From 'nice' to 'vile'
A calm view of the markets
JLA: When will the markets stop betting against Eurozone countries?
JUS: 17 fiscal/tax systems and one central bank was never going to work, without clear disciplines and rules. Of course they originally had fines and sanctions - but decided to waive them! The alternative is to break up the Euro into a core group (the 'Neuro'?), with or without a secondary group of weaker nations operating at a sub value - just as South Africa had both a domestic and an overseas Rand.
JLA: How well do you expect the economy to withstand public sector cuts?
JUS: Much depends on a properly functioning banking system with more competition and more lending at the right price. We carried out surgery to get Northern Rock into shape very quickly, but RBS and Lloyds have only had Savlon and sticking plaster - reform and action is needed!
JLA: Are the right policies in place to rebalance the UK economy?
JUS: Remarkably the UK is still the world's 6th biggest manufacturing nation - not that you'd know from the media. Government initiatives must focus on our strengths as a nation of small companies. For example, why not get rid of Stamp Duty on property transactions, which would generate far more revenue in VAT from people doing up their new houses?
JLA: Is this a good climate for mergers & acquisitions?
JUS: Yes, but unlike the last cycle it wont be based on borrowings and debt. Many companies are cash rich and have paid down debt, so they're in a good position to pick up weaker competitors.
JLA: What other shocks might be lurking on the horizon in 2011?
JUS: Lots. The rise of protectionism as the US and others put up defensive trade barriers. In a different vein some European banks may have been baled out, but they still have funding to roll over, which could prove fateful. And whilst I don't see China as one huge bubble, it is rather like a bar of Aero with lots of smaller bubbles - some of which will almost certainly go pop.
February 2011
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