The European Tribune is a forum for thoughtful dialogue of European and international issues. You are invited to post comments and your own articles.
Please REGISTER to post.
A weaker currency would in normal circumstances mean a boost to exports and an improvement of the trade balance, but in this case rising imports have canceled out the effect.
To what extent do normal circumstances apply anymore? I mean, isn´t there an assumption that what is exported are goods or raw materials made in the exporting country?
I don't know how much of the export looks like that anymore, and there are at least two more cathegories to consider: world-wide production chains and services.
With world-wide production chains I mean the proverbial fish stick that can take a lap around the world before ending on the consumers plate. While currency exchange rates changes costs - here decreasing the cost of UK labour - I don't know how much effect that has in the short term. It all depends on how the production chains are structured. Also access to the next step in the chain is crucial and Brexit is putting that in jeopardy.
And then services, in particular financial services. In general financial services doesn't appear to be very cost sensitive considering the salaries in the sector. Access to markets and financial tricks (legal or otherwise) is probably more important for the bottom line. Also as with other high-end services there is probably an element of considering expensive services to be better - why else would they cost so much? - which would mean that as currency goes down, so does the status of UK fiancial services.
Again, I don't know how large portions these are of UK exports, but I think it should be part of the explanation.
A tangential question is to what extent normal conditions apply to any economy today.
Such a development would both devastate the upper middle class in the UK and inherently discredit finance in the UK as we know it. There would undoubtedly be knock-on effects on the bottom 90% in the UK which, in absolute terms and in many cases, would be worse than the loss of those in finance - such as collapse of public services and a much larger number of unemployed.
Given the systematic way in which the population has been misled by elites a constructive response to such a crisis seems unlikely. But it remains essential that one be found. The alternatives are very ugly and increasingly probable.
"It is not necessary to have hope in order to persevere."
I'm sure they'll happily blame it on the EU/immigrants/black people/gypsies/teh gays/the judiciary/the unions/Jeremy Corbyn just like they've done for the last 50 years
keep to the Fen Causeway
Since it is exactly the opposite happening, I wonder if the Services sector has already tied its costs (mostly wages) to other currencies.
You might find me At The Edge Of Time.
So if the UK is still buying/importing more or less the same goods/service as it did a year ago - and paying up to 18% more for them - you would expect the balance of payments to actually worsen in the short and medium term. Ditto with UK exports, if exporters aren't passing on cost reductions enabled by devaluation or if overseas buyers aren't buying any more of them even if they are cheaper.
In the longer term, of course, you would expect UK exports to increase and imports to reduce, in volume if not in value terms (expressed in Euro). But that also assumes that British exporters are geared up to ramp up production in response to increased demand. Given "goods" as opposed to services are such a small proportion of overall exports, the effect could be quite marginal on the economy as a whole. It will take a very long time before any increase in goods exports makes up for the loss of services exports to the EU when UK institutions lose their passporting rights.
So years from now, "economists" will still be wondering why the UK economy responded so little and so slowly to the devaluation stimulus - much as they wonder now at the continued absence of inflation. None seem to think the UK class structure, the lack of governmental fiscal stimulus or the destruction of Trade Union bargaining power has any role in all of this. Of course we know better!
Index of Frank's Diaries
Services, especially financial ones, have a much less mechanical relationship to GNP. The money never enters the UK financial sphere, is never taxed here, is never declared here. So, although financial services declare a fabulous value to the nation, the country only benefits from a shadow fraction of this value via wages (but rarely bonuses), and other land subsidies.
The UK is hevily represented in areas that provide no benefit, but has a hollowed out manufacturing base entirely unable to respond to increasingly favourable international trading circumstances
keep to the Fen Causeway
Continuity in the availability of goods for the EU and the UK (pdf, 21 Aug 2017)
Why is this language careful not to compare EUR price to GBP value, UK legal tender? Because the avg. annual exchange rate 2016, GBP:EUR was 1:1.22. One pound bought EUR 1.22 in G&S; one EUR bought 0.89 pence of UK G&S. UK imp/exp firms, IBs, IT, "farmers" easily exploited the margin by buying any supply chain elements from anywhere with GBP, selling in EUR or GBP.
Context for a future relationship
In 2016, the EU exported 127.9 billion of consumer goods to the UK and imported 62.3 billion of UK consumer goods. 4 Producers in the rest of the EU rely on UK firms in their supply chains [DISTRIBUTION, RAW GOODS, INTERMEDIATE GOODS, FINISHED GOODS], and vice versa. In addition, the UK is an important contributor to many European value chains [DISTRIBUTION OF 'VALUE-ADDED' BY MECH. & HUMAN LABOR], and in 2011 the UK content accounted for 1.9 per cent of the total value of other EU member state exports, and 6.4 per cent of all foreign value-added [PROFIT MARGIN] in other EU member state exports. 5
Here, "services" is a euphemism for mechanical & human labor, together.
Principle D: Where the goods are supplied with services, there should be no restriction to the provision of these services that could undermine the agreement on goods
34. Goods and services trade flows have consistently moved in lockstep with each other. 11 Services are essential for production of goods, for their sale, distribution and delivery, and for their operation and repair. For example, EU statistics suggest that in 2015 the EU imported 1.6 billion of maintenance and repair services from the UK, while exporting 2.2 billion. 12 As our economies modernise and grow, the link between goods and services is becoming ever more important ...
The pitch is to persuade EU27 to accept cost shifting (again) just in case GBP "breaks" the EUR.
Diversity is the key to economic and political evolution.
by Frank Schnittger - Jul 18 12 comments
by Frank Schnittger - Jul 17 33 comments
by Frank Schnittger - Jul 9 109 comments
by ATinNM - Jul 12 8 comments
by IdiotSavant - Jul 20
by Oui - Jul 14 1 comment
by ARGeezer - Jun 29 9 comments
by Frank Schnittger - Jul 5 39 comments
by IdiotSavant - Jul 20
by Oui - Jul 192 comments
by Oui - Jul 181 comment
by gmoke - Jul 18
by Frank Schnittger - Jul 1812 comments
by Frank Schnittger - Jul 1733 comments
by Oui - Jul 1618 comments
by Oui - Jul 151 comment
by Oui - Jul 141 comment
by ATinNM - Jul 128 comments
by joelado - Jul 11
by Oui - Jul 111 comment
by Oui - Jul 118 comments
by Oui - Jul 101 comment
by Frank Schnittger - Jul 9109 comments
by Oui - Jul 94 comments
by Oui - Jul 93 comments
by Oui - Jul 8