International bankers and finance ministers warned that Europe’s crisis was not over and that it will take years to overcome economic malaise and mass unemployment in Europe.
The world is not only polarizing into ‘haves’ and ‘have-nots’ but also into economic optimists – those who believe we are turning a corner – and pessimists – those who do not.
Swedish Finance Minister, Anders Borg, recognized this divide between the optimistic financial markets and the people in the real economy. Financial market optimism that the risk of a break-up of the euro is over might have got ahead of itself.
This note of caution was echoed by the incoming Bank of England governor, Mark Carney. Understandably reticent at present, he did go so far to say that the next two years will be decisive for bank reform.
Shadow banking and the issue of ‘too big to fail’ would be tackled. The 2008 crisis would be repeated if unregulated financial activities – blamed for amplifying the meltdown – went unchallenged, he said. He also said that contrary to some reports, tail risks – essentially worst-case scenarios – in Europe and the United States remained.
In his most important comment in terms of its immediate impact on housing and the home finance markets, Carney said he was keen to ensure that the major economies achieved ‘escape velocity’ (a physics term applied to economic policy making it sound more plausible and achievable).
Carney explained that there is plenty of room within a framework of flexible inflation targeting for central banks to achieve monetary stability. Countries that were above their inflation targets should take time to get back down to it, especially if the domestic recovery was facing fiscal and other headwinds.
This is much the same line as the current administration and points to low interest rate policy for the next couple of years. London interest rate swap markets in January 2013 suggest the bank rate will rise in the second half of 2014. We will continue to await the remortgage boom.
Robin Johnson is managing director of KFH Chartered Surveyors
