It\u2019s a little weird.\u00a0 Central London is booming.\u00a0 Fancy restaurants are packed on Tuesday night.\u00a0 Puny Chelsea townhouses sell for $8 million.\u00a0 Tourists throng Picadilly and Regent Streets.\u00a0 Chippendale mahogany and Tudor oak sell briskly at the BADA antiques fair. \u00a0You\u2019ll find more Italian shops in the Knightsbridge fashion district than the Piazza della Republica.\u00a0 Chic Sloane Rangers and their immaculately clad kids, walking to school past ornate Victorian mansions, look like they stepped out of a Ralph Lauren ad \u2013 all they need is polo mallets and an Irish setter.<\/p>\n
But, back in the hotel, the telly tells a different story.\u00a0 On BBC and CNN it\u2019s all gloom and doom\u2014talk of a triple dip UK recession, intractable budget deficits, a bond rating downgrade by Moody\u2019s, the Tories \u201cstaying the course\u201d with politically suicidal fiscal austerity.<\/p>\n
Why the Disconnect?<\/b><\/p>\n
To some considerable extent London is more tied to the global than domestic economy.\u00a0 It attracts tourists from around the world.\u00a0 Capital flight from France, Russia and the Middle East supports real estate values and high-end consumption. Many multinational companies select London for their EMEA (Europe, Middle East and Africa) headquarters because of its convenient time zone, propinquity to Africa and the Middle East, historical ties to emerging markets (imperialism\u2019s afterglow), sophisticated financial system, and appealing lifestyle (weather notwithstanding). As an extra double bonus, the lingua franca<\/i> of global business is English, and Britain doesn\u2019t use the Euro.<\/p>\n
But if London, which constitutes a big slice of the UK economy, is booming, then why isn\u2019t the overall economy doing well?\u00a0 To read the Financial Times<\/b> and New York Times<\/b>, it\u2019s all about misguided fiscal austerity.\u00a0 Rather than revisit that tired topic, consider some other factors weighing on growth.<\/p>\n Why Should We Care?\u00a0 It\u2019s Not All About the Euro<\/b><\/p>\n For investors a basic question is: \u00a0How much of Europe\u2019s economic malaise can be attributed to a dysfunctional currency, and how much to structural problems such as adverse demographics, excessive government spending and regulation, and a misguided energy policy?\u00a0 The case of Britain suggests that structural problems are critically important. After all, Britain does not have the Euro and benefits from London\u2019s prosperity, and yet the economy languishes.\u00a0 Some of the weakness can be attributed to cyclical problems (such as consumer debt) that should correct over time, but the structural problems are deep-seated and impossible to solve without a lurch toward economic freedom that seems unlikely.<\/p>\n Which makes it hard to be bullish about a European economic revival\u2014particularly because debt phobia prevents Germany from doing its part. While the Eurozone desperately needs a step-up in demand from its solvent \u201clocomotive,\u201d Germany is rushing to balance its budget ahead of schedule even though it is under-investing in infrastructure<\/b> to the point that the Kiel Canal (which links the Baltic and North Seas and is said to be one of the most heavily trafficked canals in the world) was shut down recently because two locks broke due to inadequate maintenance.\u00a0 The truth is\u00a0 that you can\u2019t have currency integration without financial, fiscal, political and social integration, and Europe is not there yet\u2014not even close.<\/p>\n Copyright 2013 Thomas Doerflinger.\u00a0 All Rights Reserved.<\/p>\n","protected":false},"excerpt":{"rendered":" It\u2019s a little weird.\u00a0 Central London is booming.\u00a0 Fancy restaurants are packed on Tuesday night.\u00a0 Puny Chelsea townhouses sell for $8 million.\u00a0 Tourists throng Picadilly and Regent Streets.\u00a0 Chippendale mahogany and Tudor oak sell briskly at the BADA antiques fair. … Continue reading \n