Wednesday, 19 August 2009

These economic woes

There's a Scottish Parliament motion from Linda Fabiani MSP:

S3M-04689 Linda Fabiani (Central Scotland) (Scottish National Party): The Arc of Recovery

That the Parliament considers that Scotland is being held back by the mismanagement of the UK economy as evidenced by the forthcoming publication of the OECD Economic Outlook, which, on 17 August 2009, will report that the UK has the worst underlying financial balance as a percentage of GDP of any member of the Organisation for Economic Co-operation and Development and that the UK’s current account balance will show a $56.3 billion deficit this year and a $56.2 billion deficit next year (-2.6% and -2.4% of GDP); believes that Scotland’s recovery would be faster and stronger as an independent nation and contrasts Scotland’s position as part of the UK with OECD figures for other nations, which show that Ireland will move from a deficit of $1.4 billion to a surplus of $2.1 billion (-0.6% to +0.9% of GDP), Iceland’s deficit equivalent will be $0.4 billion and $0.1 billion (-3% and -1.1% of GDP), Finland will have a surplus of $0.9 billion this year and a $1 billion surplus next year (+0.4% and +0.4% of GDP), while Norway will show a $70.3 billion surplus followed by a $84.9 billion surplus (+18.2% and +20.6% of GDP), and further considers that Scotland has got what it takes to get through this recession and would be better off with the same freedom and flexibility as these independent nations in this arc of recovery.

Excellent motion, I thought, couldn't have written it better myself. The OECD's Economic Outlook is published twice a year and it's full of lovely information, you can use the tools on the stats site to compare countries. That current account balance is interesting - the UK suffering a $56 billion deficit while other countries have cut their deficits - Iceland, so maligned by UK Government Ministers, trimming its deficit to just $0.1bn or 1.1% of its GDP while Ireland (another nation unfairly maligned by the UK Government) will move into surplus and Finland and Norway are already in surplus. In fact, the difference between the UK and Norway next year will be $141 bn - Norway will be stretching even further ahead.

There are other bits to the Economic Outlook report which should give people plenty to think about, things like this from the UK section of the report:
Public finances are set to deteriorate much more, mainly due to automatic stabilisers and the contraction of the revenue-rich finance and housing sectors.

Or the stark warning that
Quantitative easing is on track but its effectiveness is uncertain

Or this bit:
Continued financial sector weakness, further declines in house prices, a weak global economy and sluggish income growth are projected to depress output through 2009, as in most OECD countries. Improving exports combined with an easing in financial conditions should, with support from already implemented policy measures, underpin a recovery during 2010. However, the pickup will be sluggish, as the adjustment of households and firms balance sheets and expected reductions in the size of the financial and housing sectors will take considerable time. Unemployment will therefore rise substantially. The lower exchange rate is likely to hold up prices in the short term, but the huge slack in the economy means that headline CPI inflation will decline through 2009 and remain low in 2010.

There's this bit from the general section:
Measures to support the financial sector, including risk-sharing with the private sector against further price declines of troubled assets as well as central bank purchases of private sector securities and longer-term lending, have increased both the contingent liabilities and credit risk that governments face. In addition, further bank losses may well require substantial further capital injections by governments. As a rough guide, estimated bank losses this year and next may imply further capital injections by governments of around 1 to 3%, 2 to 5% and 3 to 9% of GDP in the United States, the euro area and the United Kingdom respectively

That a bit frightening, is it not? Then you can add the net export figures:

Finland $5.2 bn this year and the same next
Iceland $972 million this year and $1.1 bn next year
Ireland $37.6 bn this year, $43 bn next year
Norway $62.3 bn this year, $73 bn next year
UK -$55.9 bn this year and -$54.3 bn next year.

While these other countries show net exports, the UK is showing net imports. Who's got the healthier economy?

Labour doesn't see it that way, there's an amendment to Linda Fabiani's motion from James Kelly - the sage of Rutherglen:

S3M-04689.1 James Kelly (Glasgow Rutherglen) (Lab): : As an amendment to motion S3M-04689 in the name of Linda Fabiani (The Arc of Recovery), leave out from "is being" to end and insert "has benefited from action taken by the UK Government to avoid the worst effects of the global economic downturn through a fiscal stimulus package including an increase in tax allowances equivalent to £145 less tax over this year, a 2.5% cut in VAT equivalent to a 1% cut in interest rates, accelerated increases in child benefit to £20 per week and child tax credits by 25% above inflation, a one-off payment to support pensioners during the downturn in addition to the annual Winter Fuel Allowance and an increase in Pensions Credits to £130 per week for single pensioners, UK-wide action to avoid home and business repossessions as well as action to avoid the potentially catastrophic consequences of a banking collapse including avoiding potential liquidation of the Royal Bank of Scotland, HBOS and the Dunfermline Building Society; notes that, while the global economic downturn has been painful in Scotland and the UK as a whole, the effects have been considerably less severe than the experiences in Iceland and the Republic of Ireland, two of the three "arc of prosperity" counties cited as appropriate economic comparators for an independent Scotland in the SNP’s Manifesto 2007, in which the global economic downturn has resulted in not just economic recession but official depression, defined as economic contraction of at least 10%; further notes in this regard that that OECD 2009 Economic Outlook cites the collapse of Iceland’s three main banks, the required bail-out by the International Monetary Fund followed by official interest rates of 18%, as well as, what it terms "substantial spending cuts and increases in taxation" in the Republic of Ireland, which has been forced to commission a public cuts study by "An Bord Snip Nua" proposing €5.3 billion of cuts including 17,300 public service job cuts, a 5% drop in social welfare and closure of police stations among other examples, and believes that, although the so-called "arc of prosperity" was always a deeply-flawed, simplistic and contradictory economic prescription for Scotland, having cited the Republic of Ireland and Iceland as appropriate models prior to the downturn, the SNP cannot now credibly claim that a separate Scotland would have escaped a similar economic fate as those countries that have been hit far worse than Scotland within the United Kingdom and that the SNP’s
selective memory of the global downturn serves to underline not just its economic ineptitude but also its insincerity with the people of Scotland."

Looks like he just doesn't get it. The countries of the Arc of Prosperity have taken the right steps to get on the road to recovery, the UK hasn't. The behaviour of the UK Government has meant that future generations are now saddled with debt. Instead of putting us on a road to recovery, we've just got a bigger burden.

1 comment:

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