by Peter Watt

No doubt we will begin to see people’s predictions for 2012 over the next few days. So here are mine.  I have two, which are inter-related and they are to do with the economy and leadership.

First the economy. You don’t need to be much of a soothsayer to know that next year will all be about the horrific state of the international economy. Much of the world, although by no means all, is teetering on the edge of recession. I am no longer sure that anyone knows either what is happening or how to sort it. Years of trade deficits in much of the West coupled with cheap credit of which many individuals and countries took advantage have produced huge instability. Add in a toxic mix of complex financial instruments that would challenge the average nuclear physicist plus a bodged European single currency. You have to ask how we never saw this coming. But it seems that payback time is nearly upon us.

The euro might collapse; it might not. I suspect that ultimately it won’t. But the next few weeks will all be about the desperate battle between countries and the markets. The chances are that the markets will win. There will be endless Euro summits that nearly make a decision and then definitely don’t.  Spain, Italy and probably France will come under pressure and the cost of borrowing and servicing their debt will rise. Germany is going to have to decide what will cost its taxpayers more – saving the euro or having it collapse. But something will have to give, because the status-quo cannot endure. Either there will be a much stronger financial union, with Germany effectively calling the economic shots within the eurozone, or the currency will collapse. Both scenarios will have huge implications for the UK, European and indeed the world economy. Even those who feel that a collapse of the euro would be the best outcome can’t really know what the immediate implications would be.

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