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Boulger on Mortgages

Now the general election is behind us there is another important election, or rather referendum, coming up. I doubt that the gilt market would react very much to the result of the general election as the difference in macro economic policy between the two main parties, at least for the first two years after the election, is not big enough to generate wild swings in interest rates.

It was different in the 1960s and 1970s and, indeed, would have been in the 1980s if Labour had won an election during that decade.

A surprise election result in those days, or even significant movement in the opinion polls before election day, resulted in big swings in the gilt and equity markets as there were significant differences then between the parties’ economic and other policies. What markets always fear most is uncertainty and it is more difficult to predict how the market would react to a hung Parliament.

My hope is that there might be new thinking on home information packs after the dodgy trials of Hips which showed the negative impact they would have on liquidity in the housing market.

The referendum coming up is the May 29 vote in France on the European Constitution. This is difficult to predict. From a 64 per cent to 36 per cent majority in favour of the constitution seven months ago, the yes majority had declined to 60 per cent to 40 per cent last month, when the date of the referendum was brought forward from late summer. Since then, support for the new constitution has collapsed and the latest polls suggest a 62 per cent to 38 per cent vote against the constitution.

Even President Chirac now appears resigned to losing this referendum. Normally, when political leaders are asked whether they will resign if they lose an important vote they duck the question but the fact that Chirac has said he will not resign if he loses implies that he sees little chance of winning and is preparing the ground.

However, any president or prime minister losing a referendum on such a major issue as the constitution will be a lame duck.

A French “non” will spare us a British referendum. However, most of the French “non” vote is on the basis that the proposed constitution does not go far enough in integrating Europe while the British majority against the constitution is for the opposite reason – we want less integration.

If two of the major powers in the EU are so strongly opposed to the constitution, it is hard to see how fur- ther expansion and political integration of the EU can be harmoniously achieved.

With most countries in the eurozone having the wrong interest rate, particularly Germany, which has the highest unemployment since the Second World War, the euro is part of the problem, not part of the solution. With the exception of Ireland, the strongest growth areas in the European Union are recent recruits from Eastern Europe. Most of these countries want to join the euro and if that happens while they are still experiencing strong growth, the problems caused by the euro experiment can only get worse.

Ray Boulger is senior technical manager at Charcol

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