- Select a blog category
The Brexit vote has set the UK on a new path. The form Brexit takes will take time, possibly years, to emerge. But there is another, and for me, more fundamental question facing Europe.
2017 marks the sixtieth anniversary of the foundation of the European Union. Its founding principle was progress to “ever closer union”. Today, amid challenges created by low growth, migration, the growth of insurgent political parties and Brexit, this principle is in question as never before.
Concern about the direction of the EU has spread from the fringe to the mainstream. Angela Merkel, a politician not given to hyperbole, has said that Europe is in “a critical situation”. In his state of the Union address last September the President of the European Commission, Jean-Claude Juncker, talked of the “existential crisis” facing the EU.
Donald Tusk, the President of the European Council, analysed the crisis in stark terms, “the spectre of a break-up is haunting Europe….Obsessed with the idea of instant and total integration, we failed to notice that ordinary people, the citizens of Europe do not share our Euro-enthusiasm. Disillusioned with the great visions of the future, they demand that we cope with the present reality….Today, Euro-scepticism, or even Euro-pessimism have become an alternative to those illusions. And increasingly louder are those who question the very principle of a united Europe”.
This is a far cry from the rapid political and economic integration of the 1990s and early 2000s. For most of its existence the EU has responded to crises with further integration. The EU’s response to the underperformance of Europe’s economies in the 1980s was to double down on creating a free market in good, services, capital and labour. The launch of the Single Market in 1992 marked a new phase of speedy integration and was followed by the Schengen Agreement of 1997 which created free movement of people across most borders and, in 1999, the launch of the Single Currency.
The high water mark of EU integration came in 2004, with the biggest single expansion of the EU in its history, with ten new countries, mainly in central and eastern Europe, joining the Union. In 2007 Romania and Bulgaria became members.
Since then institutional enthusiasm and capacity for integration has receded. Deep recessions in some euro area countries and tensions in the operation of the Single Currency and have sharpened concerns about the ability of the EU to deliver growth. Borderless travel in Europe has been imperilled by the re-introduction of border controls to reduce migrants and refugee flows in several countries, including Sweden, Austria and Hungary. Dissatisfaction with the status quo has fuelled the rise of Eurosceptic political parties across the EU. Populist parties of the extreme left and right in France, Germany, the Netherlands, Denmark and Italy are calling for referenda on EU membership in their countries.
The global recovery is entering its eighth year – sufficiently long for some commentators to suggest that we are due for another recession. That seems premature. 2017 looks likely to be another year of growth for the global economy, and at a rather faster rate than in 2016.
But this is not likely to be the year in which growth finally breaks through, returning to the heady rates seen in the decade before the financial crisis. In other words, activity is likely to remain close to the lower, so-called New Normal levels seen since 2009.
The latest Deloitte survey of UK Chief Financial Officers highlights the opportunities and risks facing British business in 2017. To read the report in full visit:
CFOs have become markedly more positive on the outlook for their businesses. Optimism among the UK’s largest businesses rebounded to the highest level in 18 months in the fourth quarter.
For the last Monday Briefing of 2016 we have pulled together our favourite funny news stories from the Briefing through the year. As ever credit goes to my colleague, Alex Cole, who tracks down each week’s news stories and is the indefatigable inventor of the play on words that concludes each week’s Briefing. The Monday Briefing will return in the New Year. In the meantime the Economics Team – Ian, Alex, Debo, Jemma and Anthea – send our very best wishes to you for Christmas and the New Year.
With Christmas approaching here is our seasonal offering of six thought-provoking articles to occupy the quiet time during the holidays. All are available free and on-line.
The continuing problems faced by Italian banks, some of the oldest in the world, is a reminder of Italy’s long banking history. This History Today article describes how the Italian Medici family built their banking empire in the fifteenth century; “not merely the most profitable organisation in Europe, but the richest commercial house there has been anywhere.”
Our Christmas Quiz offers an eclectic test of knowledge of economics and business. The answers, and a brief explanation of the factors at work, are at the end of this note.
- Which of the following countries is likely to show the fastest growth of the seven major industrialised nations this year?
Increasing specialisation in production has been a major driver of human welfare in modern times.
The late eighteenth century pioneer of modern economics, Adam Smith, called it the division of labour. Smith argued that splitting production into a series of tasks, each performed by a specialist, whether a worker or a company, would raise productivity and growth.
Before the US election many commentators thought a victory for Donald Trump would be a Brexit-like moment, fuelling uncertainty and hitting equities, business confidence and growth.
So far those predictions have proved wide of the mark. The S&P500 equity index has risen 2.0% since 8th November and the dollar is up 3.4%.
Donald Trump’s policies are as unconventional as his campaign rhetoric. On the face of it Mr Trump may be about to upend the Washington consensus on immigration, government debt, free trade and America’s role in the world. Going through Mr Trump’s policies over the last couple of weeks has left me amazed at the scale of his ambitions.
So far the effects of Brexit on UK growth have been muted. Most activity data published since the referendum have come in on the high side of expectations. The pace of growth slowed a bit in wake of the referendum, but not much, and less than most had feared.
Advances in science and technology are widely seen as holding the secret to the economic success of nations. Breakthroughs in natural sciences and inventions such as the steam engine, electricity and the internet have transformed human welfare. From Archimedes to Berners-Lee, society celebrates great inventors and scientists.