Subject of Europe set to trip Liberal Democrat Nick Clegg

April 22, 2010

Jane Foley- Jane Foley is research director at Forex.com. The opinions expressed are her own. -

Over the past week the British electorate has taken a shine to Liberal Democrat leader Nick Clegg.

Based on just one television appearance the popularity of the leader of the UK’s third main political party has surged to such a degree that the press could not resist the opportunity to draw comparisons with the support attained by orator, statesman and former Prime Minister Winston Churchill.

Clegg’s rise from the political sidelines, while remarkable, does pose at least one problem.  Its speed suggests that the electorate may like the man, but is probably not too familiar with the policies of the Liberal Democrat party.

Among other things, the LibDems are committed to taking the UK into European and Monetary Union.

Not surprising, given the economic crisis in Greece, the party manifesto concedes the current time is not right for such a move.

That said, the party pledge remains that it is in Britain’s long-term interest to be part of the euro.  The UK currently runs a budget deficit/GDP ratio of similar proportions to that of Greece.

The UK economy is not directly comparable with that of Greece in many aspects.  That said, it is unavoidable that the UK, like Greece, will have to swallow a difficult period of austerity if it is to return its budget position to relative health over the next few years.

A shrinking of the public sector, wage freezes and cuts in public spending appear inevitable in both countries and this will be a drag on growth.

The UK, however, has a joker up its sleeve.  Aided by the 20 percent fall in the value of the pound vs the dollar and the euro since late 2007 the UK has seen a boost to its competitive which should soften the impact of this austerity on the economy and allow for a continued, albeit moderate, pace of recovery through 2010.

Faced with a continuation of recessionary conditions this year and a strong and fixed exchange rate Greece will find it difficult, and potentially impossible, to digest all of its prescribed austerity this year.

The issues currently facing Greece have made it widely apparent that EMU is still a nascent and flawed system.  The UK electorate have always been sceptical of a potential entry of the UK into EMU.

The current crisis in Greece vindicates that scepticism and is therefore inconsistent with the sudden rise in popularly of the Lib Dems.  Given the apparent disparity between British votes and the LibDems on the subject of Europe and also potentially on immigration, it could be that Clegg’s glory will fade fast.

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