Britain to the eurozone: Get your act together
UK finance chief George Osborne called on his European neighbors to put their 'house in order' as Britain sees some promising economic gains.
Or a reckless swagger, some say.
Although 2011 will see the affect of tough austerity measures unmatched by any other big European state, economic figures this week show something of a surprise. The strongest British manufacturing performance in 16 years last month has encouraged Prime Minister David Cameron’s administration that its radical plans for rebalancing the economy are paying off.
With the UK's neighbors still mired in a debt-driven crisis threatening the eurozone, Britain’s finance minister called Thursday on Europe to “put its own house in order” in 2011. He urged states sharing the common currency to underpin it and decisively sort out the bloc’s fragile banking system.
Call to 'bold' action
George Osborne, the chancellor of the Exchequer, used an article in the Financial Times to assert that Europe has not been bold enough in its response to its currency and banking problems. He also invited others to follow Britain's embrace of stringent deficit reduction.
“Action at a European level needs to be matched by difficult domestic decisions,” he wrote. “The affirmation of the UK’s triple A credit rating, and the fall in our market interest rates, shows that it is possible to earn credibility with a convincing deficit reduction plan.”
Response to the call?
Britain has a vested interest in the health of key European trading partners. Their reaction to Britain's advice may be icy – some Brits have gloated over the euro’s woes as a vindication of their opposition to Britain ever joining the single currency.
Thomas Klau, a Paris-based analyst with the European Council on Foreign Relations think tank, says: “Many in other EU members states will regard it as being a bit rich for a British chancellor to be now telling the Continent how to deal with this crisis."
“Clearly, in the opinion of many continental Europeans it was the British government’s fierce defense of city [financial] interests and its continuing refusal to accept a need for tougher regulation that was one of the key factors that led us to the financial disaster in 2008," he says.
Mr. Klau, who coauthored a report recently advocating a greater pooling of the eurozone’s resources and shared economic sovereignty, predicts continuing uncertainty in the bloc amid a “pattern of divergence” involving relatively strong growth by Germany and the states around it but “dire prospects” for more peripheral eurozone countries.
By contrast, Mr. Cameron predicted Thursday that Britain's path to a sustainable recovery was within reach, although it would be tough.
Still under siege from opposition claims that headlong austerity will choke off the fragile recovery, he defended his plan to all but eliminate the budget deficit within five years and said a budget in March would focus on helping the private sector take up the strain.
His comments, made in a speech in northern England ahead of a bell-weather election for a vacant parliamentary seat, came after figures on Tuesday showed manufacturing hitting a 16-year high as a weaker pound boosted demand for British goods abroad.
Not out of the woods quite yet
To be sure, voices warning that the British economy is far from out of the woods yet are plentiful.
A report Thursday by the Markit/CIPS Purchasing Managers' Index (PMI), the same source for the impressive manufacturing figure earlier this week, said that the overall economy had stagnated in December.
There is particular concern over the state of Britain’s service sector, which shrank in December for the first time in 20 months, although it is agreed that bad weather played a part as hotels and restaurants suffered from the snow.
Nevertheless, the lopsided nature of Britain’s recovery remains a worry.
"There is a strong indication that UK economic growth is completely reliant upon export sales while domestic demand has wilted," Markit's chief economist, Chris Williamson, said in a press release.