
In turn, VTB24 Analyst Aleksey Mikheyev believes that statements of the former British Prime-Minister indirectly support the idea that the debt crisis in Europe is a political rather than economic process. Changes under way today can be believed, according to the expert, to be symptoms of the transitional period, discovery of disproportions within further integration of the Eurozone even though he agrees that Euro might fall against the dollar to 1.20. At any rate, this all will play into the hands of the European and, to a degree, American economy. Mr. Mikheyev points out that even if there is a losing party it will be China which has the EU as the main market for exports.
Where will the Euro head?
The beginning of the last month of 2010 was marked in the EURUSD chart by a powerful bullish (rising) wave which completed the steady fall in place during entire November. What is this: a reversal of the medium-term trend and continuation of the bullish long-term trend for a stronger Euro or just a pullback in the ongoing rapid depreciation of the European currency? Analysts of the Faculty for Learning of the Masterforex-V Trading System within the Masterforex-V Trading Academy point out that the answer to this question lies in the currently forming wave - the MF Moment of Truth – which will show the potential for further developments: either a break from the upper boundary of the range (1.3416) and formation of an H8 Fractal-Zigzag Reversal or a break of the lower boundary (1.2968) and continuation of the bearish (falling) tendency.
A survey: In your opinion, is Europe in for a new spiral of crisis?
* I agree with Gordon Brown, Europe is in for a new spiral of crisis;
* no, the crisis is over, the EU and global economy overall have started recovering.
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