Imbalances

The EU has just published a further review into the serious macroeconomic imbalances in a number of member states; but what I found more interesting were the imbalances in the way it was reported.

On the BBC website the emphasis was, perhaps rightly, on the worrying situations in Spain and Slovenia; but right at the end they did say that the situation was also serious in eleven other member states, including the UK. What made the reporting bad was that the page carries some prominent red squares about the "Eurozone crisis", yet five of the member states criticized—Bulgaria, Denmark, Hungary, Sweden and the UK—are not even in the Eurozone.

The report was handled even more badly by Reuters. They produced a "factbox" which rightly headlined that the EU report was on thirteen member states, and provided a summary of some of the key points relating to each country. The problem is that they only did this for twelve of the thirteen. The one they conveniently "forgot" to include was the UK. And because Reuters is a news agency, a large number of newspapers and other news media have reproduced the Reuters story almost word for word, therefore perpetuating the imbalance.

For those who are interested enough to get the news from the horse's mouth, the EU report is available from this page, together with in-depth reviews for each of the member states investigated.

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One of the things that has particularly struck me over than last few years is the way in which the mainstream media have consistently reported what is essentially a debt crisis as a "Eurozone crisis", as if they have a deliberate agenda to present it as a problem which affects "them" rather than "us". This just isn't true. It's the ugly face of a UK isolationism that has become almost endemic. The UK has enormous levels of debt, and while it is true that UK government debt is bad but not as bad as elsewhere, private debt is very much larger making the overall situation in the UK worse than it is for any other large economy. This graphic from Bloomberg Businessweek is about eighteen months old, but it illustrates the scale of the UK's problem relative to other economies.

Not an awful lot has changed since then, and the UK's precarious level of overall debt is one of the main points in the EU report. It's worth noting that government debt is continuing to rise because the deficit between the UK government's income and expenditure has not been brought under control. The UK goverment is certainly cutting public spending with a vengance, but the other side of the equation is income from taxation. While I accept that lowering the tax burden at the bottom end of the scale is a good thing because it means that people have more money to spend on basic consumer goods and services, it doesn't apply to people on middle and high incomes because they will always have enough money to spend on basic goods and services. Fear of properly taxing those on middle incomes is the main reason why the UK is making no headway in reducing its debt.

A second point that is worth noting from the report is that the massive devaluation of the pound since 2008 has only had a very limited effect in boosting exports. One point that most economic commentators in the mainstream media have made ad nauseam over the last few years is that being "tied to the euro" means that the traditional route of currency devaluation is not available, and that countries with a debt problem should therefore get out of the euro and revert to their old currencies so that they can solve their debt problem by devaluation. The idea is that it boost exports by making them cheaper and reduces imports by making them more expensive, allowing the country to trade back into health in the long term. However it certainly isn't having that effect for the UK, and that should put a question mark over whether it would work anywhere else. I suspect their real agenda is to break up the eurozone and, with a bit of luck (from their perspective), bring down the euro itself. I think that's always been a forlorn hope.

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But I want to end on a positive note. From Wales' perspective, I think it would be worth noting this part of the EU's in-depth review for the UK:

As regards the challenge of increasing external competitiveness, many of the drivers of the UK's persistent trade deficit relate to structural weaknesses that disproportionately impact upon capital-intensive sectors and goods' producers.

Firstly, the competitiveness of the UK economy could be boosted by addressing shortages in airport and seaport capacity, by tackling road congestion and by upgrading the rail network. This would entail meeting the substantial transport infrastructure investment needs indicated in the National Infrastructure Plan 2011, much of which is currently unfunded, by identifying additional sources of funding, addressing high unit costs in transport, and removing regulatory barriers to investment.

Secondly, industrial producers require a labour force with the correct advanced and intermediate technical skills, an area where evidence suggests that gaps and recruitment difficulties persist. Ensuring that the National Apprenticeship Programme effectively equips participants with the professional and technical skills demanded by the tradable sectors of the economy can contribute to closing the skills gap and fostering export performance.

Finally, access to finance is crucial for UK firms seeking to enter, or expand in, exporting sectors. Difficulties in accessing finance are a cross-cutting problem at the current juncture, particularly for smaller and younger companies. It is important that they be addressed at an economy-wide level as well as through specific financing instruments for exporting companies.

UK in-depth review, p4-5

What is true on a UK scale is just as true for Wales. For if the main problem with the UK economy is over-reliance on services at the expense of investment and producing goods, then a smart Welsh government would be able to put Wales ahead of the other countries in the UK by concentrating on these things.

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