Mind you, there are those who say the euro is the currency that is about to suffer. Parity with the dollar is on the cards.

Here is a question for you. If the pound eventually falls to parity with the euro, as some predict, and the euro falls to parity with the dollar, what will the dollar–pound exchange rate be?

Ummm, well, you don’t need to be brain of Britain to work that one out.

So let’s start with what the trade figures say.

Well, they were pretty awful. The UK’s seasonally adjusted deficit on trade in goods and services was £3.8 billion in January, compared with the deficit of £2.6 billion in December. More to the point, it was the biggest monthly deficit for some time. Exports are supposed to be going up, but they are not. January saw exports come in at thirty-two and a half billion. That’s lower than the figures for October, November and December.

Okay, we know there is a time lag between a fall in a currency and improvement in trade. In fact, economic theory says that in the short run, the balance of trade may get worse, as sales may be fixed, but the cost of importing will rise. But once the economy adjusts, we should import less and export more, so things should improve. In fact, the curve plotting the trajectory of our trade balance following a depreciation is said to be “J”-shaped. Hence economists have coined the phrase “J-curve” to describe what happens to trade following a fall in a currency’s value.

But surely we should be past the dip in the “J” by now.

At least we can take comfort from the fact that the latest survey of manufacturing from CIPS/Markit, albeit relating to February, had exporting booming. Maybe we just have to wait a tad longer.

Meanwhile, Erik F. Nielsen, Goldman Sachs Chief European Economist told Bloomberg: “People are very bearish on the U.K., probably more than they should be…The euro is clearly in its biggest crisis since it started, so it’s kind of strange that it’s overvalued.”

He went on to say: “There is a permanently higher risk premium on investments in the euro-zone and on the euro.” He predicted euro parity with the dollar at some point over the next few years.

But if the euro is set to reach parity with the dollar, what does this say about the pound? Well, Mr Nielsen has some reassuring words: “We think the U.K. will outperform the euro-zone in growth terms…We have a constructive forecast for sterling.”

The real snag at the moment is that just about every country in the world is hoping to recover by exporting. This just can not happen.

If every country tries to keep imports down and pushes for more exports, the ultimate result will be global recession.

Because the UK is not in the euro, we have a slight advantage, and Britain may eventually prove to be one of the few countries to pull the export trick off.

But the wait for the export-led recovery just seems to be going on and on.

But then again, you can’t read much into one month’s worth of data.

The snow may have been the main contributory factor. Once the sun comes out, maybe we will see the unleashing of demand pent up by snow and ice.

But the last few days have seen the release of two far more interesting reports. Rightmove has set the cat amongst the pigeons with news of a decline in the number of first-time buyers, and then yesterday the Royal Institution of Chartered Surveyors (RICS) set a positive pride of cats amongst the pigeons.

If the bad weather was the reason for poor home sales so far this year, then one would expect the drop in sales to be uniformly divided between first-time buyers and existing homeowners. And yet according to Rightmove, the proportion of people who expect to buy a property who are first-time buyers is falling like a stone. Or at least falling like a heavy feather. In its consumer confidence survey for Q1, Rightmove found that the proportion of first-time buyers who expect to buy is just 26 per cent, compared to 28 per cent in Q4 last year and 31 per cent in the quarter before that. To put this in context, the historical average is nearer 40 per cent.

Clearly first-time buyers are vital to the housing market because they sit at the front of the chain. If they go, then the market can only be sustained if we see a proportional rise in buy-to-let investors, or people buying a second home.

Meanwhile, RICS has released its latest housing market survey.

Its headline index, produced by asking surveyors if prices are up or down in their region, and subtracting the percentage number who said down from the percentage number who said up, fell to plus 17, from 31 the month before. The recent peak for this index was November, when it hit 35. The RICS index was in negative territory between August 2007 and July last year. Once it re-entered positive territory, the index continued to rise. But this trend now appears to have come to a halt and move into reverse. If the downward trend continues, then expect prices reported from the likes of the Nationwide and Halifax to follow downwards.

But what is especially interesting about the RICS index is that it also produces data which shows us what is going on behind the scenes.

For example, it publishes data on the number of new instructions recorded by estate agents, and the number of new enquiries. For as long as the index tracking enquiries is greater than the index tracking new instructions then one can expect underlying pressures pushing up on prices. And sure enough, this is what happened during the recovery in the market. In February last year, for example, when most expected house prices to fall sharply, the RICS index tracking new enquiries was plus 23, while the index tracking new instructions was negative 19.

It was a similar story over the following few months. The RICS index pointed to the rises in prices several months before they happened.

But in June last year, we saw the first hint that things might change. The index tracking new instructions went positive. At that time the signs still pointed to sharp rises as the index tracking new enquiries peaked, hitting the heady heights of 65. Since then, however, the trend has gone into reverse. The index tracking enquiries began to fall as the index tracking new instructions began to rise. In January, the index tracking new instructions passed the enquiries index. But in February the change became more marked. The index for new enquiries was plus 7; for new instructions it was plus 15.

The last eight months have seen a clear trend. There is a time lag between these trends being reflected in prices. If the trend continues for many more months, then house prices will start to fall again, and quite precipitously at that.

And by the way, the ratio of quarterly sales to stock fell in February too. This has been steadily falling now for several months.

The RICS data provides a good pointer to what will show up in the market a few months down the line. And right now, the data is pointing downwards.

Leveraged investment is a clever thing. Take this idea. You buy an asset for around £810, but only put up £272.00 of your own money. The rest you borrow. Then you sell it a few years later, getting £1,250. So you pay off your debts, and end up with around £700 left over. It is good business, isn’t it? The asset went up by around a third in value – but you almost trebled your money.
It worked like that in the property market, of course. Only you have to add two noughts to the variables that make up the equation. So, buy your house for £81,000, take out a £27,000 mortgage, and make big bucks if the property is sold for £125,000.
But now add another four more noughts to the variables, and all of a sudden you are looking at Manchester United. The Glazers bought the club for around £810 million. They only put up £272 million of their own money, and if the new strike force led by Jim O’Neill, the so-called Red Knights, have their way, the club will be bought for around £1.25 billion.
That is a nice way to make money, if you can get away it.
Alas, leveraged investment sums up much that was wrong with the economy before the credit crunch. It was like that in the US during the 1920s too. In his book, The Great Crash, Galbraith devoted a chapter to the perils of leveraged investment.
You see, just as it promises the potential to bring rich rewards, leveraged investment can create a nasty mess when things go wrong.
It is a bit like those Sirens from Greek mythology. They sing their song, and sailors can not resist. Odysseus had himself tied to the mast of his ship, while all his men had earplugs. That way he could hear their song but was powerless to respond.
But when the likes of the Glazers can do so well out of leveraged investment, you can see how other investors are seduced.
On the subject of the Manchester United bid, the Glazers would be best advised to accept it. Football is in a financial crisis. The reality has dawned that the free market may throw up profits for the big clubs and their players, but it is clearly working against the long-term interests of the game. If football’s governing bodies have got any mettle at all, they will bring in changes that will mean the game is run for the benefit of its fans, rather than for the clubs’ shareholders. And if the governing bodies don’t do this, then governments should.
One of two things is going to happen eventually. Either the game is going to change drastically and there will be less money in it for the big clubs, but more for the smaller clubs. Or the game will implode.
All that will be left will be the oligopolies, that’s the likes of Manchester United, Chelsea, Real Madrid and a handful of others. As a result, variety will be killed, and fans will rebel.
The British Chambers of Commerce, which by the way was one of the first groups to forecast recession for the UK, has released its latest set of forecasts.
It’s a funny lot of predictions. The bad news, it reckons the UK will expand by 2.1 per cent next year. That’s a downgrade from its previous forecast of 2.3 per cent growth. And yet, it also reckons that unemployment will not rise as high as it previously thought.
It also reckons that government borrowing will be less than the level estimated by the Treasury.
But that’s for 2011. Beyond that it is more worried, and says: “The obstacles to a sustained medium-term recovery now appear greater.”
The BCC is most worried about plans from the government to raise money by upping National Insurance Contributions. It is probably right.
One of the more serious problems in the UK at the moment is that there is surely only limited incentive for someone who is unemployed to find a job. Their loss of benefits can be considerable. And the tax they start paying at even modest wages can be prohibitive.
Barely a day goes by without someone moaning about the tax on bankers’ bonuses, saying it kills incentives and will lead to an exodus of talent, and that the UK will be the loser.
But this problem is as nothing compared to the plight at the other end of the income scale. This is where the real lack of incentive exists.
If the government is to really start cutting its debt in the long term, it needs to provide a greater incentive to those who are unemployed to find work.
The media focus on the debate over bankers’ bonuses and whether taxes kill the incentives of the super-rich, misses the real problem of tax and benefits killing incentives altogether.

Interest rates remained at their record, rock bottom low. Not only is the UK rate of interest half a per cent, it has been at that level for a year now.

Warning, warning… some boasting is about to follow. This column predicted zero, or near zero interest rates, when central banks across the world had only just begun to reduce rates. We are not aware of any publication or economist who made a similar prediction so early on. see Could interest rates fall to zero?

As for the future, rates are probably going to stay low for some time.

We still hold to the view that deflation, and not inflation, is the big enemy, which could mean low interest rates for years.

The big danger lies in a possible crash in sterling, or if markets decide the UK government is too big a credit risk. Then rates may have to go up.

But what is quite interesting is that Capital Economics has said that it was thanks to the Bank of England’s quantitative easing that the UK has lifted out of recession. They reckon the programme has boosted GDP by between 2 and 3 per cent.

They are probably right. But then again, there is another point here.

Economists may have got too clever for our good. Alan Greenspan, and his chums at the Bank of England, may have perfected the art of playing with interest rates to smooth out the economic cycle. But maybe that’s the problem, the real underlying problem.

Economists seem to see the economy as a bit like a car journey down the motorway. The car should drive at 70 miles per hour. If you hit a traffic jam and don’t move at all for 15 minutes, and then restart and hit the speed limit straight away, then that means your journey will take 15 minutes longer.

The economy, they say, should grow at between 2 and 3 per cent a year.

If one year it stops growing, then they say there has been a permanent loss of output of between 2 and 3 per cent.

And for decades they used the ideas of Keynes to try and manipulate the cycle: deflating demand during the boom; inflating during the downturn. Alan Greenspan appeared to master the trick, and deliberately slowed the US economy down during the mid 1990s.

Apparently his move was pretty controversial at the time, and according to his book, The Age of Turbulence, the Clinton government was none too happy. But Greenspan reckons he stopped the boom going too far, and as a result avoided recession the following year.

Alan Greenspan and Gordon Brown are friends. The man the press named the maestro, waxed lyrical about our Gordon in his book.

You will of course recall, Gordon Brown had a similar idea to Greenspan. He used to talk about “no more boom and bust”. And since he presided over the longest ever run of sustainable economic growth, it did appear he had pulled the trick off, at least for a while.

The idea of controlling the economic cycle, of smoothing it out and eliminating recession, is something of a holy grail for economists.

But is it possible that the dream of controlling the economic cycle is actually flawed? Maybe we need the odd recession from time to time, in order to purge the economy of the bad ideas and to create space for new businesses to grow into it.

Economists see it as wasteful if resources are not being used. So it is essential to prop up businesses in the bad times, otherwise resource is going to waste. This is the argument for protecting industry.

But on the other hand, if we are all working for the government, as civil servants shuffling paper around, we don’t have an incentive to go looking for another job that may be more productive.

Entrepreneurs are often born in times of austerity. They create a business with its independent revenue stream because they can’t get a decent job.

Maybe recessions are essential for kicking new dynamism into the economy.

At the other end of the economic debate, the market fundamentalists blame Keynes for all our ills. The trouble is, modern day economists use the ideas of Keynes to fix problems that Keynes knew nothing about. His theories were developed during the Great Depression. He outlined a series of remedies as to what to do if such times returned.

But during that period when Gordon Brown and Alan Greenspan were playing with the economic cycle, there wasn’t even a hint of depression. Keynes said nothing about smoothing out the economic cycle. Yet modern day Keynesians used his ideas to do precisely that.

This column has argued before that maybe the UK should have had a recession at around the turn of the millennium, at the time of the dotcom bust. By throwing low interest rates, government borrowing and the kitchen sink at the economy during this period, the UK was one of the few economies to avoid recession. In the US, thanks to Greenspan working his magic, the US recession was mild.

But maybe if, instead, the cycle had been allowed to take its natural course, things would be a lot easier today.

David Cameron criticises Gordon Brown for not fixing the roof when the sun was shining. He was right to criticise Brown. But maybe his reasoning was faulty. Maybe the reason why the sun was shining is precisely because Gordon Brown kept spending up.

But that does not necessarily justify Gordon’s spending.

Sometimes there is a price we pay for growth today, and the price is less growth tomorrow.

There is nothing permanent about a fall in growth. Rather, it creates space and enables a spurt of new dynamism.

But all these arguments do not mean that measures currently being taken by central banks and government to reduce the effect of the recession are doomed to fail. For the first time since Keynes penned his General Theory back in the mid 1930s, we are seeing an economic backdrop that has frightening similarities with the 1930s.

Just because Keynesian economics is arguably the cause of the current economic difficulties, it does not mean Keynesian economics can’t help us now.

Now the data from the Halifax is in, so here is a summary of what the latest data says.

According to the Halifax, house prices were down 1.5 per cent in February, the first fall since June last year.

Last week the Nationwide also reported a fall in February, as it recorded a fall of 1 per cent, its first monthly drop since April last year. Commenting, Martin Ellis, Housing Economist, said: “Low supply of properties for sale has been a key factor pushing up house prices. The recent improvement in market conditions has encouraged more homeowners to attempt to sell their property. The stock of properties available for sale increased for the second successive month in January. Additionally, the ratio of completed sales to stock eased, indicating a modest loosening in market conditions.”

Last week, Martin Gahbauer, Nationwide’s Chief Economist, said: “There is evidence from a range of indicators that the market may have lost momentum in early 2010 as the stamp duty holiday ended and house hunters were obstructed by the icy weather. New buyer enquiries dropped sharply in the New Year and there was also an associated drop in the number of new mortgages taken out by homebuyers in January.

“This drop in demand seems to have fed into agreed prices during February. Judging from the fall in retail sales during January, however, the housing market does not appear to be the only sector of the economy to have experienced a setback related to adverse weather and the expiry of economic stimulus measures. At this stage it is difficult to gauge how much of the drop in housing activity is attributable to one-off factors and, therefore, whether February’s fall in prices is just a temporary blip or the start of a new trend.”

Hometrack recorded a 0.3 per cent rise in house prices in February, but struck a bearish note. Richard Donnell, Director of Research, Hometrack said: “February is traditionally a month when the Hometrack survey registers significant growth in the number of sales agreed – over the last eight years the growth in sales agreed over February has averaged 30 per cent. Yet this year the number of sales agreed has averaged just 10 per cent.”

Next week will see the release of the latest survey from the Royal Institution of Chartered Surveyors. Recently this survey has appeared to point towards a change in the dynamic between enquiries and new instructions, with the ratio of sales to stock falling. It will be illuminating to see whether this change continued.

A string of economic indicators have come in over the last few days, and they all point one way – up.

First off the block was the latest Purchasing Managers Index for manufacturing from Cips/Markit. A month ago, this index rose to its highest level in 15 years. You can be as cynical as you like. You can say, perhaps with some truth, that it is all down to the turn in the inventory cycle and the recovery will be short-lived. You can add that things were so awful before, that even the best showing in 15 years isn’t great shakes, at least not when you put the rise in context.

A month ago, you may have concluded: “Well let’s see what next month brings. If next month produces a similar finding, then maybe, just maybe, we can afford a faint smile.”

Well, the data for February was out earlier this week. And let your lips part slightly. Let a hint of teeth show through. In short, allow the faintest of smiles. For the latest PMI equalled the January reading, with a score of 56.6.

The thing you need to bear in mind with these CIPS/Markit reports is that anything over 50 is meant to indicate growth. So a reading of 56.6 is heady stuff.

The index tracking new orders was up even higher, posting a score of 60.3. But the best bit relates to exports. The index tracking new export orders was 60.4. Maybe, just maybe, the cheap pound is at last helping to lift exports. Let’s wait another month and see if the trend continues into March.

The index tracking employment was not so good, but at least it is over 50. February’s reading was 50.3, after a January reading of 50.5. The big snag for jobs is that there is an awful lot of spare capacity. A rise in demand can be met without taking on more staff. But there will come a time when this spare capacity becomes exhausted. The key here really is how long the strong recovery lasts. Every month that the PMI stays up at the dizzy heights it is currently occupying, will see spare capacity eaten into that little bit more, and then recruitment will follow.

So much for manufacturing. What about services? After all, in the UK, services is what makes the economy tick.

The headline index for tracking services, the Business Activity Index, produced by CIPS/Markit, hit 58.4 in February. Okay, it wasn’t the best reading in 15 years, but it was still impressive, and the highest score since 2007. Business expectations soared somewhere close to the stratosphere, with a reading of 72.8. Alas, the index tracking employment is still below 50. Presumably there is still lots of spare capacity in the sector.

When we consider the disappointing reaction of the jobs market to the improving sentiments, we could easily let our grin turn to a frown.

But just bear in mind that employment didn’t suffer anywhere near as badly during the recession as most had expected. Now we are paying the price for that, and seeing the recovery in employment lag way behind the recovery in output.

But there’s more good news. At least it is good news if we ensure we wear rose-tinted glasses. It is not quite so clear whether this is still good news if we remove these flowery spectacles.

The Nationwide Consumer Confidence Index reached its highest level since January 2008 last month. The index rose 6 points on January to record a score of 80. Meanwhile, the Expectations Index hit its highest level since records began.

But is this really the good news we are told it is? Why are consumers confident? It seems the most likely explanation is that they don’t realise we are not out of the woods yet. They have not factored in the inevitability of tax rises and the loss of affordability they will experience thanks to the falling pound.

Then again, maybe the UK’s problem during the boom years was that consumers were too confident. Actually, this is an important point. We blame bankers for the economic crisis, but the real error that bankers made was to lend money to people who couldn’t really afford the loan.

Whose fault is that – the bankers or those who borrowed the money?

We blame the banks when they don’t lend to us. We cite Shakespeare, and talk about Shylock and his demands for his pound of flesh. But when they do lend us the money we want, we then blame them for taking absurd risks.

Bankers and consumers surely caught the same virus during the boom years; the virus was called unrealistic expectations.

What the UK needs is more exports, and growth needs to come from an improving efficiency at producing goods and services. The idea that consumer spending can charge recovery is old thinking.

The snag is, however, for the UK to enjoy an export boom, someone else must see an import boom. And right now, no one is willing to be the economy that buys instead of produces.

But at least the movements on the currency markets have helped the UK.

This column has argued over and over again that the only way forward is via technology creating wealth. If we can produce more for less, then the diminishing labour pool in the developed world will be able to meet the needs of the growing pool of pensioners. 

 Here is an example of a new technology that could help us do just that.

Some argue that the real problem today is that growth is not possible; that we need to lower our objectives, and strive for a sustainable way of life. So air travel is out. We buy our food locally, and a long journey would be defined as travelling anywhere that is more than a thirty-minute cycle ride away. The same school of thought argues that unless we do this, then as the population explodes, and as the developing world starts demanding the lifestyle the West takes for granted, everything will just become too stretched. Oil will rocket in price; global warming will accelerate; and then: crash – the biggest bubble of all, namely our civilization, will burst.

That particular point of view seems a tad worrisome.

But there is another point of view. One that this column signs up to. This idea says that technology can save the day. Continued growth is viable for the foreseeable future.

The world is going through an eye-of-a-needle stage. The population is exploding, creating its own pressures. It seems, however, that in a few decades’ time, the whole world will be going the way of the West, and the population will start to decline. This will create a new set of problems.

But once we come out the other end, which, by the way, won’t be in the lifetime of most readers of this newsletter, things should be a lot easier. So it is getting from here to there that’s the problem. And technology is surely the key.

Take energy. The pessimists argue that the modern-day economy is built on oil. The burning of oil is ruining the climate. In a few decades’ time the climate will be messed up, and at the same time we will be out of oil. So, that’s nasty.

The alternative point of view is that innovation will create new fuels that are cheaper than conventional fuels and won’t ruin the environment. The big snag is that we have had over a century of specialisation going into honing our ability to get the most out of oil. There are attractive alternatives, but we have not yet seen our specialisation in these alternative technologies grow to such a level that they are as cost effective as oil. This is the case for subsidies. By subsidising renewable fuels, we give ourselves the opportunity to get better at exploiting them. And then eventually they get cheaper. Then they get cheaper still. Finally, we end up with fuels that are so cheap that, with the exception of oil, coal and gas exporters, we are all better off.

That is why this column is a fan of wind and solar energy. Right now, these technologies are quite expensive. But the more we attempt to use them, the better we get, and the cheaper the technologies become.

But whichever way you look at it, when the sun isn’t shining and when the wind isn’t blowing, you can’t generate energy from these sources.

So you need a back up.

One of the more interesting forms of energy currently developing nicely is what is called solid oxide fuel cells.

A company in California called Bloom Energy has been making big waves, and has enlisted the support of Arnie in its endeavours. The Californian governor was at a recent press event for Bloom, waxing lyrical about the company as only he can.

For it what it’s worth, the Californian company is not the only player. Here in Blighty, for example, there’s Ceres Power.

For a good explanation of how the technology works, click here

The snag with this type of energy is that to work, it requires high temperatures of between 600 and 1,000 degrees centigrade. But the process offers many advantages. For one thing, the fuel cells are stored locally. So, for example, a building can have its own independent source of energy. This eliminates transmission costs. Because the energy is generated locally, the heat can also be used for conventional heating, keeping the building warm in winter, and providing hot water. Apparently the process of generating energy is highly efficient, and any form of fuel can be used to generate the high temperatures required. And the real point is that even after allowing for the fuel required to generate the high temperatures needed, it is still much cleaner and more efficient than traditional energy.

It would be a mistake to over egg the technology. We are not arguing that it will revolutionise the energy business, merely that it may; or at least it may be an important part of our energy, to sit alongside solar, wind, wave and tide power.

But what this story does do is to illustrate how, beneath all the gloom, technology is currently changing at such a pace that the end result will be real wealth creation. Not the illusionary wealth creation we see when house prices go up, but the real, emperor is fully clothed type of wealth creation we need.

He was revealing the sordid secret to a Treasury Select Committee.

Maybe John Terry should try a similar line of defence.

Lord Turner said: “We were often led astray in the past by complicated mathematical rules. Regulators failed to notice the inherent weakness in that position. History tells us that it could happen again.

“Complacency was not a problem now, because the shock to the financial system was still fresh in the memory.”

Then came the warning: “In the long term we have to try to stop society falling in love with another dominant intellectual theory.”

Ummm, well, the Lord is partly right. Love is blind, and we are too inclined to fall in love with ideas that can cause our ruin.

But the love is not just with so-called “intellectual theories”.

Crowds get it wrong over and over again, and they get it wrong with simple ideas as well as with intellectual ones.

The following is taken from Bubbles and Wisdom, a new book co-written by Michael Baxter – editor of Investment and Business News –

“The psychologist Solomon Asch conducted a famous experiment to investigate the extent to which we comply with the crowd. The subject of each sample group was placed beside a table, sitting amongst a number of other individuals. Unknown to the subject, the rest of the individuals at the table were actors. The group were asked a series of simple comparison questions. For each question the group were shown two pieces of paper. On one piece there were three vertical lines of different length; on the other, just one line. Each member of the group had to identify which of the three lines on the one piece of paper was the same length as the line on the other piece.

“The judgement was easy to make and separate tests had shown that when questioned individually, most people got all questions 100 per cent right. But the results were different in a group situation. Each person around the table was asked to give his or her answer out loud for the rest of the group to hear. Unknown to the subject, the actors were instructed to occasionally provide an incorrect answer. On 32 per cent of occasions, when the same wrong answer was given by the rest of the group, the subject complied with the others, also giving the wrong answer. Furthermore, no less than 74 per cent of subjects conformed with the group on at least one occasion, even though the answer was obviously wrong.”

It seems that in a group situation we are easily seduced. It can be that we are taken in by a complex mathematical formula that hardly anyone understands, as was the case with mortgage securitisation, or with Long Term Capital management in the 1990s. But the crowds get it wrong over and over again. The crowd got it wrong in Nazi Germany, and again in Rwanda. The madness of crowds led to the spectacular self-destruction of a civilization that once flourished on Easter Island. It could be argued that civilizations from Ancient Sumer and Ancient Athens, right the way through to the modern day, have been victims of the madness of crowds That is surely the real reason why we have bubbles.

The irony is, however, that crowd madness can charge our big successes too, for example the spirit of the Blitz.

RICS said: “Low interest rates and reviving economies helped to avoid housing market meltdown across much of Europe. In Germany, Italy, Netherlands and France, last year’s falls were relatively moderate (between -4 percent to -6 percent) and though today markets are still fragile, they are starting to stabilise and to see some price growth.

“However, countries with vulnerable economies will continue to experience depressed markets and falling prices. The worst performing markets of 2009 were Ireland, Spain, Greece, most central and eastern European countries, and especially the Baltic States where prices declined between -27 per cent to -53 per cent in 2009.”

The report’s author, Professor Michael Ball, said: “The shallowness of the downturn in core European housing markets has surprised many commentators. But Europe is not the USA, and the problems and policy responses have been different. Mortgage defaults have only risen modestly. Low interest rates and central bank support for mortgage markets have played key roles in bringing recovery.

“Huge problems remain, unfortunately. Housing markets around the fringe of Europe are still dragging down economies in a vicious circle and all European housing markets continue to face credit constraints and great uncertainty.”

There is a snag with this survey. Or to be precise, the snag is with its reporting. The media are celebrating the fact that the UK’s housing market has performed better than markets across most of Europe.

But let’s run this one past you again. The UK economy was one of the last to exit recession. The UK suffers from massive imbalances, with investment in business way too low for years. Recent data has suggested business investment fell quite sharply last year. And yet the UK, along with countries such as Spain and Ireland, saw house prices soar.

Maybe the real problem is that in the UK we rely on rising house prices as the engine of growth. This creates confidence in consumers, and encourages them to spend what they don’t have. The fact that the media still celebrate the relative strength of the UK market, shows they still haven’t got it.