Britain's mood of excessive 'Panik'
Commentary: Normally cheery U.K. digging in for years of gloom
By David Marsh, MarketWatch
Last update: 12:01 a.m. EST Jan. 26, 2009
LONDON (MarketWatch) -- The Germans are the ones in Europe who, over the years, have given their names and their language to descriptions of psychosis and depression, to extreme mood swings between sky-high euphoria and stomach-churning anxiety.
The British on the other hand, especially when it came to economic behavior, were always supposed to be the happy-go-lucky, devil-take-the-hindmost incarnations of their American cousins.
In a prime example of European mood interchange, the British and the Germans seem to have swapped character traits.
The Germans -- or at least their shoot-from-the-hip economics minister Michael Glos -- are starting to talk of a renewed upturn setting in as early as April, while the British are digging themselves in for years of gloom.
Britain's psychological rollercoaster has been remarkably abrupt. Not so long ago, Gordon Brown, as chancellor of the exchequer, was talked up everywhere as a world-class economic leader, especially by Brown himself. Sixteen uninterrupted years of economic growth, all thanks to the magical power of the Labour party.
Over the last year and a half -- and certainly since the renewed downward tilt in the international economy since the start of 2009 -- the U.K. has been engulfed by dark clouds.
The pound has been falling, almost without respite. Already rescued once last October, the banks are getting bailed out again. Politicians and pundits speak of forced nationalization, of Icelandic or even Zimbabwe-like conditions. A new race of doom-mongers has risen from the shadows, led by big-mouthed hedge fund managers and economics professors of dubious provenance.
Of course, this picture of near ruin has nothing to do with now-Prime Minister Brown, the government says. It's all because of the mistakes of the Americans, the arrogance of the Chinese, the crassness of the Germans and the idiocy of the banks.
Quite clearly, British authorities have committed errors. The most grievous was the ending of the ban on short selling of financial stocks on Jan. 16. That happened just as the banks, in particular the Royal Bank of Scotland, were about to announce eye-watering losses for 2008.
This was akin to putting man-eating lions on a starvation diet and then taking a party of orphans to clean out their cages. As a recipe for generating self-fueled stock price movements, sending bank shares into a tailspin where nationalization may be the only way out, it can hardly be trumped.
But surely all this British Angst, Panik and Götterdämmerung is going a bit too far? Interestingly, at a time of sharply widening credit spreads on European sovereign debt, British government 10-year bond yields are still 0.1 to 0.2 percentage points below those on French bonds.
That's a sign that international investors still have a modicum of long-term confidence in the U.K. The constant bombardment of British bad news is starting to produce some wildly exaggerated effects. I would stick to my prediction that, within 12 months, especially against the Euro, the pound will look a lot less sickly than today.
David Marsh is chairman of London and Oxford Capital Markets. The Marsh on Monday column appears in German in the newspaper Handelsblatt.
www.marketwatch.com/news/story/...DB98B174E%7D&dist=TNMostRead
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