Don't Let Stavros Spoil the Party

It is my belief that we are seeing a degree of recovery in southern England. Ignoring national statistics which are a complete Red Herring, I have witnessed an upturn in property related transactions in the south.

New build property transactions generate a huge amount of economic activity. The benefits start with professionals such as planning consultants and architects, they continue with building surveyors and others such as structural engineers, then the construction process, employing a main contractor and sub-contracting tradesmen, and then it’s back to other professionals in the form of solicitors and estate agents.

However it doesn’t end there. A new home will usually be bought with the proceeds of dependent sales otherwise known as a chain. Home movers along this chain spend considerable amounts on professional fees, furnishings and DIY.

So things are starting to go quite well when a southern European country goes pear. Greece, where the workforce sleeps half of the day but still expects their country to pay them twice as much as it can afford, is set to default on it's debts. So should that affect our economy?

There are two factors to take in to account - confidence and the logistics of the UK banking system. Confidence requires businesses and individuals to carry on regardless. A collective “wait and see” approach is a ticket to a big slowdown.

The banking system and how it will react is harder to appraise because there is little transparency as to what exposure British banks have elsewhere. In 2007 a number of our banks became insolvent partly due to second or even third hand exposure to toxic assets such as sub-prime mortgages secured on trailer parks in the US.

The credit squeeze that followed resulted from a refusal by banks to trust or lend to each other. The relaxation of this stance has been accompanied by mammoth due diligence, and if that due diligence is as ridiculously extreme with interbank lending as it is with UK property lending we could be OK. However there is no way of telling because transparency and truthfulness were abandoned by the banking sector when Captain Mainwaring retired.

My gut feeling is that some but not all of our banks may be badly impacted. Already huge withdrawals are being made by customers of Santander and I believe that the forthcoming marriage made in hell between Santander and RBS will be an apoplectic disaster.

However there have been new entrants to the UK banking sector in the past five years and they operate in specialist sectors including construction. Their business models revert to the traditional practice of lending from deposits.

Whether this will be enough to take up the vacuum left by illiquidity or worse in other banks, we will surely find out and we should pray that the likes of Robert Preston do not persuade consumers to put away their wallets.

My advice is to carry on regardless, but to keep some loose change aside to buy a holiday home in southern Europe.