Score One for the Brits - Rodney Johnson / HSDent (12/19/11)

Ten days ago the European Community (EC) met in an effort to hash out a deal on saving the euro.  The meeting in and of itself is interesting because the euro is the currency of only 17 countries in what is called the euro zone, which is a subset of the 27 countries in the EC.  One of the largest and most influential members of the EC is Great Britain, who chose not to join the common currency, instead retaining its autonomy when it comes to monetary policy.

The meeting on Dec. 9 produced an agreement to impose automatic sanctions on members that break the budget rules, but it’s not the agreement that was interesting, as that will surely mean nothing in the months to come.  It was the dissent of Britain, which refused to agree to the terms being dictated that caught our eye.  One of the way the EC wanted to pay for a bailout of the euro was with a tax on financial transactions.  Given that London is a financial nerve center of the world, this tax would have fallen disproportionately on the Brits, even though they are not part of the euro.  The Brits gave the measure a thumbs down, and in doing so they tried to change the deal on the table.  Instead, the Brits were isolated, with 23 of the 27 countries agreeing to the measure and 3 more listed as “possibles.” The Brits were on their own.

Were that we all were British.

With high unemployment, a flagging economy, a wheezing health care system, and a difficult road ahead, the Brits have chosen to shore up their currency and their credibility in the financial world.  They have engaged in a bit of quantitative easing, no doubt, but they are doing their best to balance the interests of their savers with that of their general population.  The Brits are asking the members of the euro zone to do their part and save their currency largely by their own measures.  This put the French into pout mode.

Look for the pound Sterling to rise in the months ahead against the euro, and long term expect it hold its own against the US dollar.  The Brits did not gain world dominance by being bad at math, and there is a reason that London remains the financial center of the world, while Brussels is a mish mash of ideas and programs.