With the European economy in freefall, the Conservatives may have the perfect excuse for our own failing prospects.
Britain trades more with Europe than anywhere else in the world. As the continent descends deeper into economic chaos, hamstrung by indecision and poor leadership, we risk losing the business of our most frequent customers. Between July and August, British exports to the EU decreased by 6.6 percent, or £2.5 billion.
If that’s a sign of things to come, then there is a very real cause for concern: eurozone countries buy 40 percent of everything Britain sells abroad. Although the UK still imports more than it sells oversees, we remain the sixth largest exporter of goods and services in the world. A prolonged debt crisis amongst our biggest buyers will spell trouble for the UK.
David Cameron, meanwhile, cuts a peripheral figure in Europe, told bluntly by France’s President Sarkozy to “shut up”. Ineffective on the stage where Gordon Brown, for all his failings, led so decisively to avert global catastrophe in 2009, Dave skulked back home from the G20 meeting in Cannes to lament the fact that the UK exports more to Ireland than to Brazil, Russia, India and China combined. “I say this is the time to get out there and sell to them”, was his attempt at inspiring business leaders to buck the trend.
Yet, although seeking ways to boost export-led growth to emerging markets is important, it is unlikely to bear much fruit any time soon: building up large bilateral trade relationships takes time. With youth unemployment set to hit the one million mark this week, and living standards falling faster than at any time since the 1970s, the crisis we face is immediate. It demands immediate solutions. Asking politely for British businesses to sell more things to China won’t cut it.
The remainder of Cameron and Osborne’s plan for growth and jobs, so far as they have one, consists chiefly of flogging the dead horse of ‘red tape’. Channel 4’s FactCheck did a good job of digging the dirt on this one: the UK already has the third least regulated labour market out of 30 countries in the OECD. Businesses aren’t wringing their hands with angst over their inability to wade through seas of bureaucracy in order to hire and fire workers. They’re struggling because of the disastrous absence of demand in the economy.
Indeed, consumer confidence, which recovered to pre-recession levels in 2010, has now plunged back to the depths of 2008. To instigate growth, we need urgent measures to get people working and spending. Instead, Osborne hiked VAT by 2.5% and mumbles about cutting taxes for the very richest. The plan for “credit easing” is welcome, but its scale remains unclear. Similarly, a supposed £50bn boost for housing and road building at least reflects a realisation that Plan A is failing. But, beyond the handy headline, Osborne’s obstinate aversion to deviating from his 2010 budget means all hopes rest on the questionable prospect of private companies stumping up the cash.
In the meantime, Cameron, with remarkable chutzpah, has taken to berating Labour for “talking down the economy”. He’s right about one thing: encouraging consumers to be frugal at a time when the government is also aiming to slash its spending is a recipe for economic disaster – J.M Keynes called it the paradox of thrift.
The irony is that the prime minister has for the last two years been the UK’s principal bell-ringer for economic doom and gloom. Who was it that persistently spread the ludicrous myth that the UK was on the “brink of bankruptcy” and in danger of becoming the “next Greece”? Who loftily suggested that households should be “paying down the credit card and store card bills”?
When it suits their agenda, Cameron and Osborne are all too happy to propagate unwarranted fear and misery about the economy. It allowed them to successfully create a public mood whereby almost all government spending is considered profligate; unnecessarily severe cuts to public services become mere fiscal common sense. But as borrowing is forced up by a stagnating economy and rising unemployment, and the deficit reduction target appears unlikely to be met, the great ruse is slowly coming back to bite them.
Or is it? The question now hangs on whether events outside our borders might allow the Tories to elude their culpability. The eurozone blame game is already being played out. “It’s all Labour’s fault”, so effective in 2010, is mutating into “it’s all Europe’s fault”.
But the tactic is a risky one. Our paltry growth of 0.5 percent over the last twelve months can logically have little to do with a crisis in Europe that transpired only more recently. Exports to the EU in fact increased in the past year, yet our growth remained anaemic. Now, the European Commission predicts growth of just 0.6 per cent in 2012, worse than Spain (0.7 percent), Ireland (1.1 percent), and seventeen other EU countries. It is absurd to imagine a debt crisis in the eurozone could render us worse off than most of the countries actually holding euros.
Much will depend on Labour’s capacity to argue that whilst we must deal with our debts, Conservative dogma is taking the country backwards, not forwards. It is a battle with which Ed Miliband remains unable to make a breakthrough, stifled by a lack of policies beyond his short-term “five-point plan” for growth. “You can’t borrow your way out of a debt crisis” remains an effective, if disingenuous, retort from the Tories.
After 1.1 percent growth when Brown left office in 2010, and the recovery apparently on track, the looming spectre of savage austerity seems to have kicked things into reverse. The danger is that an ensuing crisis in Europe will gradually come to overshadow this fact. Yes, it would damage our prospects to an extent, although policies closer to home are more important. Most worryingly, though: it might let the Tories off the hook.