Belfast Telegraph

Wednesday 30 July 2014

The future...? It’s not what it used to be

Markets and politicians will decide euro's future

Traditionally, this was the time of year when commentators gave their predictions for the year ahead. The braver ones would even look back to see how well they had done the year before.

All good festive fun and, of course, it came but once a year. In these faster-moving times, there is a continual demand for soothsaying. Unfortunately, there could hardly be a worse time to be trying to say a sooth.

Pre-Christmas visits to the pub were remarkable for the number of people asking me what I thought was going to happen. Either that or berating me for being wrong in previous predictions which, to the best of my memory, I never made.

It transpired that what these people really meant was not that I had made predictions which turned out be wrong, but that I had failed to make the correct one. Not knowing the future is now widely taken as a sign of inadequacy.

This kind of confusion has moved well beyond slightly inebriated conversations. There was a deal of controversy over the awarding of the 2011 Nobel Prize for Economics to the US economists Thomas Sargent and Christopher Sims, of New York University and Princeton respectively.

Prof Sargent's speciality has been “rational expectations”. Critics say this is pseudo-science and, worse, that it leads people to believe the future is predictable. Equally eminent defenders of Prof Sargent say this is not what his work means at all.

The critics may well be unfair to Prof Sargent, but there is no doubt the place used to be full of people claiming to assign very precise probabilities to future events.

The nadir was probably those TV programmes which promised exact numerical returns on property investments.

The Delphi Oracle had it right, always be possibly right. The most famous story is of the king who asked its opinion before battle and was told a great empire would be destroyed. Off he went happily, but it turned out the defeated empire was his, not his opponent's.

One could have lots of fun with this sort of thing. “A great currency will fall.” Indeed, but will it be the euro or the dollar?

“The Irish economy will see great change in 2012.”

Just don't say in which direction.

I saw the head of foreign-currency strategy at HSBC sticking his neck out, sort of.

“The options are either recovery or disaster,” he said.

Even that depends on how one defines recovery. A plausible prediction for 2012 is that of the great Scottish master of doggerel, McGonagall: neither better nor worse, but just the same.

That seems to be the view of the markets this week. The belief that their actions are the best predictors of the future may have been debunked by the Crash but they do influence the future. Between them, they and the politicians will decide the future of the euro.

A collapse of the euro is no more a victory for the “markets” than its survival would be a defeat.

The euro will stay much the same, not in value, but in membership and structure, as another series of borrowing crises, summits and new rescue mechanisms rumble on.

December gave the Irish government the shadows of Budgets Yet to Come. Like Scrooge, ministers had better learn the lessons that it taught or they too will come to a sorry end.

My prediction is that unless the Irish government can change and find a more convincing narrative for policy in 2012, recovery even in 2013 may be too late for it.

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