“We must confront and defeat the ugly stain of separatism seeping through the Union flag. […] Better an imperfect union than a broken one. Better an imperfect union than a perfect divorce. […] Together, we are stronger. […]Together, we are safer. […]Together, we are richer. […] Stronger. Safer. Richer. Fairer… Together.”

The above sentences come from a speech delivered by now Prime Minister and then the Leader of the Opposition, David Cameron, in December 2007. Over the last six years, Mr. Cameron has stated his case repeatedly, in December 2012 and in April 2013. In all those speeches on the benefits of international cooperation, the PM referred to Scotland and its status within the United Kingdom. Rather unsurprisingly, he has never applied the same line of argument when discussing the United Kingdom’s position within the European Union.

Distorted image

Over the last four decades, numerous publications sought to explain the complexity of British relations with the uniting Continent. While many factors are undoubtedly at play, their influence eventually seems to depend on yet another one, namely, a distorted image Britain has, not so much of the European Union, but of itself. Let’s take just one example.

In the coming years, Britain’s position within the Union will be conditioned to a large extent on its economic performance. So far, the anti-EU campaign in Britain was presented as a crusade lead by energetic free marketers against an overblown European state – a millstone round the economy’s neck. This narrative will be more and more difficult to sustain should major continental economies come out of the crisis sooner and more vigorously than Britain: a very likely scenario, given the fact that, after three years in power, Mr. Cameron’s government is now in charge of a smaller economy than the one it inherited in 2010.

Yet, the course of British economy, and consequently, the country’s political leverage, may change significantly as soon as the Transatlantic Free Trade Agreement with the United States is signed. The new opening between the EU and the U.S. might shift the balance of power within the Union, though which way will this rebalancing go depends largely on Britain. During the negotiations, London might either lead the whole process in the name of Europe or distance itself from the EU and act rather as a middleman between the two sides, thus trying to revive its “special relationship” with Washington. The latter strategy is more likely both to occur and to backfire. Middlemen always run the risk of being cut off, and should the free trade agreement be signed without Britain, it will be a living proof to Washington that it can do good business with Europe without any mediation.

Split personality

A true Euro-American partnership is possible only if the European Union acts as a whole. Britain, because of its relatively recent loss of a global superpower status, quite understandably still has difficulty coming to terms with the new reality. The result is a split personality, which leads British diplomats to strive for conflicting goals. One day they want to play along the U.S. in the global Premiership League, the other they urge Brussels to grant Britain the status of a second Norway, Iceland or Liechtenstein – countries which on the world stage usually display much humbler ambitions.

The question is, therefore, whether Britain can give up on the already tattered “special relationship” with the U.S. as well as “special treatment” in the EU, and realize it can do much more as a fully dedicated EU member that its distant partner. It is all the more important because just as there are no indispensable people, there are no indispensible countries. In his annual expose, a few months ago, the Polish Minister of Foreign Affairs advocated a radically pro-European policy, claiming that the troubles in the South and British “insular aloofness” present a great opportunity for Poland – already the EU’s sixth largest economy – to get to the EU’s “most inner decision-making circle”.

What is Europe about?

The major argument for united Europe made at the time of its creation was that it guaranteed peace. When Britain joined it in 1973, it was mainly about prosperity versus economic malaise. Now it is said the case for Europe is about power versus irrelevance. Such classifications are more misleading than revealing – a united Europe should be about all these issues. Together European countries are “stronger, richer and safer” – just as the members of that other union established in 1707 the British are so familiar with.

What therefore can Europe do to keep Britain in? Quite simply, the best solution seems to be to present the British with a mirror and ask them to take a closer look.

On November 28, 1990, the entire world could see Margaret Thatcher crying. The Iron Lady of British politics, who for over a decade had been whipping her domestic and foreign opponents into line, was now standing in tears in front of 10 Downing Street for the very last time. After more than 11 years as the British Prime Minister she was leaving politics forever. The impact she had on it can be seen to this day.

How did it happen that the first woman in British history to run a government also became the longest-serving Prime Minister in the twentieth century? Political genius – say her supporters. The unique confluence of lucky circumstances – reply her opponents. Both groups have strong arguments to support their claims.

Gravediggers on strike and a tragicomic war

When in 1979 she took over as the Prime Minister, Great Britain was the “sick man of Europe.” At the end of 1978, still under the Labour Party government, strikes broke out one after another starting what would later be known as the “winter of discontent.” Blackouts became a part of everyday life, garbage littered the streets and in Liverpool even gravediggers refused to do their job. Inflation and unemployment soared. The Conservative Party campaign slogan – “Labour is not working” – aptly reflected the public mood. Thatcher won decisively but was it her own strength that secured victory or just the weakness or her opponents?

When a year after her government was formed the economy only got worse, Mrs. Thatcher – despite a growing pressure from her own party – refused to change the course and carried on with even larger spending cuts and even faster privatization of public wealth. Her popularity plummeted and the conservatives would probably have lost the next election if it had not been for a stroke of luck brilliantly played out by the Prime Minister. On April 2, 1982, Argentine attacked the Falkland Islands – tiny British archipelago in the Atlantic Ocean. Hardly anybody expected a military response but Thatcher accused Argentinian military junta of violating British sovereignty and – again defying her colleagues and even president Ronald Reagan – sent 40,000 British soldiers to recapture the islands and free their 2000 inhabitants. The victory in this tragicomic war made many Britons once again proud of their country and boosted Prime Minister’s popularity. Again, the question arises – what was the major cause behind Thatcher’s decision? Idealism, great ability to catch social mood or pure luck?

The war on miners, bombs in Brighton and the starving Irish

Luck smiled on Thatcher during her first term in office at least one more time. It was at that time the British started to extract large oil resources discovered around the Scottish North Sea coast not long before. The revenues it brought not only helped to patch the budget but also made British economy less coal dependent and consequently weakened the position of miners. Thatcher noticed this shift in the balance of power. At the turn of 1984 and 1985 she challenged the powerful coal miners unions and finally broke their resistance.

In her fight with the miners Thatcher was helped by yet another lucky but at the same time tragic event. On October 12, 1984, at the Grand Hotel in Brighton, in which the Conservative Party held its annual conference, a bomb was detonated by the IRA. Thatcher not only survived the attack, but just a few hours later delivered her speech as planned. The assassination attempt was the result of Thatcher’s tough policy on the IRA three years earlier when the Irish separatists detained in prison went on hunger strike. The Prime Minister refused to meet their demands even when 10 strikers starved themselves to death. Her tenacity once again won her sympathy of many Britons tired of the ongoing struggles with Irish separatists.

Despite all that, in the next elections in 1987 Conservatives would have once again faced a difficult struggle if it had not been for a little bit of help from…the Labour Party. After the defeat in 1979 British left suffered a major split. A group of secessionists left Labour to establish the Social Democratic Party which soon later formed a coalition with the Liberal Democrats. Consequently, instead of uniting against Thatcher, the British left-wing electorate became dramatically divided, thus burying its chances to change the government. Was the new center-left formation doomed to failure from the beginning or was it Thatcher that brought it down? Opponents and supporters of the Prime Minister cannot agree on that matter up to this day.

Fulfilled promises?

Not surprisingly there is also no consensus as to whether Thatcher managed to fulfill promises she made. Did Britain become “great” once again? Her supporters reply in the positive and point out the leverage Britain enjoyed at the global scene at that time. Opponents argue these influences were largely illusory and were largely the result of Ronald Reagan’s personal affinity for Thatcher. While Britons were lured to believe they were once again an equal partner for the U.S, they were not.

Has Thatcher managed to fix the British economy? There is no agreement either. The influence trade unions had on British politics in the 1970s was significant and out of control. Thatcher, rather than to renegotiate the relations between the state and the unions preferred to destroy the latter. At the same time, by liberalizing the markets (including financial markets) she let another genie out of the bottle that soon beyond the control of the British political class. That is why the current financial crisis had such a disastrous impact on British economy. Five years after Lehman Brothers collapsed, British GDP continues to shrink and the austerity measures introduced by the current Conservative government (and to large extent modeled on Thatcherism) have not brought positive results.

Has therefore Margaret Thatcher restored the “greatness” of Great Britain? Even if that was the case, she is also responsible for its loss soon afterwards as Britain once again flounders.

Łukasz Pawłowski is a managing editor at ‘Kultura Liberalna’ and a PhD candidate at the Institute of Sociology, University of Warsaw.

In the ongoing American and British debates on the financial crisis and the best ways to bring the economy out of the woods, two opposite views repeatedly collide – the one represented by those who prioritize deficit reduction, the other by those who argue for recapitalizing the economy. The case of the United Kingdom shows that drastic cuts – if not supported by stimulus packages – instead of tackling the debt may actually inflate it. The American policy record on the other hand, proves that even substantial stimulus packages do not always lead to economic revival. It’s not enough to throw some extra money into the pool – equally important is what these resources actually fund and whether they are accompanied by structural reforms.

British clamps

Moody’s decision to downgrade UK’s rating from AAA to AA1 announced at the end of February was a serious blow to David Cameron’s government as it undermined the whole austerity program Conservatives embarked on precisely to regain the trust of both financial markets and rating agencies. Nonetheless, in a speech delivered on March 7th Prime Minister announced he would keep on the chosen course since – as his famous predecessor once asserted – for this policy “there is no alternative.”

Many British economists do, however, see an alternative, and their number grows as it becomes clear that the spending cuts introduced so far, instead of reducing the debt, have increased it (from 600 billion in 2008 to 1.1 trillion four years later to be precise). How is it possible to cut down on expenses and inflate the debt at the same time? Excessive savings lead to economic contraction, which in turn reduces state revenues and forces the government to continue on borrowing. “What truly is incredible” – argued Martin Wolf in his “Financial Times” column – “is that Mr. Cameron cannot understand that, if an entity that spends close to half of gross domestic product retrenches as the private sector is also retrenching, the decline in overall output may be so large that its finances end up worse than when it started”.

Even The Economist magazine, known for its “favorable neutrality” towards the Conservative Party, criticized the government’s policies and encouraged chancellor George Osborne to dig out some additional funds for infrastructure investments, which could boost the economic growth (compared to 2009 such investments were reduced from £48.5 billion to £28 billion). But where to get the money from?

At least some of the needed sum can be obtained by reducing expenses on civil service. Those – despite all the austerity rhetoric – not only were not diminished but increased in the past decade by £300 billion. However, in case these savings are not sufficient, should the government borrow the missing funds? “Economist’s” editors reply in the positive, but on the condition that these resources are spent on infrastructure – roads, bridges, railways, broadband, etc. – thus contributing to long-term economic growth and improvement of the competitiveness of the British economy. Then, the increase in debt will be offset by rising state revenues, and – thanks to the improving condition of the economy – interest rates should stay at their current low level. As a result, debt service costs will also remain low.

American stimulators

If, however, the money is spent on immediate tax cuts and exemptions, it will simply be wasted. The economy might benefit from such policies in the short run, due to the increase in personal consumption, but as soon as the money is gone, we will go back to square one. This is an argument Jeffrey Sachs makes in yesterday’s New York Times, thus criticizing anti-crisis remedies applied by President Barack Obama’s administration so far. According to Sachs, stimulus packages signed into law first by George W. Bush and then by Obama failed not because they were too small – as for example “The New York Times” columnist, Paul Krugman has long maintained – or too high – as the entire American right seems to believe – but because they have been poorly targeted.

“The original stimulus legislation” – Sachs wrote in another of his articles – “was overwhelmingly of the form of temporary tax cuts and temporary transfer payments, the kind of deficit spending especially likely to have little effect on aggregate demand. Only $88 billion of the $787 billion stimulus-package was in direct purchases of goods and services by the federal government. The rest was temporary transfers and tax cuts.” To make matters worse, in the debt ceiling deal signed by Democrats and Republicans on January 1, many of these cuts became permanent, which will further inflate American national debt. Currently it amounts to 15.5 trillion, which is about 105% of GDP.

According to Krugman – whose views Sachs openly challenged – we should not be particularly worried by these numbers. On the contrary, in order to succeed in reviving the economy, stimulus packages should be enlarged. To introduce any major savings at this stage would throw American economy back into recession, cause economic contraction and decrease government revenues, thus leading to a predicament roughly similar to the one British economy has found itself in. Following the advice of John Maynard Keynes, Krugman argues that the secret of managing the state economy lies in saving the money in times of prosperity, while spending surpluses in the time of crisis, when the economy needs a push.

The trouble is, replies Sachs, that American decision-makers have long spent much more than they should, both in times of economic prosperity under President Bush, and at the time of the current crisis. Besides, once they have decided to stimulate the economy, they chose wrong targets. The same dollar invested well can bring substantial return, but if invested badly, will either bring loses or have no effect at all. According to Sachs Krugman and other “crude Keynesians” – unlike Keynes himself – seem to have forgotten this simple truth. Sachs repeats in the U.S. the same arguments, which in Britain were put forward by The Economist. In his view American economy needs long-term investments in infrastructure (similar to those administered by the Federal Aid Highway Act of 1956 or the moon program launched a few years later), not short-term incentives and benefits. How to get the money for these investments? Part of it can be borrowed. The rest may be obtained by curbing short-term tax-relief programs and finally introducing significant spending cuts, chiefly in the defense budget, which consumes more than $700 billion a year, or in other words more than 20 percent of all the federal resources.

Is it then better to tighten or stimulate the economy in crisis? Challenges faced by the United States and the United Kingdom make it quite clear – the best solution is to do both these things at the same time.

Łukasz Pawłowski is a managing editor at ‘Kultura Liberalna’ and a PhD candidate at the Institute of Sociology, University of Warsaw.