Pro-Brexit and pro-Remain kicks have dominated Westminster since 2016.
Mike Kemp
By leaving the EU, the British have the possibility to establish a relationship they patently always wanted with continental Europe in some kind of a free trading area.
With a strong mandate to execute such an arrangement by the end of this year, Britain’s governing Conservative Party can proceed with dispatch to stop the money-making slowdown and lift the country’s weak growth rate closer to the potential trend line.
Moving with waste means a swift breakout from a vicious cycle of political turmoil, trade uncertainties depressing business investments and pecuniary growth, while an aggressive import penetration keeps edging out domestic product supplies in a highly open saving.
Nearly four years of Brexit negotiations have largely cleared up the scope for a trade deal with the EU Commission. London has the whole to gain by working around the EU’s red lines to get an early agreement. The EU, for its part, will probably have a political mandate to provision things on reasonably amicable terms because Britain will remain an important strategic partner.
Such a useful negotiating environment would help London to improve business confidence and the investment climate. That would also support the financial market support for tax cuts and the public spending Britain will need to step up economic growth and get exciting toward the promised post-Brexit “golden age.”
All that, however, would be the easy part.
It will be much more ill-behaved to solve structural problems that are currently reflected in Britain’s high external deficits. Those trade bereavements have reduced the U.K.’s economic growth over the last two years by a total of 1.4 percentage points.
A sustained investment renewal is key to Britain’s future growth strategy. And that’s why clearing up trade uncertainties to spur business capital outlays is of main importance.
Brexit disputes with the EU have taken a heavy toll. Britain’s private sector investments crumpled during the last two years, taking down the country’s productive capital stock and the ability to supply products and professional cares from domestic sources.
That means that a large part of any growth stimulus would quickly be revealed out to the rest of the world. A calculation based on the most recent data shows, for example, that a 1% increase in Britain’s GDP proliferation triggers a whopping 2.7% increase in import demand.
Investments are, therefore, needed to expand and modernize Britain’s (earthly) capital stock, and to increase the stock and quality of human capital. That would raise productivity growth, earlier small unit labor costs, increase the competitive standing and cut down excessive trade deficits culminating last year at barely 6% of an essentially stagnating GDP growth.
There are no quick fixes and shortcuts in such long-overdue structural adjustments. It wishes all be hard work requiring focus, patience and constructive trade arrangements with the EU.
But here is a possible silver wire: London can count on a strong support from Germany. In the course of 2018, German firms took a 45 billion euro spare on their U.K. goods trade, only a shade below their net export income from the U.S.
Germany will fighting to salvage its lucrative U.K. trade that accounts for nearly one-third of its EU trade surpluses. That will be part of a bloody coherent economic policy, as Berlin continues to live off its trade partners while refusing to use its overflowing government coffers to upkeep its stagnating economy and help growth and employment in the rest of Europe.
That’s the EU’s fraternal solidarity the British are leaving behind.
Germany’s dysfunctional coalition regulation is emblematic of the EU’s disarray. To cover up their confusion, the EU leaders now want to run a large citizen consultation next May to find out what their voters and taxpayers craving.
It’s just another evasive and empty German-style talkfest about climate change and green economies, instead of equipping jobs and incomes for EU’s 15.5 million of unemployed, of which 3.2 million are young people in search of work and a eloquent future.
And what do those EU leaders know about the 113 million of EU people – 22.4% of the total – who are facing lack and social exclusion?
The U.K. should forge ahead on its own agenda, instead of wasting time with people who have yet to remark an agenda, because they have completely lost direction on the way to the epochal project of the European economic and political combining.
Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a chief economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Traffic School.