Nowhere was the image of a sluggish Britain more vivid than on the Continent. French and German politicians used to speak derisively of “the English disease,” a malady with symptoms including militant trade unions, overregulation, vacillating government policies, and an aristocratic disdain toward entrepreneurship. Even when Britain boomed after World War II, as it rebuilt its bombed-out economy, its growth rates were the lowest of big European countries. Compared with Germany’s and Italy’s “economic miracles,” the United Kingdom cut a sorry figure.
Today, Tony Blair inherits a decidedly disease-free economy. A Reuters survey of 32 forecasters shows that Britain will post growth rates of 3.2 percent this year, which (along with the United States), makes it one of the two fastest-growing industrial economies in the world. Unemployment is at a six-year low of 6.2 percent. Inflation is a stable 2.7 percent. The pound has appreciated against the dollar, yen, mark and franc. And whether or not London is, as this magazine has claimed, “the world’s coolest city,” it is probably its most important financial center. Europe’s unemployment rate, meanwhile, is 12 percent. Growth remains sluggish in most countries, and job creation has been nonexistent for 15 years.
The British miracle can be traced back to Margaret Thatcher. Beginning 18 years ago, the country underwent a radical structural transformation even more intense than America’s in the 1980s. Now, Britain’s labor costs are the lowest in Europe, its business regulations are the least cumbersome, and its productivity–the elixir for sustained growth–is not just higher than Germany’s, but also Japan’s and the United States'.
In large part, Labour won its landslide by paying homage to this booming economy. Voters, weary of nearly two decades of Tory rule, believed Tony Blair when he promised not to reverse any part of the Thatcherite revolution. That leaves the prime minister with only one pressing economic challenge: how to grapple with Europe. Blair must decide on the depth and breadth of London’s relationship with Brussels, particularly on whether the country will adopt the common currency, infelicitously named the euro. The euro, and much of the European project, is built on the assumption of German economic might. Germany is widely admired in Europe as the model of a social market economy–with high levels of state intervention, worker protection and business regulation. The French, Italians and Spanish all believe that in buying the euro, they will reap the rewards of Germany’s economic efficiency and fiscal discipline.
The trouble is, Germany today is a model only of high wages, overregulation, expensive social programs, and declining productivity. As Germany and France charge ahead with a common currency, their growth rates will continue to stagnate. Meanwhile, Britain likely will continue on its path of steady growth, low inflation and surging productivity. Were the European Union to look for a model economy, Britain might be it. Indeed, London has fought the Brussels bureaucracy’s statist inclinations. The question Blair might ponder is not can Britain do without Europe, but can Europe do without Britain?
