By Aaron Newton: Political columnist
The coronavirus pandemic has hit every country in the world outside of a handful of Pacific islands, but not all equally. What is also unequal is the response to it from different nations. The plight of Spain and Italy is well documented; as are the current financial difficulties in the UK, which has record-levels of unemployment predicted this year. What may have been lost in last week’s news cycle of Russian involvement and Johnson vs Starmer’s forays into standup comedy is that the European Union have agreed a mammoth financial programme in order to kickstart continental recovery. On this side of the water, does Chancellor Rishi Sunak’s “meal deal” plan stack up?
First, the numbers: the recovery fund hashed out in a typical Franco-German fashion totals €750 billion, in addition to the Multiannual Financial Framework’s (the 7-year EU budget) €1.074 trillion. These arbitrary figures mean very little until you put them in comparison to Sunak’s “mini-budget”, a paltry £30 billion by comparison, despite the projected effect of the virus on the UK economy singing to the tune of £300 billion.
“But not all countries in the (now) EU-27 are made equal and had different economic problems before the pandemic”, I hear you shout. Well, the recovery fund is designed to only alleviate the effects of the virus, not the existing unemployment or growth problems. “What is stopping the countries using it for their own ends instead?”, you add. The Netherlands’ Mark Rutte put a stop to that. Almost 30% of the €750 billion will go to Italy, and given Italy’s history of corruption, it was on a few people’s minds to devise a curtailing mechanism. Any national government can lobby to block money transfers to another nation, for up to three months, where an investigation will take place into how the money will be utilised in the national recovery plans.
This fund is the attempt to make the best of a bad situation: it provides urgent funds to the cash-strapped and stalling economies, but at the cost of a further strain on the EU budgets stretching to up to the year 2058. ‘Brexiteers’ will see this as a reason the bloc has flawed economic systems. ‘Remainers’ will see this as an ironic twist; if the UK would have ‘remained’, it would be the biggest benefactor of such a fund.
The UK, of course, could never hope to match this sort of response. But has the Sunak “mini-Budget” been enough to stop the drain on the economy? The measures introduced of VAT cuts and cuts to stamp duty are designed to promote spending by consumers and encourage borrowing. However, with a projected 4 million unemployed citizens by the Office for Budgetary Responsibility (OBR) to be the outcome of the pandemic, will many be in the position to even consider loans? In addition, the unconventional measure of quantitative easing forced upon him by low interest rates provides a different problem; the £100 billion injected into the economy can push the problem down the line, where stagflation looms. The reduction in stamp duty will mean nothing to first-time buyers, when quantitative easing puts higher requirements on mortgage acquisitions.
It is difficult to predict the eventual outcome of both party’s measures, but one thing is clear: with the prospect of a trade deal with the US before the year’s end sinking without a trace, the UK looks like it may be in for stormy seas in the near future. It will need to carefully navigate, else it may capsize.