If the housing market is a bubble at some point it will

If the housing market is a bubble, at some point it will have to burst, or at least deflate. Let’s say that consumer spending has been well supported in the UK precisely because of the strength of the housing market (see second chart). On that basis, a fall in house prices would undermine the key area of strength in UK economic activity.In itself, this may not be such a bad thing. But if, in the meantime, we have joined the euro, the policy options available to deal with this particular kind of short-term problem are likely to be rather limited. In a situation where domestic demand is deflated because of a fall in domestic asset prices, there are one or two useful things that can be done about it. First, if private demand is weak, it can be offset through a pick-up in public demand through an increase in government borrowing. Second, if domestic demand is weak, it can be offset through foreign demand via a fall in the exchange rate.But if euro membership places a restriction on these policies, a short-term problem with house prices could turn into a long-term problem of insufficient demand.

If the exchange rate cannot fall to accommodate an improvement in exports, the alternative is a period of domestic price weakness, sufficient to depress the “real” exchange rate This, however, could prove to be a painful process. Try asking Germany, where the absence of domestic and external policy flexibility has left the economy on its knees.The short-term/long-term relationship need not be an argument against joining the euro. However, if short-term factors can have an influence on long-term performance, the timing of euro entry becomes a critical issue. Clearly, the decision on whether or not to join the euro is one of the biggest that this country will ever take: yet the success of membership – at least in the first few years – could ultimately depend on the waxing and waning of short-term cyclical developments.Stephen King is managing director of economics at HSBC..

Sitting in his elegant second floor offices just behind the Palace of Westminster, Lord MacLaurin of Knebworth is looking his usual healthy self. Now 65 he belies his years with a lean physique and a tan that seems to last all year round thanks, perhaps, to more time on the golf course than he admits to (he is a 12 handicapper). “I met her by chance on a barge trip down the Thames,” he says of his new wife, Paula.He has moved to a village near Bath, joined another golf club (he belongs to three) and become a member of Somerset cricket club. “If you’re going to start a new life it’s good to have a whole new environment,” he says in an office surrounded by family photographs, a shelf full of Who’s Who volumes and another shelf full of Wisdens “Life is very good.”It is also busy.

As chairman of Vodafone, the mobile phone group, Lord MacLaurin has been faced with stemming the tide of criticism over the lavish pay package of its chief executive, Sir Christopher Gent. “Some of it [the press coverage] has been quite scandalous,” he says. “Almost libellous, I think.”He is also still chairman of the England and Wales Cricket Board, though he is due to stand down at the end of the year after the county cricket clubs failed to back his more radical plans for the game “I’m sad about it, really. I’ve done two-thirds of the job and I would have liked to have done the other third.”But it is Vodafone that dominates his schedule.