Dear Chief Secretary, I’m afraid to tell you there’s no money left – Outgoing Labour Chief Secretary to the Treasury, Liam Byrne, to his successor, David Laws
Trying to make sense of the growing financial crisis in Europe is like attempting to explain the Tim Tebow phenomenon in the United States. It’s simple yet complicated. Europe is entering a period of prolonged uncertainty and potential calamity. However, there has been one country that has provided a small glimmer of hope: Great Britain. Countries like Greece look as if their days are numbered as they grapple with the realization that defaulting on their debt is imminent. The latest bond sales for Italy and Spain have hardly been reassuring in terms of their long-term viability in trying to finance their debt. France is the latest country to join the ever-expanding queue of troubled nations as S&P downgraded their precious Triple-A rating just last month.
Overseeing this potential disaster is Germany and the European Central Bank. Over the last few months both Germany and the ECB have been urged to come up with a silver bullet solution that will stave off the growing crisis. Unfortunately for Germany and the ECB, that “solution” would most likely entail financing at least in part a major European bailout of debt-ridden countries like Greece, in addition to the ECB having to guarantee bondholders’ investments.
Unlike many countries caught up in this insanity, Britain has been able to keep a safe distance from the troubled mainland. The main reason is because they have tackled their deficit and debt problems head on. In the summer of 2010 a new Liberal Democrat/Conservative coalition took office after 13 years of Labour Party rule, which left them with the largest peacetime deficit in the country’s history. Upon entering office, Prime Minister David Cameron took action to pull Great Britain back from potential economic and financial ruin. Part of this was an Emergency Spending Review in which the Treasury Department, led by Chancellor of the Exchequer George Osborne, instituted massive cuts to government expenditure. These included spending cuts in areas such as welfare, law enforcement and public sector workers’ pensions.
Unfortunately, political gridlock in the legislative branch and ineptitude in the executive branch have put a halt to any real progress in the United States as far as addressing our soaring deficits and debt. Real plans of any radical and fiscal reform offered by politicians like Paul Ryan seemed destined to die in the Democrat-controlled Senate, much less being signed into law by President Obama.
There is a sad irony in the United States that its politicians have to face up to. Right now politicians blame partisan gridlock from Democrats and Republicans for the lack of progress on issues like the deficit and the debt. Great Britain, on the other hand, is governed by a coalition government of two distinctly different political parties, the Liberal Democrats and Conservatives, whose ideological differences rival that of Democrats and Republicans. However, despite the range of differences on most issues, the two parties came together in the national interest of their country in an attempt to restore the country’s finances. By tackling its deficit and debt immediately, Great Britain has maintained its Triple-A ratings, historic low interest rate, and the real prospect of eliminating its structural budget deficit in the next four years.
The changes being implemented in Great Britain have by no means gone smoothly. Riots last summer and public sector strikes this past fall have illustrated discontent within the public over the government’s course of action. However, in the face of unpopularity, David Cameron has stuck to his guns and challenged his opponents at home and leaders abroad to get serious about the dangers that high debt and deficits invite.
Many have talked about the recent decline in the “Special Relationship” between the United States and Great Britain. While perhaps it is not as strategically important as it once was, it still remains a highly important one symbolically. At the moment Great Britain appears to be waging this war on fiscal responsibility alone as relations with the EU have turned frosty. European leaders met again on January 30th for yet another summit in trying to solve this crisis. The only positive to take away from that meeting was that Nicholas Sarkozy and David Cameron avoided the second coming of Waterloo.
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