JLA What will it take to stabilise the markets – or will instability become the norm?
RB The markets are facing the most uncertain and probably the direst economic environment since the 1930s. They are bound to be volatile.
JLA How much progress do you see towards fiscal union in 2012?
RB This is a make or break time for the Euro. You can’t just conjure up fiscal union. It will take ages to sort out. The best hope is a holding operation involving governments, the ECB and the IMF while negotiations about a full union take place.
JLA How many Eurozone countries will there be at the end of 2012?
RB I don’t know. My best guess is that two will have left, but it’s possible the number will be much larger, or even that the Euro will have ceased to exist.
JLA What are the dangers (and upsides) of fiscal union from a UK perspective?
RB If fiscal union led to a stronger European economy, that would be good. But on its own, it would do nothing about the competitiveness of peripheral nations and it might entrench current German over-saving. There are also big dangers of isolation for the UK.
JLA What effects would Chinese investment have in the Eurozone – and on the UK?
RB It all depends upon the terms. I don’t believe in the Chinese version of the fifth cavalry. They are not a charity.
JLA Once it drops, do you expect inflation to stay down throughout 2012?
RB Yes. It will drop sharply next year and further in 2013. Deflation is the greater danger.
JLA Do you expect the UK to return to recession in 2012?
RB Yes.
JLA What policy decisions will the Chancellor face in 2012?
RB He’ll have to decide whether to stay the course or try to stimulate spending; whether to sanction more QE, and whether to try to get the pound lower.
JLA What economic shocks might still be lurking on the horizon?
RB The break-up of the Eurozone, wars and instability in the Middle East.
JLA Can protest movements conceivably affect regulatory or economic policy?
RB Yes, if they gel with the public mood and the intellectual climate.
JLA Do you see any prospect of an Olympic, or even a Diamond Jubilee ‘bounce’?
RB No, the amounts are peanuts and they will be overwhelmed by macro factors.






















