Britain and the EU: In Need of a Mirror?

By Lukasz Pawlowski, September 17th, 2013
European flag outside the Commission. © Xavier Häpe | Flickr

“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 . . .

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September 17th, 2013 | Tags: , ,

Margaret Thatcher: Strokes of Genius or Strokes of Luck?

By Lukasz Pawlowski, April 12th, 2013
Margaret Thatcher reviewing Bermudian troops, April 12, 1990 © White House Photo Office | margaretthatcher.org

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 . . .

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April 12th, 2013 | Tags: , , , , , , ,

Tighten or Stimulate? British v. American Economics

By Lukasz Pawlowski, April 1st, 2013
Broken Piggy Bank © 401(K) 2013 | flickr

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 . . .

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April 1st, 2013 | Tags: , , , , , , , , , ,