The sick man of Europe

Britain is the latest country to be given the dubious title of ‘the sick man of Europe’.

In the mid-1800s, the Ottoman Empire was the first to be called ‘the sick man of Europe’.

The term is believed to originate from Russian tsar Nicholas I, who referred to the weakening military prowess of the Ottomans.

Since 1945, as European countries finally grew tired of fighting each other, the ‘sick man of Europe’ term has mostly been used to describe a country with economic problems.

The latest country to befall this dubious title is, you guessed it, Britain.

Almost exactly a year after the British electorate voted to leave the European Union, the economic outlook is indeed a bit gloomy.

Real incomes are falling as wages are failing to keep in step with inflation. Meanwhile Bank of England governor Mark Carney is reluctant to raise interest rates amid all the political uncertainty.

“At the time of last year’s Brexit referendum, it was taken as axiomatic by many in the UK that France was one of the leading contenders for the unwanted title of “sick man” of what was widely assumed to be a doomed Eurozone,” writes Simon Nixon in the Wall Street Journal.

Britain, in contrast, was Europe’s most dynamic economy, one that needed only to unshackle itself from the continental corpse to seize opportunities in a globalised world and reach even greater heights of prosperity.”

Fast forward one year and the tables appear to be turned.

Nixon claims France’s difficulties, which centre on rigid labour laws and relatively high taxes, might be more easily overcome than Britain’s.

The structural lag in UK productivity is especially worrisome.

In 2007, Britain trailed the OECD average by 9%, but that gap had doubled by 2015. Germans produce 35% more per hour than their British counterparts, while UK productivity is 30% lower than in the US.

“Even the French could produce the average British worker’s output in a week, and still take Friday off,” writes RBS chairman Howard Davies for Project Syndicate.

And then there’s George Soros, who warns that Britain is fast approaching a “tipping point” which will lead to a reduction of living standards.

Soros argues the only reason Britons have maintained their living standards in the past year is because households have borrowed more, something they can’t keep up forever.

We’re only in the first week of the Brexit negotiations and it’s already doom and gloom all around.

But just like the despair about the French economy appears to have been exaggerated at the time, Britain’s outlook can change just as quickly. It all depends on the kind of deal the British government negotiates in Brussels.

A deal that would keep immigration and foreign investment flowing in, minimise disruptions in UK-EU trade, and allow business to slowly get used to the new realities could do much to avert any harm to the British economy.

In any case, Britain can take comfort from the fact that no one country tends to be the sick man for long.

Germany was the sick man in 2004 and emerged as Europe’s most powerful economy a few years later following a series of labour market reforms.

France was considered the sick man under President François Hollande, but under the leadership of Emmanuel Macron hope and confidence have swiftly been restored (for now).

Just about every European country has been dubbed the sick man at some point. As long as Britain treats the right symptoms, there’s no reason why it couldn’t emerge more strongly from its sickbed.

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