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The EU given another problem to deal with

Published Friday, May 8th, 2015

The UK election has made fools out of pollsters and pundits. As we write, against all the predictions, the Conservative party looks on course to achieve a majority of the seats in the House of Commons. Did the economic arguments win through or was it really a fear of being ruled from Scotland via a Labour/SNP coalition? There will be no hung parliament, no coalition and no backroom deals. We now await the resignation speeches of at least two party leaders.

What there will be is a referendum in 2017 on the UK’s continued membership of the European Union, an additional uncertainty that Europe and the eurozone do not need and which might prove contagious. The euro-elites do not like their electorates having the opportunity to cast an opinion on their handy work. The UK election result will no doubt add to the paranoia that exists within the European Commission and particularly in the mind of its President Jean-Claude Junker who this week said that if Greece leaves the eurozone “we would put ourselves at risk because some, notably in the Anglo-Saxon world, will try everything to breakdown the euro area piece by piece, bit by bit”.

Safe-haven bond markets are not supposed to be volatile but they have been of late and yesterday there was panic in the air. The yield on 10-year Bunds moved up to just under 0.8% which is 16 times higher than the yield only two weeks ago. Investors have been hit with trillions of dollars of losses. The yield settled back to 0.58% at the close but the events of the last few days will add enormously to worries about crowded trades and liquidity vacuums when the herd moves.

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Posted by David Hufton