The UK faces a long uphill battle that is only just beginning

The above table was spotted on zerohedge recently and it paints a sorry picture of indebtedness for the eurozone, especially the United kingdom. The focus of attention for the ratings agencies, S&P, Moodys and Fitch, has been on the club med nations who should have been valued as junk years ago, in our humble opinion. However, we need not pay too much attention to these three particular agencies as they have missed the boat so many times its laughable.

The economic activity in Europe is slowing down, weighed by the woes of the debt mountain which will in turn affect its trade with the UK in an adverse manner. As the solution to debt appears to be economic growth, then a stagnating economy will scupper the UK's chances of balancing the books in the next decade or so.

The yield on 10-year government bonds, is only 2.1%, lower than that of Germany, which looks to us like an aberration about to be corrected. When the downgrade comes the cost of servicing all that debt will rise dramatically, and the deficit will require more tightening of the fiscal belt.

Now throw in the looming general strike and the UK's inflation rate of 5% plus and things are starting to stack up against the Brits. More austerity, more anger, more industrial action, less production, rising costs, the growing lack of competitiveness and its not a pretty sight.

Its a bit like a bonfire waiting for an ignition and that ignition could be the much vaunted, by the eurocrats, financial transaction tax. A tax on the single largest element of Britain's economy could cause irreparable damage. The 'business' would up stumps and relocate to somewhere more considerate of their requirements. The same goes for the rest of the banks in Europe, if they are to remain competitive then they to would have to think about an alternative solution to merely passing costs onto their customers. Lets face it, the customer wont wear it if he doesn’t have to.

It all it comes back to the problem of political solutions, politicians look for ways to increase revenues rather than getting the costs down, including their own. How unthinkable it would be to suggest that we reduce the number of bureaucrats or reduce their pay or trim their pension schemes, nope, that will not happen.

The UK faces a long uphill battle that is only just beginning.

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