July 28, 2011
Conservative Home has launched a “growth manifesto” with contributions from a number of UK thank-tanks with the aim of providing ideas for how to return Britain to growth (“Here you go George; A Growth Manifesto from London’s think tanks”, is how the piece is aptly titled). 0.2% second quarter GDP growth is hardly impressive so ideas are certainly needed.
We’ve chimed in with our own thoughts, focusing on a long-term solution to the eurozone crisis in combination with pro-growth, liberalising measures in Europe (save on capital requirements for banks, where tougher regulation is needed). Like Mervyn King and others, we believe that the eurozone crisis remains the biggest threat to the UK’s financial stability. But as we argued in the Sunday Telegraph last week, amid fears of another nasty economic downturn in Euroland – and the contracted demand for UK exports that comes with it – the crisis and the measures in its wake are also a direct threat to UK growth.
In fact, a large-scale meltdown in the eurozone could send the UK straight back into recession. The point being that fudging it – which EU leaders are currently doing – is a risky strategy. Here are our thoughts:
Open Europe blog team
The Government needs to push for a long-term solution to the eurozone debt crisis – bailouts aren’t working, debt restructuring will be needed. The longer the crisis goes on, the worse the prospects for eurozone growth and stability look and, as our biggest trading partner, this will have an impact on the UK economy. In the medium-term the UK needs to seek allies in pushing for a better-functioning single market, including deregulation, removing cross-border barriers to services and digital industries, and protecting the interests of the City of London from the EU’s new financial supervisory architecture. This includes securing the flexibility to apply capital requirements for banks as the UK sees fit. In the longer term, the UK should look to diversify its trade away from the eurozone, tapping into the growth potential of emerging markets, which will be necessary in any case but also provides a Plan B if the eurozone fails to get its act together. The UK also needs to continue to push for a reduction in EU external trade barriers and encourage the expansion of free trade agreements with other economies/trading blocs.