When we think back to the 28th January 2007 in Davos, picturesque scenery comes to mind: Madrisahorn, Jakobshorn, Pischahorn and Schatzalp were all covered in snow and just at the foot of the very last of these four ski resorts lies Davos Platz, the city centre of the Swiss town. One could see holidaymakers and natives alike strolling through the spa gardens, inhaling the clear cold air. And in their very midst it was the economic leaders of the 21st century coming together for the annual World Economic Forum in the Davos Congress. It was the final day of the Conference and it was British Premier Tony Blair delivering the closing speech. All in all it had been a successful meeting for the outgoing politician and his delegation surrounding the Chancellor of the Exchequer, Gordon Brown: they had been able to present excellent figures in real GDP growth and unemployment. Everything seemed hunky-dory indeed. However, it would be only one year before the economic crisis kicked in.
Leap in time – we are back in 2013. Again it is time for the world’s economic leaders to gather in Davos, but Britain’s situation is completely different from 2007: The GDP has again shrunk by 0.3%, in the last quarter of 2012. This development occurred to the horror of current PM David Cameron, as there had already been a negative prediction, yet not of this magnitude. The precarious situation though is only to arise in combination with the national debt of 88%, as this is a Catch-22 for the British decision makers: on the one hand side, growth would be indispensable to cut the debt, however to prompt growth, Britain would have to run into debt even further. This again would not only destroy George Osborne’s main target, cutting the deficit, but also provoke degradation by the rating agencies and the loss of AAA-status. Has it been too early to respire after a strong third quarter of 2012? It almost seems that it was only the boost generated by the summer Olympics that concealed the disconcertingly growing problems. In addition it was most probably not wise to take this small positive growth as the occasion to start cutting government expenditures in a very harsh manner.
Vice-Premier Nick Clegg has now joined the queue of critics and sent a reminder to expand investment in the construction industry, as economic theory taught him that the multiplier effect generated has a major effect on the whole economy. But is this really the magic bullet?
It has now been months since No. 10 first tackled the economic anti-climax by several actions: From increased subsidisation for construction, a manipulated interest rate to the Bank of England buying bonds, they’ve tried a variety of strategies, however have never determined one fixed course. The Office of National Statistics (ONS) has now pointed out that stagnation in financial services and the already feeble British industrial sector are the causes for the negative economic development. If PM David Cameron and his adjutant Osborne will be able to focus on the pursuit of a strategy to tackle their nation’s weak spots and dissociate themselves from blind actionism, it should be possible to return to the happy days of 2007 in a few years , albeit reaching this particular summits again, is going to be almost impossible.
merchinomics 