The Dunkirk Spirit – Market Matters
These are interesting times for businesses in the UK to put it mildly so no apologies for the topic this month. Stick a couple of matchsticks between your eyelids and consider the prospects for your business over the next five years. Our fresh-faced new coalition Government has promised a ‘new era of innovative governance’ and the global stock market is waiting to see if it can manage the appalling financial deficit it has inherited. Outgoing Chief Secretary to the Treasury, Liam Byrne, even left a personal note for his successor, David Laws advising him “I’m afraid to tell you there’s no money left”. Well ha bloody ha, Liam – we hope you enjoy your retirement.
Chancellor George Osborne: News about as welcome as your dentist.
What Liam Byrne and Alistair Darling did leave behind were the highest borrowings since the Second World War and the biggest fiscal deficit in the G7 and European Union. We finally paid- off the WW2 loans just a couple of years ago and the memory of this may have stimulated the new Chancellor of the Exchequer, George Osborne into swift action. He has promised an emergency budget on June 22 when we can anticipate painful public spending cuts and a hike in VAT. He aims to reassure global investors that managing this year’s £163 billion deficit is under control and Yes – your loans will be repaid. The message he is desperate to broadcast is ‘allus est in ordnung’ as they say in Frankfurt, so please keep investing in the UK. Keeping our ‘triple-A’ credit rating is his priority and he has already taken away responsibility for economic forecasting from the Treasury and handed it to a new, independent Office for Budget Responsibility. Let’s hope it works because Treasury forecasts in the past have been abysmally inaccurate. In the interests of fairness we should not forget that Gordon Brown was equally innovative when he handed- over responsibility for setting interest rates to the Bank of England, but a lot less so when supervising the incompetent Financial Services Authority that was supposed to stop us from getting into this mess.
So far, so good and UK plc might be able to remain solvent without intervention from the International Monetary Fund – unlike Greece. But why then, given that the UK is not yet part of the Eurozone (thank God) should David Cameron make his first overseas trip to meet German Chancellor Angela Merkel? She is the leader of the EU’s largest economy so arguably the most important person in Europe. The discussions we are told were to co-ordinate fiscal strategies as the EU is the UK’s largest trading partner and if Europeans aren’t buying then we’re not selling. If she can stop the Euro from collapsing then it improves the prospects for the UK’s economy to grow.
But maybe there’s another reason as well. The Greek economy has been a basket case for years due to widespread tax evasion and Governments squandering money to keep public sector workers happy. Since it has become unable to repay its borrowings and devalue its way out of trouble, it has had to accept IMF-imposed spending cuts and rely on fellow members like Germany to guarantee further borrowings.
As a parting shot Alistair Darling confirmed that UK membership of the EU did not extend to underwriting bailouts for it’s Euro, so the emphasis shifted to Germany underwriting the loans. But car workers at Mercedes and BMW don’t like their taxes being used to pay for an incompetent Government in Athens and who can blame them?
Whitby: Another unwelcome arrival after Dracula?
Mrs Merkel is a tough cookie and has forced the German guarantees past her Government whilst blaming the Euro’s problems on speculators, but rumour has it that proposals are now being floated in Frankfurt for a new ‘Hard Euro’ currency led by Germany, Austria and the Benelux countries. Maybe that is what she and Cameron are discussing – the UK joining forces with Germany to support a ‘premium’ Euro linked to sterling, which protects us hardworking Northern Europeans from the ClubMed party animals in the South. The Cameron/Clegg five- year coalition certainly gives Pro-European LibDems the opportunity to outvote Eurosceptic Conservatives and deliver the innovative governance we have been promised.
Sterling’s devaluation has not been pretty, but it is keeping our exports competitive whilst the coalition Government begins to rebuild the nation’s finances. In the meantime, we should be grateful that Labour Europhiles such as Tony Blair and Peter Mandelson were frustrated by Gordon Brown whilst Chancellor. If we had scrapped the pound and embraced the Euro this country would be even closer to ruin but keeping Sterling flexible has enabled us to avoid being crushed by the colossal budget deficit that we will now spend the next 30 years paying-off.
In the month when we remember the 70th anniversary of Dunkirk it might seem a bit odd to stand shoulder to shoulder with the Germans to back a currency to which we don’t even belong, but the scale of the problem is unprecedented. I just hope Cameron and Clegg are fans of ‘Blackadder goes forth’ in which Edmund once memorably announced to Baldrick, “The Teutonic reputation for brutality is well-founded. Their operas last three or four days and they have no word for ‘fluffy’.”
Jonathan Owen is a director of Quarterbridge Project Management – a specialist consultancy providing business advice and design services to market owners and trade associations. He has a keen interest in the politics of retailing, growing vegetables and eating well.
Market Matters, published in Market Trade News magazine
