Will British General Election Save UK Economy From Collapse?
The die is now cast; as expected, British Prime Minister Gordon Brown has seen the Queen, following political tradition, and announced with Her Majesty’s blessing the dissolution of Parliament and the holding of a general election on May 6. Brown, the incumbent Labour Party leader of a nation that has been among the worst afflicted by the global financial and economic crisis, faces an uphill fight against the challenger and likely winner, Conservative Party leader David Cameron. What may be the wild card in the election is the possibility of a hung Parliament, with neither leading party able to garner a majority of seats, leaving the Liberal Democrats of Nick Clegg as the improbable power brokers.
There is one overriding issue in the UK’s 2010 general election: the economy. It is a basket case, buried in public debt. Everyone in the British establishment, albeit political or financial, knows that the massive British government deficits, currently running at 13% of GDP (a higher figure than that currently afflicting Greece), are unsustainable. Despite the rhetoric from all sides of the UK political spectrum, however, no one really has a realistic solution.
The UK is in a fiscal paradox. If it raises taxes or cuts public spending to reduce the deficit, that will probably be the kiss of death for a weak and artificially induced economic recovery. Unfortunately, continuing the massive deficits are not an option; the bond market will see to that. Gordon Brown assures the British taxpayers that if they trust Labour once again after 13 years in power, his team will magically cut the deficit as a proportion of GDP by 50% within four years, while restoring economic growth and national prosperity. This is clearly an absurd campaign promise, but David Cameron’s ambiguous assurances that “improved efficiencies” can reduce spending without cutting public services are equally disingenuous.
The UK confronts a fiscal trap, as I point out in my book, “Global Economic Forecast 2010-2015: Recession Into Depression.” The risk of a double dip recession, unsustainable public debt and deficits as a proportion to national GDP, and an aging demographic requiring increased levels of funding for pensions and benefits that the UK cannot afford, point to a fiscal collapse by 2012. The only question I believe the 2010 UK general election will really decide is on whose watch does the United Kingdom of Great Britain and Northern Ireland achieve national insolvency.