It began in Northern Ireland, in towns like Enniskillen, Co Fermanagh. The means by which the UK economy can recover have been laid.
Hands up all residents of Britain who wish they were paid in euros. Envy those who are. If you receive your salary in euros then you have received an effective 25 per cent pay rise over the last year or so.
It’s bad news if you enjoy a regular holiday in Europe every summer. It’s bad news if you take the ferry to France every now and then, and return topped up with cheap booze. But if you want to see the UK economy move onto a sustainable footing, it is time to at last think about celebrating.
This morning, the BBC reported on booming sales on the high streets of Northern Ireland, especially retail centres near the border, as shoppers with wallets bulging with euros make their pilgrimage to the North.
The big snag, of course, is that the eurozone is in a mess too. How can we expect to see trade surge to countries that are, like the UK, just on the brink of recession?
Well, the answer is pretty simple really.
Alistair Darling tries to boost the economy by knocking two and a half percentage points off VAT. Retailers try to increase sales by painting the High Street red with ‘Sale’ signs. Why bother? Forget about shaving a few percentage points here and a few percentage points there. Instead, sell to our European cousins – ‘25 per cent off last year’s prices.’
If budget retailers are among the few retailers in the UK that are thriving, then why can’t budget Britain thrive on the European High Street?
A part of the problem is that for the last decade or so the major economies of the Eurozone have not been doing their bit. The UK is the Eurozone’s main export market. The Germans may scoff at our spend now–pay much later approach to shopping; the philosophical French may feel bemused by the way we worship at the altar called the High Street, praying for more retail therapy. But if it wasn’t for our reckless spending, the French and German economies would have seen even lower economic growth this decade.
Germany, with its massive trade surplus, has been the big beneficiary of Anglo-Saxon exuberance, and now its finance minister tries to bite the hand that feeds it by laying into the Brits with their plans for big fiscal stimulus.
At last, governments in the two countries are waking up to reality. According to Spiegel Online, the German government is set to announce new plans to kick life into the German economy. According to the magazine, the German administration is planning a fiscal boost worth two per cent of GDP. Chancellor Angela Merkel is even reported to be mooting an extra budget early in the New Year.
It seems inevitable the French will follow suit.
Even the IMF is begging them to do it
Curiously, Dominique Strauss-Kahn, the top man at the IMF, wants to see a big world-wide fiscal stimulus of at least £1.2 trillion, or 2 per cent of global GDP. “The problem is that the whole society is going to suffer,” he told the BBC in a radio interview. He added: “I’m especially concerned by the fact that our forecast, already very dark… will be even darker if not enough fiscal stimulus is implemented.”
Yet, bizarrely, he is worried about the level of the UK’s debt, calling the surging British public deficit disturbing.
The reality is that it isn’t Britain which should be throwing money at the world at all. The British did this for ten years. Now it’s the turn of the French and the Germans.
But whichever way you look at it, British exporters are set to boom.
If the French and German economies stay in the doldrums, then they will want bargains more than ever, and the cheap pound means there will be plenty of British bargains.
The real irony is that while it is debatable whether the fiscal and monetary stimulus in the UK is akin to giving a drunk an extra drink, in Germany and France the economics case for such measures is very strong indeed.
“We used to believe you can spend your way out of a recession,” said James Callaghan in 1976. “I tell you in all candour that option no longer exists.” Well, the words the labour prime before last spoke may be true today, when applied to the UK, but they are not true to France and Germany where the real problem has been too little spending for some time.
Assuming the Eurozone does eventually recover on the back of government spending, the UK export boom will then gather a new momentum.
The question though is what can we export to Europe?
The real snag is that the UK infrastructure is just not geared to exporting.
And that is why Mr Darling’s move to cut VAT was such a disaster. The UK’s problem was too much emphasis on spending, and not enough on selling abroad. So what does Mr D do? He tries to boost UK spending. Instead, the money he gave away though this tax cut should have been made available to British exporters and would-be exporters.
The media and some politicians lament the fall in the pound. Instead they should be cracking open the sparkling wine and celebrating – it is just that they should make sure the sparkling wine is made in Britain.
© Investment & Business News 2013