Entire rivers of ink and whole forests have been spent to speculate on the outcome of today’s general election in the UK.
On the face of it, will the Conservatives (Tories) get back to govern after being punished by the electorate since 1997? Will Labour be kicked out by a tired electorate for not having delivered what it promised? Will Nick Clegg’s Lib Dems turn out to be the kingmakers in a hung Parliament?
But even beyond who will end up living in 10, Downing Street, there are wider issues to be decided, issues which although they do not really feature in the election coverage, are perhaps more important and have longer-lasting consequences.
In short, will the UK become a greater Greece or will it become a greater Netherlands?
The UK has a huge fiscal deficit, a bloated state and a soaring public debt.
The International Monetary Fund has forecast that the UK’s fiscal deficit this year at 11.4% of GDP, higher than the 8.7% of Greece and the 10.4% of Spain and Portugal.
The UK’s share of public spending in gross domestic product is higher than in Greece, Italy, Portugal and Spain.
The Organisation for Economic Cooperation and Development forecast UK net public debt at 70% of GDP at the end of 2011, below Greece’s 101%, but close to Portugal’s 69% and far above Spain’s 49%.
The UK today is far poorer than expected three years ago.
Hidden away among so much verbal overdose during the election campaign there is the common understanding that after the election there must be a big correction or adjustment, Mention has been made of around €37 billion in cuts which, it was said, must be made. But, as the Financial Times online simulator has shown, all three main parties “refuse to explain how at least €30 billion of these savings will be found.”
The Institute for Fiscal Studies has spelled out how incomplete, foolish and incredible are the longer-term plans for cuts in spending and the quality of the planned tax changes.
If the country allows drift to reign, it will find itself on the slippery slope that has led to Greece’s present predicament. So would any other economy. It does not take much to end up like Greece.
But it is not in the direction of Greece that today’s British voters must turn their attention. On the contrary, the country to focus upon should be The Netherlands, so many times in the past a forerunner of England as a commercial, naval and also colonial power. The Netherlands has been in decline for 300 years, compared to the UK’s 150 years. But in recent years it has been a success, both politically and commercially. And in recent years it has overtaken the British economy.
Like Holland before it, Britain now has to adjust to a smaller reality in the big world, less of a great power status when the real power in today’s world is increasingly in the hands of populous emerging countries.
Like Holland and the other Nordic countries, the way ahead for Britain after today is to rebalance towards net exports and investment, to cut down a government grown big and fat, to eliminate the fiscal deficit by cutting bloated spending.
Even while they are voting, many perhaps of Britain’s voters will not have grasped how the cuts coming after the election will hurt: they will indeed hurt a great deal. Given the scale of the British deficit, cuts in social security and the public sector salaries bills are inevitable.
In the absence of such a credible plan, Britain may face a stark choice between higher inflation and renewed recession, or, worse, both.
For all that is being said today, The Netherlands achieved their success while being in the eurozone (In fairness, the road to success antedates the euro, but still being a member of the eurozone does not seem to have stinted the Dutch growth).
The UK, fortunately for it, has three huge assets which neither Greece, nor Spain, have: credibility won over a long history of managing its public finances, frequently with far higher public indebtedness; a flexible exchange rate; and a current account deficit forecast by the IMF at only 1.7% of GDP this year, against 5.3% for Spain, 8.9% for Greece and 9.0% for Portugal. In other words, Britain is largely self-financing.
And, in contrast with Spain and other countries in trouble, the UK’s private sector is running a surplus of income over spending of 10% of GDP.
In other words, the UK has a good chance of avoiding becoming like Greece or Spain. But it cannot take success for granted. The test of a country’s political maturity lies in its ability to define and make realistic collective choices.
Over the past years, as the spurt brought about by Tony Blair’s win in 1997 spent itself, the UK does not seem to have understood its present position in the world and the systemic stresses within its economy that have led it to its present state, also due to the recession. Under the Labour government, especially under Gordon Brown, the country does not seem to have fathomed out the road ahead, out of the recession, unless that was more spend, spend, spend.
This may be one specific reason why it seems preferable for the country as a whole to experience a change in government. But this could also be the case if a hung parliament brings about a coalition government – after all, The Netherlands have long had a history of coalition governments and they do not seem to have hurt it at all.
Most importantly, the government that emerges in the UK must take up the big challenges. If it fails to do so, or if uncertainty emerges as the real winner, then the markets will take over and take matters into their hands. In this case, Greece will not be so far away.