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|Is Britain in the midst of an economic crisis?|
Corriere della Sera - March 3rd 2010
Is Britain in the midst of an economic crisis? We British have been asking ourselves that question ever since the global credit crunch began in mid-2007, and even more so since the global recession began, a little more than a year later. Now, with the value of the pound falling sharply as the week began, we are asking ourselves that same question again. Strangely, however, we still don´t know the answer. What we do know is that
Actually, "crisis" is the wrong word both for our political problems and our economic worries, for it implies some dramatic and rapidly developing situation.
But Mr Brown has chosen to wait until almost the last legally possible moment to call an election, since the power to ask the Queen to dissolve Parliament and have a general election is one of the very few unchallenged rights that a British prime minister has. Legally, he can wait until the first week of June; everyone expects him to hold the election just one month ahead of that end of Parliament´s five-year term, on May 6th, in order to coincide with local elections.
The main result is political paralysis and, what is more important, paralysis of fiscal policy. It is not that
Many have speculated that the reason why the pound sterling fell sharply this week is that new opinion polls were published which suggested that
It is a confusing and frustrating political picture. But this explanation, that a coalition government might be likely and that the result would be a weak administration without a clear fiscal plan, is not really enough to explain the fall in sterling. The reasons why it is inadequate are, first, that the euro has also been falling quite sharply against the dollar, without any such electoral explanation; and, second, that the most important indicator of investors´ concern, which is the interest rate on British government bonds ("gilts"), had already been rising well before these recent polls called into question the common assumption of a clear victory by David Cameron and his Conservative Party.
That means that neither Labour nor the Conservatives can really know whether the right fiscal policy will be to cut the deficit immediately or to wait until the recovery feels strong enough to withstand cuts. It is that uncertainty that must now be weighing heavily on the minds of investors. A further fall in the pound against the euro, following the 25% devaluation that has taken place since the global recession began, ought to be good for our exports. Indeed, there are some signs that exporters and manufacturing companies are feeling more confident. But it cannot provide a big boost unless the demand for exports also rises, and since about 60% of
There is no British economic crisis. What we do have, however, is an exhausting, wearying electoral process, combined with difficult economic-policy dilemmas.