Beating the Cycle

The Malta Independent

Beating the Cycle

A look at the current state of the British economy shows the blessing of economic cycles. The Bank of England has had to hike the bank rate several times to pre-empt the economy from inflationary overheating.` Sterling interest rate is some three points above the Euro rate and the British economy is well ahead of the Euro bloc in the economic cycle. This forms an inappropriate scenario for Sterling to join the Euro in the foreseeable future.` Certainly not until there is greater convergence of the interest and economic growth cycles.

Gone are the days of the early 1990`s where interest rates had to be pushed to strong double digits in spite of the recessionary state of the domestic economy with unemployment at record levels.

What`s so healthy about the British economy, in full sympathy with the US economy in one of the longest growth cycles, is that the economy has recovered its flexibility and restored the logic of the Phillips Curve.` A public deficit of just over 3% of the GDP in 1996 has gone into 1% surplus by 1998 and the latest Treasury projections are for an average annual surplus of 2% of GDP at least until 2004.` The economy is moving on its own steam restoring debt capacity to the public sector to be used for fine tuning when and if the economy would eventually go into the downward mode. Gross Public Debt of 44% of the GDP in 1996 is expected to fall to 28% by 2004.

What a far cry for our own economy! Atrocious public sector deficit, rising public debt ratios to GDP, emergency privatisations and a slowing economy is symptomatic of the economic mismanagement and waste of resources in the 90`s. Whilst other more resourceful economies admitted that they could not beat economic cycles and had to bite the bullet to re-structure and re-energise their` economy,` our supposed know-it-all created the illusion that they can spend our wealth out of economic cycles which clashed with their electoral objectives.

A meeting with reality can be delayed but not avoided. The Unions and the government through regular meetings continue to argue of how the burden can be spread more equitably. The harsh reality which the Unions will distaste is that the burden will unavoidably have to be carried by the fixed income earners in order not` to scare off potential investors. Investment, real productive investment, is the only sure way out of our economic mess.

Rather than expect the Unions to provide alternative solutions the government should re-cite the mea culpa and make a public apology for bringing us to this pitiful state.