The McPound and the cost of borrowing

At the start of official trading in the euro on 4th January 1999, it was worth 71.1 pence. This was to rise slightly in the following week as banks and others built up reserves in the new currency, only to fall back during 1999 to 66p or occasionally less. This encouraged europhobes to dismiss the euro as a failure, but confidence has grown in the currency to the extent that many primary producers have switched from denominating in the dollar to denominating in euros.

BBC "Working Lunch"'s financial page is currently showing the euro as worth 89p. It will be interesting to see where it stands on its tenth anniversary in just over three weeks time. Already some bureaux d'échange are reporting to be selling euros at just above parity with the pound.

During the week, it was revealed that investing in UK government debt is now almost twice as risky as buying burger-chain McDonald's corporate bonds, according to the market in credit default swaps (CDS), which provides insurance for the buyers of such debt.

This is surely worrying for people needing to raise money for public projects in the UK. Financing public housing development has until now been regarded as a very safe investment, but one wonders whether the diminishing status of UK gilts will have an effect here. Perhaps I am naive, but I suspect that it may be increasingly difficult to fund the many large scale transfers (LSVTs) of local authority housing in Wales. It is surely sensible for the Welsh Assembly Government to take the pressure off local authorities to hold ballots on LSVT until the money market stabilises.