The growth figure for the UK in the third quarter, from July to September, was released by the Office of National Statistics this week. Growth was an unexpected 0.5%, but despite this the Chancellor, George Osborne, is going to have to revise down his growth forecasts whilst increasing the debt forecasts for the fourth time this year. Although many economists and financial experts welcomed the news, they proceeded to repeat warnings about how close Britain is to a double-dip recession. This is even more likely when the effects of the European crises are taken into account, particularly as the UK’s main trading partner is the EU. A double-dip recession will increase the UK’s debt as benefits claimants rise and tax revenues fall. This took place in the same week that David Cameron announced infrastructure through his regional growth funds, including a £36m loan to Forgemasters of Sheffield who had their previously agreed £80m loan cancelled when the coalition came into power. David Cameron maintains this is still “Plan A” but the jury remains out on whether the coalition’s economic policy will help the country or whether they will continue to blame “the last government”.
This week has seen some strong action by international organisations, including Palestine being successful in its bid to become a permanent UNESCO member. UNESCO is an independent branch of the UN and some have suggested that this is the first step to full recognition. This angered the US, which funds 22% of the UNESCO budget; they have withdrawn funding following the recognition due to a law dictating US government money can’t fund the Palestinian State Authority, which would happen now that Palestine is a member of UNESCO. UNESCO was due another payment later this month which is already being held back. At the same time, the Arab League has negotiated a deal with Bashar Al-Assad, the President of Syria, to stop the violence in his country. The deal agreed between Arab leaders and Assad was for Syria to withdraw its military from the cities, free prisoners and begin negotiations with opposition groups. This was agreed on Wednesday 2nd November, but has been ignored completely as Assad continued to bomb Homs on Thursday and hasn’t even attempted to meet any of the agreed terms.
The Eurozone has had a turbulent week with surprise announcements that took even the French president, Nicholas Sarkozy, and German chancellor Angela Merkel by surprise. The Greek PM (at least for now), George Papandreou, announced a referendum on the country’s latest austerity package. This package is a condition to Greece receiving the second bailout agreed last week and the release of the remaining €8bn from the first bailout that will be required later this month for Greece to pay its bills. At the time of publishing, the latest news is that Papendreou is expected to scrape through a vote of confidence. He is currently in talks with opposition parties to vote through the austerity package and form a government of “national unity”, but it is unclear whether this has happened yet. He has, however, dropped the referendum in favour of the parliament voting it through, after market turmoil and European leaders’ dismay at the G20 in Cannes on Thursday 3rd.
It is looking increasingly like Greece will leave the Euro; this could be particularly damaging as there is no mechanism in the Eurozone treaty for a nation leaving the currency. Italy is also facing issues with Silvio Berlusconi, the Italian PM, who is expected to go sooner rather than later. The yield rates Italy are now paying on their debts is above 6% – to put this into perspective, a 7% yield is seen as too costly for a nation to gain finance from the market and qualifies it for an IMF and EU bailout. The Eurozone is in for a turbulent few months which could easily lose Merkel and Sarkozy their jobs as well as cause substantial damage to even the economies that are currently in good positions, Germany and France.