We use cookies to help improve and maintain our site. More information.
close

September 05, 2019

Would Keynes be in favour of Brexit?

We have always argued that the economic consequences of Brexit are an issue beyond economic forecasting or even economic analysis. The reason is that some of the most important parameters are variable. Good policies designed to exploit the regulatory opportunities or a permanent change in the real exchange rate could have profound effects on economic performance in the long run, and overwhelm all the other stuff that backward-looking trade models tell us will happen.

So far most of the discussions has been about Brexit itself, not about the policies, except in one area: fiscal policy. We agree with Ángel Ubide’s remark that the UK yesterday took a lead in fiscal stimulus, with its much under-reported annual spending round. It produced the fastest real growth in day-to-day government departmental spending in 15 years - a projected increase of 4.1% in real terms.

The eurozone will find it much harder to transition away from austerity than the UK. The eurozone remains stuck with its multiple fiscal rules that produce suboptimal fiscal policy for many member states. We have argued before that there exists one rational reason for a member state to leave the eurozone: not to be bound by such a set of rules that keep you in a state of semi-depression. This may not be a sufficient reason, but the mere existence of a rational reason is not to be taken lightly.

The EU did not directly influence the macroeconomic policy stance of the UK. The Maastricht Treaty’s 3% deficit rule applies to non-eurozone members as well, but without any enforcement procedures. Brexit is not about macroeconomics in the sense that the Brexit will not allow the UK to conduct policies it could not conduct as an EU member. But Brexit necessitates macroeconomic policy changes. And herein lies an opportunity.

The FT called Sajid Javin’s spending round a typical pre-election move. There is more money for local government in addition to funds previously announced for schools, police and hospitals. The budget would increase the state sector in the economy from 38% to 38.6% of GDP. The spending measures end up busting the UK’s own fiscal rule to keep annual borrowing at below 2% of GDP.

One of the biggest beneficiaries of the spending review is the Home Office, which also oversees the police. Previous British governments have done virtually nothing to combat an alarming rise of knife crime in London. The new plans foresee the recruitment of 6000 police officers next year as part of a plan to increase the force by 20,000. We expect this to be one of the most popular measures of government spending, and relevant for the upcoming election.

Show Comments Write a Comment

This is the public section of the Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET. The full briefing, which appears at 9am CET, is only available to subscribers. Please click here for a free trial, and here for the Eurointelligence home page.

 

Recent News

  • January 24, 2020
  • Is Germany anti-semitic and racist?
  • Did the Greek financial crisis play a role in Brexit?
  • September 18, 2019
  • No doubt, this is a constitutional crisis
  • Macron's immigration bid
  • May 13, 2019
  • Brexit Party has already changed UK politics
  • Orbán visits Trump, after a very long wait
  • Le Pen's appeal to the PiS likely to fall on deaf ears
  • January 04, 2019
  • Will the AfD become the Dexit party?
  • Romania's corruption problem in the spotlight of its EU presidency
  • August 28, 2018
  • Urban politics and national crisis - the Irish case
  • How anti-semitism became one of the main issues in British politics
  • April 25, 2018
  • Macron's pitch to Trump
  • Montoro in Schleswig-Holstein
  • The old world and the new
  • December 22, 2017
  • Will Macron be the new de Gaulle?
  • 2018 through the looking glass
  • August 21, 2017
  • Soft, getting softer
  • Tsipras' chances of a boost
  • On the fallacy of a middle-ground option for the eurozone
  • April 20, 2017
  • Don’t bet on Trump turning globalist
  • A note on UK election polls
  • December 20, 2016
  • The politics of terror
  • On Lagarde
  • Is a disruptive Brexit possible?
  • August 22, 2016
  • Gold for Brexit
  • EU and Turkey talking past each other
  • Switzerland is the next migrant transit country
  • On the death of neoliberal economics
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • February 07, 2020
  • Is Macron the best guarantor against Le Pen?
  • Catalan turmoil means Spain will struggle to pass a budget
  • January 22, 2020
  • Erdogan and European Libya diplomacy
  • On the importance of mutual recognition agreements in the Brexit trade talks
  • January 06, 2020
  • A decade that started with a bang
  • What to expect of Spain's next government
  • Divide et impera: Macron's pension reform strategy
  • December 23, 2019
  • What’s behind the NordStream2 sanctions
  • An important ruling by the Dutch constitutional court
  • This time Popolare di Bari brings EU bank resolution into question
  • The reversal of the eurozone external balances
  • No Christmas truce in France
  • Brace for Erdogan's foreign policy ambitions
  • On the decline of the centrist left
  • December 09, 2019
  • The next three days
  • November 26, 2019
  • Disrupting and glueing: on Anglo-Saxon clichés about France and Germany
  • November 14, 2019
  • Are France and Germany finally converging on security policy? We think they might.
  • November 04, 2019
  • Brexit tactical voting is happening - on both sides
  • Merkel promises 1m charging stations - but doesn't tell us how
  • October 24, 2019
  • Will the Bundestag stop Merkel's 5G unilateralism?
  • October 15, 2019
  • Germany chooses Huawei for 5G
  • US and EU respond to Turkey - too little, too late
  • October 07, 2019
  • What did Conte know?
  • September 30, 2019
  • A pyrrhic victory for Kurz
  • Will there really be UK elections?
  • September 23, 2019
  • Corbyn’s last big battle
  • Germany’s CO2 compromise meets all targets - except the climate targets
  • September 17, 2019
  • Beware of the diplomacy of humiliation
  • Germany’s climate hypocrisy
  • September 12, 2019
  • DUP opens up to compromise
  • Spain to repeat elections after all
  • September 09, 2019
  • Chances of no-deal are rising and rising
  • Resist the beginnings
  • September 06, 2019
  • After an extraordinary week, what are Johnson’s options now?
  • Macron’s grip on the EU
  • September 05, 2019
  • Would Keynes be in favour of Brexit?