Never waste a good crisis they say. Indeed Richard Branson reckons a recession is a good time to start a business. But can there be anything good at all about the situation we find our economy in at the moment?
To start with things could be worse. We could still have a government that thought it could spend and borrow its way out of trouble. The proponents of fiscal stimulus can look to the US to see where this strategy would have taken the UK, never mind the Eurozone economies. The US has considerable pain to come but the fact that China has lent them so much means they have some breathing space. As US officials say to the Chinese "the dollar is our currency and your problem".
Secondly we could be in the Euro. I have just got back from Greece and my local radio station asked me how it was, was it cheap over there? Well it wasn't of course because they are saddled with an exchange rate completely out of kilter with their real economy. A devaluation would not be a panacea for Greece as they do not have significant export industries that would benefit from a realistic rate of exchange. But they have a very good tourism industry that would have more customers spending more money if the drachma were reintroduced at a competitive rate of exchange.
Our Government was one of the first European countries to get a handle on the public finances. The coalition's clear intent to cut the deficit and take the pressure on public spending cuts is unshakable and the markets were reassured when we took office and have remained so.
Growth is the big issue. Without it not only will our living standards continue to fall but the Government will be hard pressed to eliminate the structural deficit by 2015. There is no magic wand to order growth. Exhortations to banks to lend to small businesses are all very well. But Businesses are focussed on paying down existing debt. Investment is as much about confidence as it is about securing capital and most businesses, particularly if they rely on exporting, are feeling very uncertain about the near future.
Also will the banks be in a position to lend more? They have just missed their lending targets agreed with the government under Merlin nine months ago. The Merlin goals were a reasonable bet at the time. But the catastrophe that is unfolding on the continent will probably result in new pressures on banks to repair their balance sheets; at the expense of future lending.
Proponents of a plan B should be careful of what they wish for. If there is cause to be nervous about government policy it is that the size of the state, even after the cuts to public spending already agreed, will still be unaffordable unless growth picks up significantly.
So what can be done? What has become clear is that the West has to produce much more competitively and add considerably more value to sustain anything like its current standard of living. We are in the midst of a transfer of economic power from West to East that was accelerated by the banking crisis of two years ago, and will be further accelerated by the debt crisis of today.
Both the US and the Eurozone are weighed down by unsustainable levels of debt. That debt has accumulated because tax revenues cannot support the range of entitlements and security that Governments have been expected to provide. There will have to be a sea change in our way of life if we are even to stand still let along make progress against the emerging economies over the next twenty years. Expectations on the public purse will have to be significantly reduced.
As fifty per cent of our exports go to markets in the Eurozone it would be nice to think that the changes we need to make, in order to make our economy more competitive, could be made across the EU. The EU and its member states must recognise that they need to take urgent action not just to save the Euro but also to make their economies more competitive.
This means dramatic de-regulation. And the same approach to new regulation as that adopted by our own government (and more). If Brussels took on less it would cost less, another bonus. The EU should start by abandoning the Working Time Directive which is wreaking havoc in our hospitals. The extension of employment protection to cover agency workers should also be dropped.
Then there are all the European Agencies that exist to ensure national governments implement all manner of other directives. The European Chemicals Agency is busy at the moment rendering sections of the chemicals industry uncompetitive by a completely unnecessary strengthening of the REACH guidelines. These revisions should be stopped in their tracks.
The Big Society bank is being delayed by lawyers ascertaining how it can help social enterprises without being in breach of EU State Aid procedures. Everywhere you look there is some impediment to growth and progress coming out of Brussels.
Change is unlikely to happen any time soon, unless the scale of the crisis makes leaders in other member states realise that the time is up on all these anti-competitive practices. Britain's very real problems generating growth, especially with the renewed threat to bank lending caused by the debt crisis, mean we need to act decisively to extricate ourselves from the straitjackets that were difficult enough to labour under even in good times.
Herein lies our opportunity. The price of any co-operation required of the UK to ensure the EU integrates the Eurozone economies to sustain a single currency should be that we are freed from intervention by Brussels in the above and many more areas. The other drivers of growth are incentives and infrastructure projects. It is very good that the Chancellor is driving down rates of Corporation Tax. During the last government public expenditure as a proportion of GDP increased from 38% to 48%, financed by a huge array of stealth taxes. As soon as we can afford it taxes should come down in ways that incentivise wealth creation.
The other crucial aspect is transport and infrastructure. The Government has published plans to bring forward improvements to some of our more decrepit and overused infrastructure. There are ways of leveraging private finance and there are sources of private capital all over the world looking for investment opportunities. If we make ourselves more competitive and attractive there is no reason why we should not access this capital as long as we accept that there has to be a future revenue stream to provide a return on investment.
Just one more thing though, we need to be sure that we can utilise workers who are currently claiming out of work benefits to work in any new jobs that are generated by these new investments. In doing so, of course, we will find ourselves in breach of another European regulation that we will need to confront.
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