Will the debate on Europe hurt the British economy?

28 Jan 2013

Last week the Office for National Statistics (ONS) released its figures concerning the state of the UK economy. Britain’s Gross Domestic Product (GDP), which is the market value of all goods and services produced within a country, shrank by 0.3% in the last three months of 2012 after a growth of 0.9% in the previous three months. Debates concerning Britain’s economic state and its place in Europe and the World have become the frontline of the political battleground. Our economy remains weak and it seems as though the direction in which our coalition government is taking us is not working at all, and hasn’t been for some time. 

 

The public and government discovered last week that unemployment is down by 37,000 to 2.49 million, more women are in work that ever before, and the FTSE-100 index shares are at their highest levels since mid-2008. Yet the administrators have been called in to deal with three high-street companies in the last three weeks, which could result in the loss of over 10,000 jobs. The car manufacturing industry and the military sector announced last week that they will be cutting thousands of jobs in the near future. It is feared that the announcement of a possible in-out referendum on Europe will affect British trade, and the public does not want to see Britain fall into a triple-dip recession, which is very likely due to the lack of consumer spending over the poor weather period.

IMF chief economist Olivier Blanchard advised last week that the Chancellor, George Osborne, must consider slowing down austerity measures, which is a message that has also been reiterated by London Mayor Boris Johnson and Top Goldman Sachs banker Jim O'Neill. However, Deputy Prime Minister Nick Clegg has insisted that the government is "absolutely not going to change course" on reducing the deficit and the depth of austerity measures. Yet, at the same time, Nick Clegg warns of deeper economic downturn if Britain leaves the European Union and that the coalition was wrong in cutting back capital spending when it came into office in 2010. It is difficult to understand what message the Deputy Prime Minister is asserting, which of course does not help the public’s or business investor’s confidence in the government. The Labour Party and Shadow Chancellor Ed Balls continue to reinforce its message that the government is ‘cutting too far and too fast’.

The Guardian newspaper also sees harsh economic implications if Britain does decide to leave the European Union (EU), writing:

“[leaving] will be a disaster at every level... Already, there is massive damage... partly because Germany now anticipates Britain leaving the EU.”

The repercussions of leaving the EU will hit many British industries; including the mass car industry, of which has already resulted in over 800 Honda job losses, the financial services, and agriculture. There is also alarm that tax avoidance and evasion will increase to staggeringly high levels due to foreign business strategy. 

The main problem is uncertainty. Will the Labour Party hold a referendum if they come to power in 2015? It would seem not, however nothing has been ruled out. If the Conservatives remain in power and are successful in securing new terms for Britain (we are unaware of what these are), are they sure that there will be no need to hold a referendum? And if they are not successful, will Prime Minister David Cameron campaign to leave or stay in the Union? Besides these questions, we are now aware of David Cameron’s views on the current status of Europe and his plans for the next two and a half years. However, there is now a strong uncertainty which may prevent companies, particularly from Europe, from investing in British industry and therefore hindering Britain’s economic prospects.

Backbench Chancellor


The Guardian article: http://www.guardian.co.uk/commentisfree/2012/nov/18/editorial-britain-leaving-european-union

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