Gordon Brown, Take Note: Britain Can Boast about Leading Europe but the Torch Is Passing to Germany ; Are We as Influential as We Think When the Astonishing Revival of a Once-Ailing Powerhouse Can Teach Us a Few Things about Fiscal Policy? ++ ECONOMIC VIEW

By McRae, Hamish | The Independent on Sunday (London, England), June 24, 2007 | Go to article overview
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Gordon Brown, Take Note: Britain Can Boast about Leading Europe but the Torch Is Passing to Germany ; Are We as Influential as We Think When the Astonishing Revival of a Once-Ailing Powerhouse Can Teach Us a Few Things about Fiscal Policy? ++ ECONOMIC VIEW


McRae, Hamish, The Independent on Sunday (London, England)


It may or may not turn out that our Prime Minister managed to play patsy to Nicolas Sarkozy at the EU summit on the issue of "undistorted competition". The detail is the thing that matters and it takes several weeks, maybe months, before the implications become clear.

In the event, whatever he agrees or does not agree has no solidity. US presidents can issue pardons to their friends in legal trouble as a final example of the use of their presidential power, but British prime ministers have no ability to tie the hands of their successors. Gordon Brown will have to accept, or unpick, the supposed agreement, using the special authority he will gain from coming newly into the job.

What is, however, important is the way in which British influence in Europe may be on the wane, while the power of the Franco-German axis may be on the increase. The reason has more to do with Germany than France.

The basic point here is that the continental European economy is doing better and it is even possible that this year Germany may grow as fast as the UK. Remarkably, it may even move to a fiscal surplus this year or next, something that the faster-growing Britain has completely failed to do.

So will this put a stop to British bragging (all right, Brownish bragging) about the UK economy performing much better than the continental European one? And, more broadly, will it change the relationship between Britain and its European partners, or maybe rivals, over political issues including the tangled debate about a new constitution?

Much of Britain's relationship with continental Europe has been shaped by our relative economic performance. This is partly a money thing. When we were doing worse than the Continent, we growled and got some of our money back, as Margaret Thatcher did with the budget rebate. Now that we are, on most economic measures, doing better, we still play the awkward- squad role but end up having to give back most of that hard-won concession. Along with Germany, Britain is Europe's paymaster, giving more than half of one per cent of our considerable GDP to Europe every year as a price of membership.

But it is not just about money; it is also about ideas. When Britain seemed to be doing worse, no one on the Continent was very interested in British views on economic policy. Then there was real interest, particularly in UK labour market policy. And even if there is not quite as much admiration as some Britons believe, the changes to German labour laws have been part of the story of the revival in the German economy.

Now things are changing. In the left-hand graph, you can see the way in which the consensus estimates for growth this year for the four main European economies have altered since the start of the year, along with some estimates from the economics team at Citigroup. Back in January the consensus was for Germany to grow by 1.5 per cent; now it is 2.75 per cent and Citigroup expects it to be 3 per cent - the same as the UK.

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Gordon Brown, Take Note: Britain Can Boast about Leading Europe but the Torch Is Passing to Germany ; Are We as Influential as We Think When the Astonishing Revival of a Once-Ailing Powerhouse Can Teach Us a Few Things about Fiscal Policy? ++ ECONOMIC VIEW
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