{"id":382549,"date":"2010-03-02T14:36:56","date_gmt":"2010-03-02T19:36:56","guid":{"rendered":"tag:www.economist.com,21005118"},"modified":"2010-03-02T14:36:56","modified_gmt":"2010-03-02T19:36:56","slug":"britain-will-be-all-right-right","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/382549","title":{"rendered":"Britain will be all right, right?"},"content":{"rendered":"

LET’S revisit the story of crisis along Europe’s southern periphery, as told<\/a> by Paul Krugman:<\/p>\n

\n

[L]ack of fiscal discipline isn\u2019t the whole, or even the main, source of Europe\u2019s troubles \u2014 not even in Greece, whose government was indeed irresponsible (and hid its irresponsibility with creative accounting).<\/p>\n

No, the real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites \u2014 specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment.<\/p>\n

Consider the case of Spain, which on the eve of the crisis appeared to be a model fiscal citizen. Its debts were low \u2014 43 percent of G.D.P. in 2007, compared with 66 percent in Germany. It was running budget surpluses. And it had exemplary bank regulation.<\/p>\n

But with its warm weather and beaches, Spain was also the Florida of Europe \u2014 and like Florida, it experienced a huge housing boom. The financing for this boom came largely from outside the country: there were giant inflows of capital from the rest of Europe, Germany in particular.<\/p>\n

The result was rapid growth combined with significant inflation: between 2000 and 2008, the prices of goods and services produced in Spain rose by 35 percent, compared with a rise of only 10 percent in Germany. Thanks to rising costs, Spanish exports became increasingly uncompetitive, but job growth stayed strong thanks to the housing boom.<\/p>\n

Then the bubble burst. Spanish unemployment soared, and the budget went into deep deficit. But the flood of red ink \u2014 which was caused partly by the way the slump depressed revenues and partly by emergency spending to limit the slump\u2019s human costs \u2014 was a result, not a cause, of Spain\u2019s problems.<\/p>\n

And there\u2019s not much that Spain\u2019s government can do to make things better. The nation\u2019s core economic problem is that costs and prices have gotten out of line with those in the rest of Europe. If Spain still had its old currency, the peseta, it could remedy that problem quickly through devaluation \u2014 by, say, reducing the value of a peseta by 20 percent against other European currencies. But Spain no longer has its own money, which means that it can regain competitiveness only through a slow, grinding process of deflation.<\/p>\n<\/blockquote>\n

Now read The Economist<\/em>‘s description<\/a> of Britain:<\/p>\n

\n

For the past year, Britain has stood out for all the wrong fiscal reasons. This year\u2019s deficit is forecast by the IMF to be 13.2% of GDP, the highest among the G20 economies. The build-up of government debt will be second only to Japan\u2019s between 2007 and 2014.<\/p>\n

Despite these ugly trends, investors were forbearing because Britain still had some things going for it. The starting-point for public debt-44% of GDP in 2007-was low compared with other big economies. And the average maturity of gilts is exceptionally long (14 years), which means that the government has to repay (and thus refinance) much less of its outstanding debt each year than other countries with shorter maturities.<\/p>\n<\/blockquote>\n

\"\"Britain’s outstanding debt in 2007 was almost identical to that of Spain’s. Like Spain, Britain has experienced a significant fiscal deterioration, thanks to declining government revenues and spending on measures to rescue the financial system and shore up the economy. The difference is that Britain still has its own currency. And sterling has been in decline against the dollar and the euro, more or less, since 2007. The currency’s decline has been particularly sharp over the past month.<\/p>\n

Now, a disorderly decline in sterling leading to capital flight and crisis would not be a particularly desirable outcome. But otherwise, these movements are quite beneficial for the British economy. Producers of goods for sale in the British market face reduced competition from exports, and British exporters enjoy an increasing cost advantage over producers on the continent and across the Atlantic. This is especially significant given that America and the European Union are Britain’s top trading partners.<\/p>\n

And so we have a fairly decent little experiment set up. Britain can do what euro critics have all said that Greece, Ireland, Italy, and Spain (and the Baltics<\/a>) needed to do\u2014devalue. Will we now observe the expected outcome?<\/p>\n","protected":false},"excerpt":{"rendered":"

LET’S revisit the story of crisis along Europe’s southern periphery, as told by Paul Krugman: [L]ack of fiscal discipline isn\u2019t the whole, or even the main, source of Europe\u2019s troubles \u2014 not even in Greece, whose government was indeed irresponsible (and hid its irresponsibility with creative accounting). No, the real story behind the euromess lies […]<\/p>\n","protected":false},"author":4534,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-382549","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/382549","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4534"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=382549"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/382549\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=382549"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=382549"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=382549"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}