This is the next in my end of year series
on prospects for real estate across Europe.
I generally look at simple metrics, such as
general economic activity which would support rising wages,
because most houses are bought with mortgage funds, and
mortgages have to be paid out of wages. If wages are stagnant
or sliding then house prices will tend to mirror that
Okay, let's cut to the reality across Europe.
In the UK wages have been slowly rising now for some time
which makes paying the mortgage easier. That will at least
help to keep house prices reasonably steady.
Things are very different on the continent. We already know
that in Greece, Italy, France, Spain and Portugal there is an
anti-euro backlash. But what's behind this attitude?
One problem is a strong euro that is wrecking the export
markets. The euro remains strong because rather a lot of
people need the currency for their daily affairs. If a large
proportion of people need the currency, it will generally
remain strong. The trouble is, it is far too strong to support
local economies, which are struggling. As a communique from
the European Commission admits, the euro is "increasing
unemployment and social hardship". That wasn't lauded as its
original purpose. It is also going to keep house prices
subdued at least across most of Europe.
Looking at some stats that I have before me it seems that
according to Europa.EU, in 2016, no less than 118 million
people in the EU lived in households on the edge of poverty or
social exclusion. That figure accounts for just shy of a
quarter of the population.
We have recently seen the reaction of the French and the
Spanish to the latest economic problems that have swamped
If we look at Poland and Hungary, both countries appear to be
treading the euro-sceptic path, and the Netherlands is not far
behind. In short, to put this in the dramatic terms espoused
by The European Council on Foreign Relations "Euroscepticism
has now spread across the continent like a virus".
But let's start with Greece, which is the country that is the
furthest down the road into chaos. The figures in the article
I am reading at the moment put things rather starkly:
"Since 2008, the Greek economy has shrunk by a quarter.
More than 400,000 Greeks have emigrated.
House prices are down 43%.
More than £70bn of assets have been destroyed in a 180
Excuse me, but that is crazy. It that had happened in Britain
we would feel as if we had been crucified.
Greece's ex-finance minister, Yanis Varoufakis pointed up just
such a scenario. It went like this.
To get a feel for the devastation that ensued, imagine what
would have happened in the UK if RBS, Lloyds and the other
City banks had been rescued without the help of the Bank of
England and solely via foreign loans to the exchequer. All
granted on the condition that UK wages would be reduced by
40%, pensions by 45%, the minimum wage by 30%, NHS spending by
32%. The UK would now be the wasteland of Europe, just as
Greece is today.
Let's pause for another 'excuse me'. Was this what joining the
EU was supposed to bring about?
Obviously not, and one can legitimately say that Greece should
not have fiddled the books in the first place simply to join a
union it was not suited for. But it has happened, and there is
no way Greece can recover by staying in the union.
What we now have is Italy going the same way, except that
Italy represents a rather large economy, and Italy cannot be
bullied in the same way Greece was. In fact the Italian
president admits that Greece has been "crucified". The deputy
prime minister has already stated that Italy "will not suffer
the same fate as Greece".
We already have Marine Le Pen and Salvini declaring a joint
campaign "fighting the EU to save Europe".
The big question is: what is going to happen in May when the
next EU elections come round?
The bottom line is that Europe currently is a mess, and
decisions made now by people looking at buying and selling
real estate across the zone are not likely to be the most
sensible ever taken. You don't make big decisions just before
As one of the articles I read finishes: "If Lehman Brothers'
default led to a 38% drop in the UK stock market... how bad
will things get when an entire currency union collapses?"
The question also has to be asked: how vulnerable is the UK in
all this instability?
I'm afraid my answer is that it is
vulnerable, but to
what extent I can't possibly work out. I strongly suspect it
is far less vulnerable than the southern countries tied to the
euro. If (when) they are forced out of today's version of the
union, their currencies are likely to crash, probably by as
much as 40%.
Those of you who have been with me for the long haul may
remember that this was a risk I pointed out back at the
beginning of the century.
What we have to try and hold onto is that the whole point of
the EU was to try and unite a continent which has had a
history of in-fighting going back to the dawn of time. What we
are now seeing is a re-emergence of that in-fighting, with
Italy bickering with France over the way the latter has been
treated over their budget chaos. Poland and Hungary are
already complaining. The issue concerning imigration from the
Middle East has split the members of the union. Italy has been
complaining for some time about immigration from Africa. All
these issues remain unresolved, so how far is this squabbling
going to spread? And how likely is a collapse? And when would
that likely be?
There will be no answers to those questions here, but to say
'All is not well' is a massive understatement.
Using the simple metrics I always use, and which have served
me well for a couple of generations, property markets across
southern Europe are looking seriously shaky, and the shakiest
are in Greece, Italy, France, Spain, and Portugal.