WellTax Blog

UK no longer shackled to a corpse

February 14, 2018

After many false dawns, at last some sunlight has fallen on Europe’s strongest economies.

Growth across the European Union is at levels not seen since 2007.

And the continent’s powerhouse countries – Germany and France – are seeing growth at levels not experienced since the financial crisis bounce-back of 2010.

Those were the good old days, when many believed that the worst of the financial crisis was already behind us.

The bounce, sadly, was what markets describe as a “dead cat”. That is, not going anywhere positive.

After the false dawn of 2010, there followed years of economic calamity as the financial crisis morphed into a currency crisis and the economic collapse of Europe’s smaller, indebted economies, led by Greece and infecting Portugal and Ireland, as well as Spain.

A currency and quasi-political union ill-suited to the flexibility needed to deal with countries at very different stages of the economic cycle was stamped “basket case”. Many critics of the European project polished their dancing shoes, ready for a tango on the EU’s grave.

Those problems are still extant. The closer political and economic union proposed by France, for example, is the next big test of the EU’s governments and economies.

As well as the very high, though falling, unemployment levels across continental Europe, particularly amongst the young.

But, the project (without, in the future, Britain, of course) is still together – tensions and all – and growth has finally bounced back, across not just the eurozone, but the European Union as well.

Today’s Eurostat figures show that the fourth quarter of 2017, compared with the same period in 2016, was particularly strong across most EU members as global growth momentum starts kicking in.

Germany, France and Spain rely on exports just as the UK does and higher demand has led to higher profits for businesses.

The latest UBS data on firms’ earnings per share – a good proxy for how positive corporate data are looking – showed a 2017 figure of 12%.

Its eurozone economic surprise index – a measure of whether economic data is better or worse than forecast – is comfortably in the mid-60s (where above 50 is positive), figures not seen since the beginning of 2014.

Global growth

Structural reforms across the EU have helped, particularly in Spain and France, where Emmanuel Macron is the new darling of business.

But it is global growth that is lifting all boats, boosted by monetary policies set for a broadly recessionary landscape.

Interest rates in the eurozone, for example, are still negative.

Central banks are slowly catching up with the better economic figures and withdrawing some of the expansionary booster rockets.

But they are on a gentle path, given that there is little evidence of an inflationary spike any time soon.

For Britain, where growth is still reasonable but has slowed since the Brexit referendum, better EU growth is good news.

Nearly half of all we export goes to the EU.

And we are still in the single market and the customs union, which gives us tariff free access to the EU.

That relationship will change.

But the UK is still a major beneficiary as the EU marches forward.

Article from the ‘BBC’

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