The Great Debate UK

from Anatole Kaletsky:

Why breaking up Britain could tear apart the EU, too

A bunch of 'Yes' balloons are seen as Scotland's First Minister Alex Salmond campaigns in Edinburgh, Scotland

While recent opinion polls have swung slightly back toward the "no" camp, there remains a distinct possibility that Thursday's Scottish referendum will trigger a previously unthinkable breakup of Britain.

If this were to happen, the biggest risks for global businesses and investors do not lie in the economic problems created by Scotland’s choice of currency or the inevitable arguments about sharing North Sea oil revenue and the British national debt. These are crucial challenges for Scotland and have been much discussed in financial institutions and think tanks. But the crucial issue for the world economy and financial markets is about the resulting impact on the European Union -- and especially on Britain, which would remain the world’s sixth largest economy even if Scotland departs.

These political risks, which I discussed here last week, can be broken down into four questions: What would Scottish independence, if it happens, mean for British politics and economic management over the nine months, until the May 2015 general election? What effect would it have on the election results? How would all this turmoil affect Britain’s fraught relationship with Europe? Would Scottish independence act as an inspiration for secessionist movements in other European countries?

Britain's Prime Minister David Cameron speaks during a visit to the Scottish Widows building in Edinburgh, ScotlandThe answers to all four questions promise to be more destabilizing than almost anyone would have predicted a month ago.

from Nicholas Wapshott:

Fighting for the future of conservativism

Britain's Prime Minister David Cameron delivers a speech to placard waving Conservatives during an European election campaign rally at a science park in Bristol

Establishment Republicans have been delighted by the victory of Thom Tillis, their favored candidate in last week’s North Carolina primary. After expensive advertising campaigns by establishment bagmen like the U.S. Chamber of Commerce and Karl Rove’s American Crossroads, mainstream conservatives believe they have a candidate who can beat Democrat Kay Hagan to win a valuable Senate seat in November.

Some commentators see Tillis’s triumph as a sign that other impending GOP primary races will also deliver electable candidates. Having watched the Senate slip from Republican grasp in 2012, as Tea Party candidates such as Todd Akin in Missouri, Christine O’Donnell in Delaware and Richard Mourdock in Indiana depicted the party as too extreme, they say the Tea Party is in retreat.

from Lawrence Summers:

Britain and the limits of austerity

The Bank of England is seen in the City of London

The British economy has experienced the most rapid growth in the G7 over the last few months. It increased at an annual rate of more than 3 percent in the last quarter -- even as the U.S. economy barely grew, continental Europe remained in the doldrums and Japan struggled to maintain momentum in the face of a major new valued added tax increase.

Many have seized on Britain’s strong performance as vindication of the austerity policy that Britain has followed since 2010, and evidence against the secular stagnation idea that lack of demand is a medium-term constraint on growth in the industrial world.

from Nicholas Wapshott:

No, austerity did not work

There have been a lot of sighs of relief in Europe lately, where countries like Britain and Spain, long in recession, have finally started to grow. Not by much, nor for long. But such is the political imperative to suggest that all the misery of fiscally tight economic policies was worth the pain that there are tentative claims the worst is now over and, ipso facto, austerity worked.

Hold on a minute. Growth is good. Growth is what allows countries to pay down their national debt by increasing economic activity, putting the unemployed to work and making people prosperous enough to pay taxes. But gross domestic product growth alone is not enough to provide adequate sustained prosperity if it does not also lead to significant job growth.

UK recovery, but not on the high street

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It was only a few days ago that George Osborne declared victory on economic malaise saying that the UK economy has turned a corner. The economic data has improved dramatically in the last six months, which gave Osborne a battering ram to launch a political attack on the Labour Party. Osborne used his moment in the sun to prove Ed Balls and all on the other side of the political bench wrong, saying that his austerity programme is right for Britain.

However, a little over 24 hours after Osborne’s speech a report from the Local Data Company made for uncomfortable reading as it detailed grim conditions on the UK’s high streets. High Street vacancy rates remain stubbornly high; out of 650 town centres in the UK the average vacancy rate is 14.1 percent, which is basically unchanged since February.

from John Lloyd:

In Britain, a summer of quiet revolution

The British Isles are sentries in a turning world. The monarchy, pageantry, the mediaeval House of Lords, titles, accents, the established Church of England with the Queen at its head -- they all give the adroit illusion of continuity and the primacy of tradition over change.

But this summer there are diverse changes modernizing the Isles. These revolutions, small and large, will not be reversed, and will contribute significantly to a redefinition of what it is to be British (and Irish). The illusions of tradition will remain, as diligently served as ever. The core is hollowing out.

from Nicholas Wapshott:

Austerity is a moral issue

Security worker opens the door of a government job center as people wait to enter in Marbella, Spain, December 2, 2011. REUTERS/Jon Nazca

In the nearly five years since the worst financial crash since the Great Depression, the remedy for the world’s economic doldrums has swung from full-on Keynesianism to unforgiving austerity and back.

from John Lloyd:

The nuance behind the iron

There’s no time more apt for murmuring the ending of Brutus’s speech in Julius Caesar than the week of Margaret Thatcher’s funeral: “The evil men do lives after them/the good is oft interred with their bones.” No time better, either, to add that the “evil” that, in this case one woman, did is little examined by her detractors, who prefer to stick to a diabolical version of her 12-year rule.

Margaret Thatcher (narrowly) won the 1979 election because the Labour government of the 1970s, under Prime Ministers Harold Wilson and James Callaghan, had unsuccessfully tried to make a contract with the trade unions. In such a contract, pay would have been calibrated to productivity, and increases would be low in order to bring down high rates of inflation and to keep up investment in the socialized education, health and welfare institutions that disproportionately benefited the lower classes. It was the kind of social deal that the Germans and the Scandinavians had and still – in part – have: one that produces economies that, not by chance, have escaped the worst of the economic buffeting of the past five years.

from The Great Debate:

Thatcher: Master of the ‘unexpecteds’

The passing of Margaret Thatcher comes at a time when the great theme that shaped her years as Britain’s prime minister – the frontier between government and the private sector – is again the focus of serious public debate. Her historic achievement was to widen the frontiers of the “market” and, as she said, to have “rolled back the frontiers of the state.”

There is, however, a pendulum in this relationship between government and private sector. The role of government in the economy has expanded greatly since the 2008 financial collapse, along with government debt. So we will likely again see a struggle to rebalance the respective realms of state and market. And it will again be a battle.

from Anooja Debnath:

When it comes to recessions, 40 is the new 50

If it were about age, 40-somethings would cringe. But it seems a dead certainty that 40 now means 50 -- or even higher -- when it comes to predicting the chances of a recession taking place.

Going by past Reuters polls of economists, every time the probability hits 40 percent, the recession's already started or is perilously close to doing so.

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