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12/22/08

TimesOnline: British Expats in euroland shouldn't get depressed - by Rosemary Righter

For the complete report from the Times Online click on this link

British Expats in euroland shouldn't get depressed - by Rosemary Righter

As for the 20 per cent fall of the pound against the euro, an overlooked factor is that, reflecting stronger growth in the UK than in core eurozone countries, the pound has been extremely strong in recent years (too strong, in terms of purchasing power parity, making London the most expensive city in Europe). The higher you climb, the farther there is to fall. When the City hit the rocks this autumn and “No more boom or bust” turned into “No more boom. Bust”, sterling was heavily hit. Logically enough: the UK's heavy reliance on financial services made it likely that it would suffer a particularly severe recession. In addition, investors were alerted to just how much of that seemingly impressive growth had been buttressed by public borrowing and a three-fold increase in household debt. The final straw, though, was yet again interest rates: once the Bank of England slashed rates to 2 per cent with further cuts expected, sterling assets looked decidedly unattractive.

Brits living in continental Europe have to put up not only with shrinking wallets, but a touch of condescension. The French feel vindicated in their distrust of le capitalisme sauvage (which really means distrust of capitalism). After a decade enduring lectures from Gordon Brown about their earthbound economy, the Germans are being less than tactful about their views of his housekeeping. And here in Italy, La Stampa gleefully calculates that, at the current exchange rate, Britain's GDP was lower than Italy's.

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