Wednesday, 12 May 2010

Two years of a fragile world economy battered by industrial strife?

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In spite of the European Union stitching together (at last) a rescue package of 750 billion Euros last Sunday, the cold winds presently sweeping parts of Europe is a sign of deep, brutal cuts and higher taxes soon arriving in most countries. The next two years will see growing waves of industrial strikes and unrest.

Police walk past a burning barricade in the city of Thessaloniki on 9 December 2008

We have already seen in Greece, riots, violence and general mayhem on the streets. Three deaths in Athens followed running battles between Police and protesters with attempts to storm parliament by militant unions. The shocking scenes of criminal attacks cannot be excused by the incompetence of the Greek Government or the affects of the banking crisis. There is no excuse for trying to change a democracy through violence. Today Greece asked for the first tranche of €20 billion from the €110 billion agreed to assist with debt repayments due this month.

This is an ugly sign of worst to come in many countries around the globe. Spain is expected to announce deep cuts in public spending and higher taxes to try and satisfy the powerful markets. There is an expectation that the budget deficit will be reduced from 11% to 4.7% by the end of next year. In reality that means finding 6.3 billion Euros of savings this year and another 13 billion Euros next year.

Portugal has announced it is aiming to reduce its budget deficit further than planned. It is now aiming to take it from 9.4% last year down to 7.3% this year. Ireland is trying to maintain its current level of budget deficit reduction and stave off increased reductions.

In the European Union, unemployment is climbing to 10%, with the promise of a ‘V’ shaped recession that bounces back strongly based on savage cuts and tax increases this year and next but the worry that if the cuts fail to satisfy the markets or the EU bailout plan fails then a ‘W’ recession is on the cards. Since, the EU will not allow the bailout to fail (it would be catastrophic for the Euro) then it reinforces the need to drive through real cuts in public sector spending. The worst is still to come.

In the UK as across the rest of Europe and beyond, that can only mean ultimately reducing public services in hospitals, school, transport and local government. Likewise, charities that deliver public services will find that after this year’s reduction in central government funding further cuts will almost certainly follow for next year and possible the year after. However much governments try and mitigate the reductions the fact remains you cannot protect all end users of public services from the affects of reduced budgets. Something has to give. Local Government in the UK was still complaining in the boom years with regular increases in allocations that it was not enough to fund services on the ground. What on earth will happen when real cuts are dished out in the emergency budget in the coming weeks by the Conservative/Lib Dem Government? Everyone will be affected from pensioners, the sick and the vulnerable in our society.

Business is urging on these cuts in the budget deficit but without a single word spoken by business leaders on how those who are most at risk in society will be protected. The CBI's plan has some well thought out and positive contributions to the debate but they fail to address the other side of the equation; social impact from cuts.

CBI logo

Yes, understandably they want to see a strong economy being rebuilt so that they can delivered wealth creation and more jobs but they do not appear to appreciate the devastation a closed hospital ward or residential home for older citizens or increased class sizes in schools or fewer Police officers on the beat has on our communities. It is relatively easy to reduce the budget but much harder to rebuild society if another underclass is born. I trust the Lib Dems will stand fast against any attempt to undermine improvements to the social fabric of our society. It isn't in a great state now and we do need some real progressive policies to efficiently get people back to work and improve the quality of life in our most troubled areas.

The fact remains that the UK holds golden shares in the nationalised parts of the banks and as those companies return to huge profits so the public value in those shares grows. There will be rich dividends for George Osborne within two years to cash in and allow tax cuts and a modest sprinkling of public sector spending for chosen areas from 2012 onwards that will seek to rebuild the Conservative/Lib Dem Government’s inevitable unpopularity prior to the next election in 2015. 

No doubt the Conservative Chancellor will seek to improve rapidly the projected figures for the UK economy and will relish the opportunity to bring down the budget deficit quickly. After New Labour and the era of Brown’s economic policies has finally ended, so George Osborne will tear up previous debt management plans and forecasts to restructure the economy. It is very likely his policies to rebuild the British economy will ‘work’ but the question will be; what’s the affect on the vulnerable in society?

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