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by Euro Reporter
2013-01-08 09:51:22
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Sterling crisis looms as UK current account deficit balloons

It’s the sort of problem you might have thought disappeared with the 1970s, but as the Coalition renews its wedding vows, that’s the unsettling possibility raised by economists at both HSBC and Royal Bank of Scotland. With fears of a eurozone break-up, a calamitous fiscal contraction in the US, and a hard landing in China now fast receding, it is possible financial markets will refocus their attentions on more conventional concerns. The failings of the UK economy might be prime among them.  Some of the reasons for this need little explanation. Low growth has undermined attempts to reduce the fiscal deficit, which remains one of the highest in the OECD. This in turn is likely to lead to the loss of Britain’s prized triple A credit rating this year, making the UK comparatively less attractive to overseas investors. What’s more, capital flows from the eurozone to perceived “safe havens” such as the UK are slowing as the crisis eases. There is also evidence of elevated concern among investors about Bank of England money printing.

But some of the other reasons are less well appreciated, possibly because we’ve become so accustomed to them. Almost unbelievably, Britain has not enjoyed a trade surplus in goods since 1981, or more than 30 years ago. This long-standing weakness has been partially compensated for by a relatively large surplus on services, and on overseas income, but even so, Britain has been in overall current account deficit ever since the mid-1980s. In other words, the UK has been persistently spending beyond its means. Despite the crisis, it shows few signs of changing its ways. The holy grail of a more balanced economy, with a greater proportion of GDP coming from net trade, remains as elusive as ever. It’s perfectly reasonable for economies in their development phase, when they are sucking in resource for long-term investment in infrastructure and job creation, to run trade deficits, but when the money is being blown on current consumption, both public and private, it becomes rather more problematic.

Rewind to when we were last in surplus all those years ago, and it roughly coincided with the advent of North Sea oil. In subsequent years, these revenues helped to cover up a steadily growing deficit in traded goods, and an accompanying loss of competitiveness against rival economies. As many developing nations have discovered, the apparent windfall of natural resource can be as much a curse as a blessing, and, without doubt, the UK has squandered its good fortune. It’s a much smaller country admittedly, but the blue-eyed Arabs of the North, the Norwegians, have been much better both at eking out the benefits of their oil reserves and squirreling them away for the future. In any case, North Sea oil has helped the UK economy avoid what would otherwise have been brutally imposed market reform and adjustment. As recently as 2001, Britain enjoyed a trade surplus in crude oil of nearly £6bn a year. In 2011, the deficit was £10.7bn. Like a receding tide, fast depleting North Sea oil is exposing the underlying wreckage of the UK economy.


Coalition vows unity

U.K. Prime Minister David Cameron and his deputy, Nick Clegg, pledged to put political differences between their two parties to one side as they outlined plans Monday for the second half of their parliamentary term, including house-building measures, investment in transport infrastructure and pension reform. Both said the coalition of Mr. Cameron's centre-right Conservatives and Mr. Clegg's smaller centrist Liberal Democrats party would serve out its full five-year term to the next general election in 2015. But Mr. Clegg acknowledged the coalition's central drive to fix the economy and reduce the size of the budget deficit was taking longer than expected.

"It does mean that the next parliament, the next government, will need to complete the job that we have initiated," he said at a joint news conference with the prime minister. They used the conference present a midterm review of the coalition's work since it was formed in 2010 and announce broad outlines for policy areas for the second half of the term. Mr. Cameron said that over the next two-and-a half years the government would focus on cutting child-care costs for working families, supporting mortgages for people who cannot put up a deposit, reforming pensions and capping the costs of long-term care for the elderly. It would also consult on how to get private investment into the road network and extend the high-speed rail network northward, he said.

The government remains under pressure to do more to boost economic activity and lending. Although the economy grew 0.9% in the three months to September—after shrinking during the previous three quarters—growth was fuelled by one-off factors such as Olympic ticket sales. Economists are concerned that in the absence of a similar boost, the economy could contract again in the final quarter of the year. The government acknowledged last month that it will take longer to reduce its budget deficit than it had expected, and conceded it will miss its target to have the ratio of net debt to gross domestic product falling by 2015-16. Mr. Cameron said that he and Mr. Clegg were united on the big economic issues that formed the foundation of the coalition, but acknowledged the road ahead wouldn't be easy.


Leader of UK's far-right EDL party jailed for 10 months for entering US on friend's passport

The leader of Britain's far-right English Defence League party has been jailed after pleading guilty to using someone else's passport to enter the United States. Stephen Lennon — whose criminal convictions previously had led to his being denied entry to the U.S. — used a passport in the name of Andrew McMaster to board a Virgin Atlantic Flight from London to New York on Sept. 10.

The 30-year-old somehow managed to leave the airport and enter the U.S., staying one night before returning to the U.K. on his own passport. He was arrested in October. His true identity was discovered when customs officials took his fingerprints. Judge Alistair McCreath noted Lennon's tendency to use aliases in sentencing the EDL leader on Monday to 10 months in jail.


Terrorist Naseer Appears in U.S. Court

A Pakistani man accused of helping al-Qaeda plot a series of attacks, including a failed attempt to bomb the New York subway, pleaded not guilty to terrorism charges in a U.S. court less than a week after losing an extradition fight in the U.K. Abid Naseer, 26, was brought before U.S. District Judge Raymond Dearie in Brooklyn, New York, today, accused of providing material support to terrorists and conspiracy. He faces a maximum sentence of life in prison if convicted, according to prosecutors.

Standing before the judge in a bright blue T-shirt, black pants and sneakers, Naseer entered his plea and didn’t contest a request from the government that he be denied bail. The next court date is scheduled for March 7. U.S. prosecutors allege that Naseer was involved in planning a potential attack in Manchester, England, as part of a multinational conspiracy that may also have included the New York subway bomb plot. Neither attack was carried out.

The subway plot, uncovered in September 2009, involved Colorado resident Najibullah Zazi and was directed by senior al- Qaeda leaders in Pakistan, the U.S. Justice Department said. Naseer communicated with the same Pakistan-based al-Qaeda facilitator as the New York subway plotters and used code language similar to theirs to describe his plans, the U.S. said. In April 2009, when Naseer was working on the Manchester attack, he told the facilitator he was planning a large “wedding,” according to prosecutors. A subway bomb-plot suspect told the facilitator “the marriage is ready” not long before their intended attack, prosecutors said.

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Emanuel Paparella2013-01-08 12:57:10
On one hand Britain wants to solve its fiscal problems via austerity; on the other hand it wants to grow its economy which keeps shrinking because of austerity. It is the same “brilliant” idea being proposed by Republicans here in the US despite the best advice of the best economists. On one hand it wants to stay in the EU, on the other it does not belong to the Euro zone and seems more interested in cultivating its “special relationship” with the US than its role in the EU. One may characterize this schizophrenic stance via the American expression “keeping the cake and eating it too” or perhaps the more British one applies: clever by half?

Emanuel Paparella2013-01-09 09:05:50
P.S. The Aristotelian principle of non contradiction logically dictates that a thing cannot be and not be at the same time. Consequently a polity cannot be united and disunited at the same time; one cannot promote regionalism and universalism at the same time; yet, that is what can be observed in the EU concerning the separatists and independence movements sprouting all over the place beginning with England’s threat to leave the union and ending with Bossi’s aspiration to leave Italy and declare a dubious Padana republic. I suppose the strange phenomenon can be called a paradox, or perhaps schizophrenia? It superficially has political characteristics but more properly speaking is a cultural phenomenon having to do with an unwillingness to consider the roots of the European cultural identity as assessed by Christopher Dawson’s The Making of Europe.

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