The stress test was too little too late.

Over the weekend, one of Britain’s top wealth managers Full Circle summed up the stress-test rather well when asked to by The Slog. Said Chairman John Robson:

Now the Lagarde/Trichet farce is behind us, it’s time for serious observers and investors to revisit the Big Picture of the EU’s fiscal and economic state. So let’s ignore the painting-by-numbers canvas presented to us so far, and try for a more realistic sketch.

Left to themselves, a number of banks in the EU would fail. The member States would admit this, if it wasn’t such an open invitation for the ClubMed ones to do just that. The problem then would be the domino effect on the Franco-German banks who lent the latin banks much of the money they blew in the first place. Anyway, the banks won’t be allowed to fail.

Equally, although Greece will be allowed to default (because the markets have become used to this idea) Spain and Portugal will not. They will be publicly and secretly propped up until such time as the German electorate declares that enough is enough – and the guardians of the Constitution there forbid any money-printing.

So the question remains, where will the money come from? And the answer of course is ‘us’. Put together unemployment, lack of stimulus, lower welfare benefits, higher taxes to pay for bank insolvency, thus slashed consumer spending – and you get….deflation. All these factors in turn immediately make property worth in the region of 35% less than it costs right now. The outlook for asset prices has never looked this glum in my lifetime.

Predicting what happens after that lot is gambling on the gee-gees without having a form-book handy. There are 27 cultures and different sets of commercial problems in the EU, and my knowledge of them is nowhere near profound enough to hazard even a guess. As always, it depends on who comes forward, what decisions they take, and how the assorted populations react.

If I were the Germans, I’d withdraw from the euro – if not the EU – and expand the export efforts that are already bearing fruit in the rest of the world. If I were William Hague, I’d ally with the Germans and Dutch – and begin again (at last) to have a proper say in European affairs….while copying the German export example. The rest of them would be left to lick their wounds and learn the benefits of playing a straight bat. The Chinese would be delighted to take up the slack (as they’re already doing in Greece) but that’s a problem we have no power at all to influence.

This won’t happen – I think. The process will be like watching paint dry, take years, and cost everyone a hundred times more than if they followed the Slog scenario above. But that’s life.