The Great Debate UK

Budget background: Dark with light patches

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

Spring has sprung.

The grass has riz.

I wonder when the Budget is….

On 19th March actually or, more importantly in this age of nonstop campaigning, six weeks before the European elections and barely a year away from the general election. Since the 2015 Budget will be too late to affect our wallets before we go to the polls, this is George Osborne’s last chance to reassure us that the economic situation is under control. Will he be able to resist the temptation to give us a reward for our patience through four years of austerity and to reassure us that the misery is nearly over?

If he does, it will be a statement as dishonest as Gordon Brown’s annual hymn to prudence in his Budget sermons, because the truth is that we are only halfway along the road to fiscal probity. In fact, according to the autumn statement, government borrowing will be about £110 billion this year, adding well over 6% to a national debt now approaching 90% of GDP.

Now some folk may be inclined to take comfort from the fact that those figures are more or less the norm in the industrialised world – the debt-to-GDP ratio for France is about 90%, for example, and even for Germany, it is 80%. Then, of course, there is Japan, with 250%. The problem with such comparisons, however, is that none of these countries has levels of household debt comparable to our own, which peaked at 160% of income in 2008 and has now come down only to 135%. In case you’re thinking it’s a miracle that households have reduced their debts even as much as this, given the squeeze on living standards in the last five years, you also have to bear in mind that rock-bottom interest rates made paying off debt easier than ever before.

Thanks, Greece

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

The euro zone crisis has been a piece of luck for Britain. Imagine what would have happened without it.

How do you police without a force?

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

You will often have heard it said that the euro zone cannot ultimately survive without fiscal union. This is complete nonsense. The truth is that, even with a full fiscal union, it cannot survive – at least, not with any form of fiscal union that one can imagine all the members signing up to.

Dear Mark

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

Dear Mark Carney,

As you arrive in your new office, you will not be short of free advice, least of all from economists. Nonetheless, like a supporter of the away team valiantly trying to make himself heard above the roar of the home crowd, this is my feeble attempt to compete against the chorus of voices calling for ever more, ever larger doses of QE, ever lower interest rates and even more devaluation of the Pound.

We are all Thatcherite now

By Laurence Copeland. The opinions expressed are his own.

As we remember the second greatest prime minister of the Twentieth Century, we quite rightly think first of her achievements. There is no need for me to recap those when they are being well covered in the Conservative press. They are best summarised by acknowledging, as some of the left wing press does, that we’re all Thatcherite now, and however much some folk might have their fun dancing on her grave, it’s a bit late now – she won, and their celebrations are in the end a tribute to the strength of the forces she overcame almost single-handed.

On the negative side, it has to be admitted that we are still haunted by her two big failures.

Cyprus deal means the cat is well and truly out of the bag

By Laurence Copeland. The opinions expressed are his own.

The German insistence that depositors in Cyprus must face a haircut marks a new and dangerous stage in the interminable death throes of the euro zone. Up to this point, the one unshakeable principle underlying all the bailouts on both sides of the Atlantic since 2008 had seemed to be that the value of bank deposits was sacrosanct, whether they were explicitly insured or not. Now, the cat is well and truly out of the bag. It will be clear from now on, even to the most naïve investor, that there are no longer any totally safe assets. The principle of caveat emptor applies to bank deposits as much as to second-hand cars or beef-burgers. If even deposit insurance is now conditional, the difference between insured and uninsured deposits is only one of degree of risk. It is amazing how calmly the markets have reacted to the new reality, but it would be foolish in the extreme to rely on their continued insouciance.

There are a number of lessons we can learn from the events of the last fortnight, most of which relate more to Germany than to Cyprus.

Budget day cheer is here again

By Laurence Copeland. The opinions expressed are his own.

Budget Day again, and the pressure on Chancellor George Osborne is rising ominously. There is little agreement about what needs to be done, but complete agreement that something has to change because the state of Britain’s economy is simply awful.

Yet just look at the facts in the table below (all the data are taken from Eurostat, the EU’s own statistical agency). For the latest quarter, the UK economy contracted by 0.3 percent – but France’s performance was just as dismal, Germany’s economy shrank by twice as much, as did the euro zone as a whole. Only the USA achieved a significantly better outcome, a dazzling growth rate of zero  – but at least it didn’t shrink. Year-on-year (Y-O-Y, as the pros call it), the picture is even clearer. Britain’s economic growth, a miserable 0.3 percent, was not significantly lower than Germany’s, but better than France’s minus-0.3 percent, or indeed the euro zone as a whole, which was down by 0.9 percent. Only the USA grew to any significant extent – and there are signs that it may now be starting to slow down, even before the impact of the fiscal cliff and the sequester are felt.

All pain, no gain for Germany

By Laurence Copeland. The opinions expressed are his own.

Whenever the question of the future of the euro zone comes up, you can always rely on someone (often a German) to say something like “Yes, of course the Germans don’t like having to foot the bill for the weaklings… but at the same time, they do get enormous benefits from having a fixed exchange rate. I mean, just look at their trade surplus. All those Mercs and BMW’s you see in Milan and Athens and…”

This argument is utter nonsense, and the economists especially ought to know better.

Don’t Mention the War!

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

Modern wars have no clear start and no clear end, leaving politicians free to deny their existence when it suits them and to claim victory even in the face of obvious defeat.

Obama half-term report: must try harder in economics

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

In the welter of comment on President Obama’s second term, one remarkable feature seems to have slipped under the radar. This has been a presidency blessedly free of scandal. When last did the White House remain more or less scandal-free for as long as four years? His predecessor, George W., had the average scandal quotient (Halliburton contracts, the Abramoff affair among others). Before him, there was Clinton, who seemed to clock up a scandal a week – we all remember the sex, but there was also Whitewater, which involved money, allegations of graft and ultimately suicide. Under Bush Senior and Reagan we had the Iran contra affair. As for Nixon, the less said the better. Even the saintly Jimmy Carter had a problem brother and some rather loose cannons among the pals he shipped in from Georgia to staff his administration.

  •