Economic Interests

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Archive for the tag “Britain”

Thatcherism: One foot in the grave?


On the 8th April, Britain said goodbye to their first female Prime Minister, arguably the most famous one since Winston Churchill. The reaction has been mixed to say the least, with Baroness Thatcher a bit like marmite; you either love her or hate her. On the positive side; she ended the trade unions grip on the country, reduced the high inflation rate, created a free market approach and helped retain Britain’s global influence at a time when other super powers were rising to the top. On the other hand, she helped divide the country even further, centralised power in Westminster, reduced public investment in infrastructure and hardly made a dent in the issue of equality. She also made a lot of enemies, in particular the mining industry, civil right activists and even her own party (who still suffer under her shadow).

But no matter what you think of her personally, her economy policies have had a lasting effect on the nation and the world as a whole. Her following loosely of the ideas of Friedrich Hayek was extremely brave when the rest of the world was dominated by Maynard Keynes ideas. The idea in general was to shrink the state and its effect on the country, thereby allowing the private sector to grow. When governments enter the markets they tend to crowd out private enterprises and mange sectors poorly, so Baroness Thatcher privatised big industries in transport and energy and eliminated state controls. This improved productivity in the nation and set off a trend of privatisation throughout Europe and the wider world. Germany fully privatised its national champion Volkswagen in 1988 while even France, a country that never fully caught on to privatisation, sold off shares in Renault in 1996 (though it still holds a 15% ownership to this day). In Eastern Europe and Latin America, privatisation became extremely popular, as it encouraged outward investment into the country that the governments couldn’t hope to create by themselves. In Poland between 1990 and 2004, 5,511 public owned enterprises were privatised, while Latin America keenly accounted for 55% of global privatisation in the 1990’s. Annual revenues from global privatisation as a whole peaked in 1998 at over $100 billion, showing the extent to which “Thatcherism” had an effect on the whole world in the aftermath of her term in office.

France privatized Renault, though they still hold a 15% stake.

Yet times do appear to be changing. The world-wide recession (a caveat of the free market economy Margaret Thatcher brought in) forced many governments to resume ownership of previously private industries, especially the banking sector. The UK government partly nationalised RBS in 2008 and now owns a majority 81% stake, Holland recently nationalised bank and insurance group SNS Reaal for €10 billion, Belgium nationalised their big bank Dexia in 2011 while Spain had to request almost €40 billion in bailout funds for its four nationalised banks late last year; Bankia, Catalunya Banc, Banco Gallego and NCG Banco. This isn’t all, in South America, a region so keen on privatisation, the trend is also reversing. Argentina last year took a majority 51% stake in YPF (an oil company) without giving its parent company Repsol (a Spanish Company which held 75% of YPF) a cent. YPF aren’t alone, Ms Fernandez (Argentina’s President) also nationalised their private pension funds and a large airline, with the latter flagging (44% of Aerolíneas Argentina’s flights were not running on time last year).  If it weren’t enough for Spain to lose YPF, they also lost another company to a South American President. Evo Morales, President of Bolivia, nationalised their national power grid company of which a majority was owned by a Spanish company. Mr Morales has at least in the past offered remuneration, though often it has been below free market levels. Finally there is Venezuela, who suffered their own loss of a famous leader, Hugo Chavez. The dominant leader was beloved by his public and encouraged national patriotism by nationalising large parts of the economy. But this is possibly the worst example of nationalisation. Mr Chavez employed only those loyal to him in powerful state positions, rather than those best for the job. He gave cash handouts to the population but has had one of the worst records in the region for lifting people out of poverty.

Another fallen political leader leaves behind another controversial legacy 

Margaret Thatcher was a willing accomplice to globalisation, which has seen trade explode between nations and barriers broken down. So she would be sad to see that the WTO has cuts projections for trade this year down from 4.5% to 3.3% due to increased squabbling over trade restrictions, while protectionist policies in some studies have been suggested to have increased by 36% in 2010/11. The financial crisis’s long lasting consequence has been the setback in the expansion of integration within the world, with countries now moving towards protectionist policies more and more. In the recent EU budget talks for example, one of the few areas not to be discussed were Frances protected agriculture subsidies (where tariffs on non-EU goods have known to reach 156%). Then there was the decision by Brazilian President Dilma Rousseff to increase Industrialised products tax by 30% in 2011 for vehicles where 65% of the value added did not originate in Brazil, despite breaking WTO rules.

More worryingly, the biggest trade zone right now is facing big doubts over its future.  The EU is the biggest backer of free trade in the world, so if it were to break up, it would set the world back years. The lack of tariffs and trade caps between EU nations majorly simplifies the whole process, reducing the red tape that clogs up businesses and increasing the number of options open to the consumer. The percentage of trade in EU states between each other is falling sadly, with Germanys decreasing by nearly 10% since before the financial crisis (though there are other contributing factors). The single market also bizarrely does not include services, which account for around 71% of EU GDP but only 3.2% of intra-EU trade.

Share of intra-EU trade in Germany's total foreign trade

Thatcherism however is hardly dead. Free trade deals that many thought were long gone are starting to pop up once again. The EU and USA are discussing a “transatlantic trade and investment partnership”, which could according to some estimates boost GDP in both regions by between 0.5-1% to perhaps even triple that, depending on the amount of restrictions reduced. Tariffs only average about 3% between the regions, but other barriers to trade are aplenty and go a long way to restricting trade. Additionally there are the Trans-Pacific Partnership talks between the North American and South East Asian regions. The aim is to cut trade restrictions between 11 nations, including; USA, Mexico, Canada, Japan, South Korea, Vietnam and Australia. The countries involved account for around 30% of global trade and could improve the economies GDP’s by an estimated 1%. Neither deal is even close to being finished, but they both bring hope to the idea of free trade that Margaret Thatcher helped popularise in the 1980’s.

After the global recession, many criticised the free market approach as the main cause for the financial crisis, but the easy excuse isn’t always the right one. A free market doesn’t have to result in a lack of regulation and poor preparation, which were the real causes for the banking crash. A balance is needed for it to work, free market policies used along with guidance (not interference) from the state.

Baroness Thatcher may have passed on, but her free market policies are still alive and kicking.

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Is the EU being dragged apart?


After a sense of calm had finally emerged in the eurozone since last summer, panic has erupted once again. Cyprus’s long awaited bailout was carried out with little thought of the consequences, both short term and long. The initial decision to place a one off tax on all depositors in Cypriot banks, both over and under €100,000, was always going to lead to public uproar and a bank run. The second bailout decision was slightly better, only affecting those with over €100,000 in their banks accounts and winding down one of Cyprus’s biggest banks, the Laiki bank, while switching accounts to the Bank of Cyprus. But the damage had already been done; the government now has to enforce capital controls to keep money in the country, while the public won’t forget how close it came to them losing chunks of their bank balance. It has almost certainly ruined one of Cyprus’s biggest sources of income as an offshore financial haven, with the conditions of the bailout most likely requiring reforms of the country’s economy. Then there is the tourism sector (another big market) which will be hit, as foreigners won’t want to risk getting caught in the middle of another financial crisis. Worst of all, this will not be the end of it; the economy is set to retract by 5% in the more positive estimates and another bailout will need to be negotiated.

Cyprus’s  Debt-to-GDP ratio could overtake Greece in the future by some estimates. Found at http://trueeconomics.blogspot.co.uk/2013/03/2432013-are-cypriot-debt-dynamics-worse.html

Yet this is not the biggest worry for the European Union. Cyprus accounts for a tiny 0.2% of Eurozone GDP, its bailout at €10 billion is minuscule compared to the €246 billion needed to bailout Greece. If the economy crashed and defaulted on its debt, it would hardly tear the European Union apart. The bigger repercussions of this debacle are that the EU looks as divided as ever. The capital controls being placed on the Cypriot economy are not supposed to be possible in the EU – they are the first case of it since its creation. They are supposed to be short term, but then the same was said about Iceland 4 years ago.

 Cyprus’s Bailout is tiny compared to the other EU Bailouts. Found at http://www.economist.com/blogs/graphicdetail/2013/03/daily-chart-18

Even more worrying is that the much heralded banking union that the EU nations announced last year now seems less likely. The European Central Bank was set to bail out troubled banks directly, thereby cutting off the self-defeating link between weak banks and weak governments. But to some member countries that seemed too much like gifting money without conditions that have so far been ever present within bailouts e.g. reforms to the economy. Cyprus was the big test, to see if the ECB would directly fund the failing banks of the island, but disappointingly this was not to be the case. A banking union would have showed a more unified EU, with member countries prepared to provide assistance to troubled states. It could have possibly paved the way for joint government bonds, stopping the inconsistent borrowing costs that have spread throughout the eurozone. In reality the EU members have been diverging for awhile, amplifying the problems of the union.

Looking across the region, this isn’t the only sign of a gap emerging between EU states. Tensions are rising within the union, with the periphery nations growing resentful over the austerity policies being enforced onto their economies, while the central nations are becoming frustrated at having to rescue the weaker nations from their own mistakes. This is showing in the form of protest votes. Greece had a near miss in their latest election, where a party campaigning on leaving the euro ran the victors close. Italy went a step further, with the 5 Star Movement (a protest party lead by an ex-comedian) caused a political gridlock in the March elections which has yet to be resolved. This was helped by the far right being led by Silvio Berlusconi, a controversial billionaire who campaigned on ending the EU austerity in Italy. In Germany, Angela Merkel will soon face her own elections, where her popularity will be tested by opponents who will campaign against the continued funding of the EU by the German tax payers.

Beppe Grillo has captured votes for his 5 star movement party by campaigning for a referendum on EU membership. 

Then there is France, a country somehow caught in the middle. The nation is central to the EU, its partnership with Germany gives the union its clout and its leadership with Angela Merkel helped lead Europe through the financial crisis in 2008/2009. But Francois Hollande won his presidency by promising policies like the 75% tax on millionaires and the lowering of the retirement age, while he has backed the periphery economies in talks against austerity (to the annoyance of Angela Merkel). The French economy is in desperate need of reform and cuts however. The budget deficit is set to go over the set target of 3% of GDP, public spending is the highest in the EU at 57% of GDP and while Germany’s economy has become more competitive over the last decade, France’s has been left unproductive in the global economy. President Hollande is now set to implement the austerity measures he never mentioned during his campaign and has since seen his popularity plunge to the lowest since the firth republic began.

Showing the high public expenditure of France compared with similar sized countries. 

The contradictory aims of the different members are leaving the big decisions unmade. The lessons of the past bailouts are not being learnt; there is still no definite lender of the last resort, no banking union, no talks of the possibility of sharing out some of the debt across the union to help member states recover. Austerity is needed, but so are some pro-growth policies and just demanding more and more cuts from the bailed out countries is not going to get the right results. The EU budget could be restructured to help improve spending on much needed areas like infrastructure and reduce spending on subsidies like French Farming and the rebates that go to countries like Britain.

Britain is another obstacle awaiting the EU in the future. The government is set to hold a referendum after 2015 (if it wins) on its EU membership and if the union is still facing the problems it is today, it is not inconceivable that the nation could leave the club. The public are already frustrated at the European laws they have to abide by and the levels of immigration that arrive to their shores. Losing Britain would be a deep blow to the union, both as the third largest economy and as a good balance to Germany’s motives. But the growing popularity of the UKIP party, again campaigning on an exit from the EU, shows the split that is appearing between member states.

Together the EU is the biggest economic zone in the world, one which can rival the economies of the USA and China. Divided it is a bunch of quarrelling nations that can’t agree on the best policies to move forward. Right now the latter is a more poignant picture of the EU, with GDP retracting by 0.3% in 2012  and unemployment reaching a new high of 12%. Europe needs to integrate further both politically and economically if it’s reverse this slump. A move towards a banking union would be a good start, while sharing the debt burden of its weakest members would go a long way to restoring stability to an economic zone that has struggled with such a concept.

A divided Europe is a weaker Europe, let’s just hope it doesn’t take its members too long to remember this.

Joining the Club


At the end of this year, immigration restrictions within Europe are set to relax, spiking fears in Britain that a mass influx of poor immigrants will arrive from the likes of Romania and Bulgaria. Britain has form, with similar circumstances in 2004 leading to a flood of Polish Citizens arriving in the country, to the point where Polish is now the second most spoken language in the country. This situation has lead to a growth in the popularity of UKIP, who campaign on restricting immigration and leaving the EU. Semi-Success in a by-election in Eastleigh, while rather meaningless in the grand scheme of things, has proved both their popularity gain and the unrest of the public. But are these fears well founded?

UKIP take advantage of public discontent.

Unhelpfully, there isn’t really any respected statistics on how many immigrants are set to hit the shores of the UK, while the government underestimated the numbers in 2004 and are wary to make the same mistake twice (with up to 13,000 projected a year but over quarter of a million arriving after the first couple of years) . A general estimate is that immigration from Romania and Bulgaria could rise to 50,000 a year for the next few years.

But why choose Britain? The economy is spluttering along, the government is implementing tough austerity measures and the public already has a negative view of immigrants. In fact the government has been advertising this in the home nations, even going to the lengths of trashing Britain’s weather. Yet Britain remains an attractive location, with low unemployment when compared to the rest of Europe, a language spoke across the continent and a welfare system made famous by its generosity.

Unemployment figures as of April 2012. 

However if the public is expecting a repeat of 2004, they will be mistaken. The factors are different now. Britain was one of the fastest growing economies on the continent back then and importantly was one of the few large economies to fully open their borders at the time. Now Both Romanians and Bulgarians have a much wider choice in where they can travel, meaning the immigration figures should be split between the different countries. In fact, Germany in an economic sense is a lot more attractive; they have more impressive employment figures and a more stable society (whereas Britain has suffered from riots in recent history). Additionally, while their movement has been restricted, its hasn’t been completely stalled, so many Romanians for example have already emigrated, while countries like Spain had already allowed unrestricted immigration prior to this.

So while there will be an increase, it might not be as inflated as many are projecting. Either way, there will be more immigrants taking our jobs many will say. But that view is clearly wrong; many immigrants are either highly skilled and genuinely add something to the economy, or they are willing to do the low paid jobs many Britons would turn their nose up at e.g. picking vegetables.  In fact, while locals grumble about the polish “invasion”, a reputation has spread of polish immigrants being hard workers, a term that isn’t coined so easily with British workers.

But there are inevitably those that move into the country to take advantage of a welfare system that has seen benefits grow faster than average wage. This is the worst case scenario, with immigrants draining the system and sending money out of the country to families back home. But this is more rare than many think; labour participation is on average higher for immigrants than in the general population, while those that wished to move to Britain for such reasons could have already done so – the limitations have applied only to the labour market. In total, when comparing what immigrants have contributed with their costs since 2004 in the top eight European countries, immigrants have had positive effects on the country’s finances.

Welfare cuts are being implemented now to help tighten the budget.

If this wasn’t enough, the current government’s policies have not made the country very open or attractive to possible immigrants. The welfare state is being cut drastically; with benefit growth no longer being tied to inflation and a cap being introduced on entitlements to any family up to the average salary in the UK. While immigration in general is being clamped down on, with the government sticking to a target to reduce total immigration to fewer than 100,000 by 2015. David Cameron has gone about this by making it harder to obtain visas, which has unfairly fallen upon students, the sort of immigration that the country wants, young and skilled. But it has helped encourage an anti-immigration vibe in the public, where polls have shown a majority of the public wanting near zero immigration. Not that this would have an effect on immigrants from Europe anyway, unless the government was to radically defy EU law and start denying visas to such citizens.

Growth in student immigration has been a strength of Britain’s. 

So what will happen come the end of this year is still up to debate. The UK is no longer the only club in town and once you get in the locals aren’t very friendly. But then the minimum wage is fives that of Romania’s, which could be the equivalent of five more drinks…

Nobel winner slates Britain’s ‘stupid’ immigration reforms – UK Politics – UK – The Independent


Nobel winner slates Britain’s ‘stupid’ immigration reforms – UK Politics – UK – The Independent.

Very much agree with Sir Andre Geim here, these immigration reforms will only hinder Britain in the future.

Is a Brixit possible?


Britain has always been the odd one out within the EU; declining to adopt the euro, going against general European opinion in “liberating” Iraq and generally having a poor reputation with the rest of Europeans. More recently David Cameron vetoed the European Fiscal Compact last year (tightening fiscal rules for countries in the EU) while Britain’s foreign secretary was excluded from a group of eleven European foreign ministers in trying to come up with a solution for the Euro crisis over the last year. Furthermore, Britain is also very hard to fit into the general pattern that has emerged in Europe, that of prudent northern nations and reckless southern nations. The likes of Germany and Holland lived within their means and are now footing the bill for the likes of Greece and Portugal that are drowning in their own debt and cut off from the international markets.

Britain would be considered one of the Northern nations geographically, but has finances more like those of Spain (another troubled country). For example, a high budget deficit to GDP ratio of 8.3% resembles Spain’s slightly lower ratio of 6.8% rather than Germany, who boast a far lower deficit to GDP ratio of 0.3%. But while Spain are facing talks of a bailout and bond yields near the levels of those that had to be bailed out (5.9% on ten year bonds), Britain are comfortably paying extremely low yields on their 10 year bonds, at 1.86% recently. Some argue this is because Britain holds the confidence of the international markets, as it still holds its AAA credit status, had a budget deficit reduction plan (albeit rather unsuccessful so far) and importantly has its own currency – allowing it to depreciate externally.

A graph showing the difference in the UK and Spain’s 10 year bond yields. 

But just because Britain’s position within the EU is hard to place, it doesn’t mean they should leave, so next we will look at the positives and negatives for staying in the EU. A big positive is that the UK is part of the world’s largest single market, with free trade within the EU boosting the UK’s exports and imports (with protectionism not allowed). For example, 51% of the UK’s exports are to the rest of the EU, accounting for around £200 billion. Another benefit is the free movement of labour within in the EU, which has seen 3.5 million jobs created that are directly or indirectly linked to the EU. This also works the other way as Britons are allowed to move freely to different countries to find work. Both these measures help in cutting the regulation for firms and individuals as well, that for too long strangled the opportunities for business between different countries in Europe. For example the 27 different currencies made trade between multiple countries much more complicated and created instability as currencies could appreciate or depreciate too readily. Lastly investment is a bonus, as the UK is a good entry into the rest of the EU market for foreign firms, with the UK receiving £28 billion in 2009 from FDI. That is not to mention the increased togetherness of Europe now, with war highly unlikely and diplomatic relations at an all time high. But eurosceptic’s will argue differently, pointing to the current-account deficit of £33 billion in the first quarter of this year (a deficit to GDP ratio of 2.1%)) and the ever increasing contributions to the euro budget that outweigh, some think, the benefits that Britain receives.

UK FDI inflows in 2010 near $50 billion. 

I would argue that being part of the EU has benefited Britain over the years, but that the real question is whether they should leave now? Britain is facing the costs of helping to bail out countries that have struggled to depreciate while being part of the euro, a currency that Britain doesn’t actually use. These bailouts have stemmed from a euro crisis, which is having a clear negative effect on Britain’s exports, investments and confidence. A full scale break-up of the EU would have dire consequences on Britain, as the nation’s banks are heavily linked with the rest of Europe and could conceivably collapse as part of a domino effect.

Showing the exposure of UK’s banks to the Eurozone. 

Even considering that the EU doesn’t implode and instead moves towards further integration, is that where Britain wants to head towards? The country is already an outsider for having a separate currency; any further integration would surely lead to the adoption of the euro. It would also mean more loss of sovereign powers, as budgets would be decided in Brussels, debts spread across the whole union and credit transferred across countries to those nations that need it most (as what happens with the USA and its states). A country already angry at the loss of sovereign powers to the European High Court would be very reluctant to transfer even more control to central Europe. Another problem of further integration is that many believe this could only happen by shrinking the union itself. If so, the dropping of some unwanted countries would reduce the markets open to Britain substantially, reducing the benefits (more trade) of the single market and making the idea of staying in the EU more unattractive.

The nation’s future with the EU is clearly in doubt, with both possible outcomes leading to a big change in the relationship the country shares with the rest of Europe. For years it has gained all the benefits of being partly integrated and now it is facing all the problems. A referendum seems unlikely in the near future, as the public’s views is tainted with all the current media storm about the euro crisis, while the government would do better than to revolve the next election on whether the country stays in the EU.

So for now Britain will remain on the sidelines, as Europe moves towards an uncertain future, but sooner or later the nation will have to make a choice.

Britain: The Coalitions first two years


Have David Cameron and Nick Clegg been good leaders?

So the Coalition has been in power for two years now, that’s long enough to paint a good picture of where they are leading the country and how well they have done in charge.

One of the biggest factors in the coalition’s reign has been their reforms in education, health and the military. With education the government has set about creating “academies” which are schools that have been freed from local authority and allowed to make their own decisions on budgets, working hours and teaching styles. This has really kicked off across the country, with nearly half of all state schools being turned into these “academies”. Along with this the government is changing the exam structure in secondary schools, with the old O-level system being brought back in to replace GCSE’s. This is aimed to make exams harder after renowned criticism of exams becoming easier each year, while it also hoped to raise Britain’s poor standing in international tables for key subjects like Maths and Science. All in all, this makes sense as the current structure is flawed and corrupt (with schools manipulating the system to rise up the league tables), but those students unlucky enough to be the guinea pigs will likely achieve lower results. Finally there has been changes to higher education, with the cap on university fee’s raised to £9,000 from £3,000, to much protest from current and potential students. This is a debateable subject, with fees now very expensive considering you would have to study three years plus the costs of living, but the fact that student loans are accessible to everyone means it shouldn’t punish the currently poorer families too much (though the maintenance loans have been accused of being too low).

Protests against University tuition fee increases.

Next up are the reforms in the health sector, with a shake-up wanted for the NHS. The idea was to diversify the NHS, make doctors more accountable for budgets and open up the private market more. This has been an unmitigated disaster however; with substantial criticisms leaving the health bill a complicated mixture of compromises. This leads back to the Governments clear weakness throughout their reign, poor public relations. The government failed to make clear what exactly they wanted to change about the NHS (an already popular institution) and made it worse by not publicising such plans in the election campaign. Then there is the military, which the government has proceeded to cut down. With budgets tight, the army has been a big victim to the government’s cuts, with it being told to lowers its numbers by 60,000 people by 2015. This is to help close the £38 billion hole found in the defence budget, but critics now suggest the UK military is markedly weaker and would struggle to win conflicts such as a possible Argentinean invasion of the Falkland Islands.

Protests against the NHS reforms (you can see a pattern starting to emerge).

Even away from these big sectors there have been big reforms to the country. The government tried and failed to implement elected mayors in some major cities, with nine of the ten referendums being rejected. Then there are the big reforms to the police, which are set to integrate democracy into the Police hierarchy and allow the outsourcing of tasks like office work. Welfare is also being tackled, with benefits capped at £26,000 per household and David Cameron even pondering whether to drop the housing benefit for under 25’s. Finally there are possible changes to the Civil service being planned, to try and make individuals more responsible for their actions after criticism over the difficulty in passing through bills. So rightly or wrongly, the government cannot be accused of doing nothing, with a possible criticism instead being that they perhaps tried to do too much in such a short space of time.

Next we can look at the country’s economic performance. On the positive side of things, Britain surprisingly kept unemployment relatively low since the financial crisis, with the current figure of 8.1% (only 1% higher than the pre-crisis level) lower than its European counterparts; with Greece at 21.9%, Spain at 24.1% and even France at 10.1%. In fact, public sector jobs cuts of 424,000 over the last two years have more than been accounted for by a rise in private sector jobs by 843,000. In debt terms Britain isn’t too bad either, its public debt sounds incredibly high at just over £1 trillion, but this only accounts for 67% of their GDP. In comparison to other countries this isn’t too bad, with Germany and France having similar debt to GDP ratios, while Greece, Portugal and Italy boast debt levels over 100% of their GDP’s. In fact, all the worry over the Eurozone crisis has driven investors to Britain, with bond yields incredibly low at around 1.6% meaning Britain can borrow money very cheaply right now.

Current unemployment in Europe shows Britain in the bottom half and fairing better than its neighbors.

However, Britain is struggling deeply in other terms. Despite debt levels not being too high, the current budget deficit is 8.4% of GDP, which along with Ireland is the highest in the eurozone. This means that although Britain’s debt isn’t too high, they are adding to it much faster than any other countries in Europe. Even more disappointing is the Primary budget deficit which discounts the interest being paid on current debt. This stands at around 3% of GDP and is the highest in Europe, deafening criticism when the likes of Greece are boasting a surplus. It basically shows Britain is reliant on foreign money to survive right now, and is the main reason why the government is making such drastic cuts to the public sector. On top of this is Britain’s poor growth, with the country currently in recession, after a GDP decline of 0.4% in the final quarter of last year followed by a decline of 0.3% for the first quarter of this year. Though this isn’t a severe recession, it follows a long term trend of poor growth for the UK, with just 0.5% annual growth forecasted this year preceded by 0.7% annual growth last year. Such poor growth is not all Britain’s fault with oil prices and the Euro crisis obviously having an effect, but more must be done to implement growth within the country. At times the government is too set on cutting costs, with little ideas for boosting growth, a policy that is born to fail as low growth will only lead to less taxes and higher benefits being dished out. So in economic terms the government has done well to cut budgets without dropping the country into another deep recession, but without some sort of plan for Growth, they will be fighting a losing battle to lower the budget deficit.

The GDP forecasts of Britain show weak growth compared to Germany and France. 

Finally there are the international issues the government has had to face. International conflicts have seen Britain take a bigger role, with the intervention in Libya lead by Britain and France and the chaos in Syria seeing David Cameron condemn President Assad and argue the case for harsher sanctions and possible intervention. While the current disagreement with Argentina over the Falklands islands has been handled well, with a referendum set to end the debate and keep the islands under British control if the people reach such a conclusion (as is expected). However the debate over Scotland remains a touchy subject. Scotland is set to hold a referendum themselves over whether to stay as part of Britain and there is general worry that a decision could go against what the Coalition are hoping for. A messy split would not help the economy and debateable issues such as the North Sea oil revenues and transfer of Scottish bank debts could take a while to be sorted out. But by and large the biggest international issue remains the Euro crisis. Britain are one the few countries in the EU not to hold the euro currency and this has helped them devalue their currency, meaning the internal devaluing (public sector cuts etc) didn’t have to be as drastic. But the downside is that they are highly vulnerable to a break up without the safety net of having the EU bail them out. Britain actually doesn’t have much money tied up in Greece itself (roughly 0.4% of GDP) compared to Germany and France. But the combined money exposed to the weaker economies (Greece, Portugal, Spain, Italy and Ireland) accounts to £190 billion, which is higher than France or Germany’s exposure and is roughly 12.7% of British GDP. That’s not to take into account the money exposed to Germany and France at around £116 billion, which would be in big danger due to the domino effect expected to happen if just one economy in the eurozone fully crashes. So far Britain has gone against the trend in European discussions, opting out of the fiscal compact (such budget targets were beyond Britain right now) and largely looking out for itself (with the transfer of sovereign powers back to Britain high on the coalition’s plans). This has seen them marginalised somewhat and there is sense that if the EU is to solve this crisis they would have to become more unified. This leaves Britain with a big question to face in the near future, whether they join the new EU or leave the eurozone permanently.

Graph shows the extent to which Britain is exposed to the euro crisis. 

Overall, the Coalition government has had an eventful two years do far. Big changes to the county have had mixed effects, while the same could be said for their economic performance. Internationally they have fared well but will need to decide what direction they want to take in regards to the European Union. I would give them a 6/10, as they have fared okay in most departments, while it possibly could have been higher had they publicised their actions better. This has been the big problem with this government so far, they have dealt poorly with public opinion and are unpopular not down to their decisions as such, but rather the ways they have gone about making such decisions.

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