Afraid of purchasing Dordogne property due to euro crisis?

Doom-mongers abound in the present euro crisis. The collapse of the eurozone is predicted by pundits on both sides of the Atlantic. The general uncertainty has paralysed the Dordogne property market for two months. Everyone's worried about a collapse. But I'm not convinced.

Generally, the level of comment is as disappointing as President Sarkozy's production of sickly rabbits from his euro-hat. In common with many others, I have grown mistrustful of press releases announcing an instant fix. As time has moved on, the full scale of the complexity has emerged.

Why I don't believe the doom-mongers

In spite of the chorus of doom-mongers, I still don't believe them - for two main reasons.

First, none of them has focussed on the logistics - or indeed the meaning - of the "collapse" of the eurozone. Let's take it at its simplest,and assume they mean that one or more countries reverts to its previous currency: the Greeks go back to the drachma, the Portuguese to the escudo. It sounds simple enough. However, it requires the production of new notes and coins and the conversion of bank systems. In a letter to the Financial Times on December 2, Malcolm Levitt pointed out that in 1994 the working party of the European Commission Association for the Monetary Union of Europe, which he then chaired, convinced the authorities that these tasks could take up to two years, following several years of advance notice of the changeover date. A speedy change is impossible on these grounds alone, without taking into account the series of legal and financial issuees that have to be resolved along the way, such as the exchange rate that would apply on the changeover and the impact on existing financial instruments denominated in euros. In the transitional period Eurozone states would have to continue their euro borrowing in a climate of total uncertainty.

The second reason why I don't believe the doom-mongers is that Germany simply can't afford a collapse of the eurozone. The German economy is driven by manufacturing exports to both the eurozone and outside. The cost of these goods is held down by the euro. If the eurozone collapsed, the strength of the Deutschemark would be such that exports would become uncompetitively priced, damaging the German economy substantially.

As Angela Merkel has realised, the eurozone is a one-way street without turnings off.

So why's it all taking so long?

Yes, it seems as if the agony is more that of a dying than a recovering patient. But again, the level of comment has been poor. It's easy enough for Messrs Cameron and Obama to preach the importance of urgency: easy too for Christine Lagarde to do the same, though possibly with more authority and tact, from her new office at the IMF. But here are some of the problems.

First, the awareness that markets can exercise such power over national economies and governments has taken time to filter through to political leaders. At the beginning they were incredulous and bewildered. Now they are beginning to realise that the political landscape has changed. The markets' attitude to continued state borrowing is rather like that of a benevolent banker who has tolerated the extravagance of an aristocratic client for years, but feels that the point has come when he has to protect his own interests. The clients have had to adjust their thinking. But this has taken time.

Secondly, concerted action among the seventeen eurozone member states - let alone the twenty-seven EU member states - cannot be achieved easily or rapidly. If the culture and history of France and Germany are radically different, the gap is nothing compared to that between, say, Poland and Portugal or the Netherlands and Greece. Their leaders have not only to appreciate the changed political landscape but also the need to come together from their very different backgrounds to find solutions.

Thirdly, solutions are themselves not simple. The imposition of financial discipline on weaker Member States cannot be achieved without effective sanctions - not an area in which the European Union has excelled in the past. The rôle of the European Central Bank is obviously key but is likely to involve far more than the European treaties originally contemplated. Member States are going to have to increase their financial contributions at a time when their economies are already stretched. Last but not least, any closer union that involves scrutiny and approval by Brussels of member states' budgets implies an important surrender of sovereignty.

So there's the problem: on the one hand the knowledge that a eurozone collapse cannot be entertained; on the other, an environment of such complexity that final solutions will take time.

Continuing down the one-way street

In the situation I have described, volatility is likely to continue. Currency and bond traders in London, New York and Tokyo are unlikely to appreciate the finer detail. Their task is to earn a decent buck for their bosses. But my own belief - borne out perhaps by the fluctuations in short-term bond prices when member states have sought finance in recent weeks - is that there will now be an important synergy between the markets and member state governments. If a eurozone collapse is unrealistic, the markets will nonetheless provide a system of sticks and carrots to ensure that the eurozone member states navigate their continuing journey down the one way street without grinding to a halt.

In the meantime, the Dordogne property market remains moribund. What better time to buy?

Antony Mair
MCM Dordogne Property