Amex reckons that taxes have to go up, but the faster the growth and the closer to capacity the economy can be run, the less of a problem there is on the fiscal side.Anyway, whatever view you take about the fundamentals, we will know more about the Government's general intentions come July. Is it inclined to err on the side of fiscal caution, or is it inclined to a more relaxed view? Wait and see.Finally, there are a host of structural issues. The big question here is this: to what extent should the market be allowed to allocate resources and to what extent should its decisions be modified by government?There are two big areas in these structural questions One concerns established micro-economic policies. Does the privatisation programme continue, or does it stop? Is there a substitute for privatisation in some form of partnership with the private sector? What happens to government intervention in labour markets beyond the minimum wage and the signing of the social chapter? What happens to pension reform, given that Labour is interested in some kind of compulsory savings scheme, but also given the fact that it attacked the Tories in the election campaign for supposedly planning to end the state pension?There will be no revelations here; expect a series of measures, emerging over the next two to three years, each of which will build our knowledge of the Government's mind.The other structural area concerns the single European currency. Does the large Labour majority mean it will be more inclined towards such a scheme? Or will the plan fall to bits before we are called on to decide? Would they have us in anyway? I do not think it is possible to say anything sensible about this issue at this stage, except that I suspect this is not a decision which the British people will be called upon to make. The big decisions will be in Germany and France, and they are simply too close to call.In one sense nothing has changed The world economy is the same as it was a week ago The British economy is the same too.
We have a government which has said it will continue the same broad economic policies of its predecessor. And there is in any case a natural continuity of policy despite political change. But a lot of experienced (and decent) people in the world of finance are troubled, and that in itself is worrying.. In a set of discussions entitled the "New Transatlantic Agenda", the European Union and the United States are deliberating on closer co- operation on a wide range of issues, ranging from collaboration in Bosnia to environmental protection and international terrorism. One of the most concrete issues concerns transatlantic trade liberalisation.
Between them, the US and EU account for almost two-thirds of world trade and almost half of world income. Any bilateral liberalisation between these giants is, therefore, an important affair, as much for the EU and the US as for the rest of the world. In a study recently published by the Centre for Economic Policy Research in London, we look at the potential benefits of the two regions pursuing a trade and investment agreement The study addresses two main questions. Would such a bilateral initiative benefit EU and US citizens (and what would it do to those excluded from the deal)? Equally importantly, we ask whether the EU and the US would benefit more from a preferential bilateral initiative or from joint support for multilateral initiatives.The short answer to the first question is: not much The reason is simple, but first some facts. Trade between North America and Western Europe consists largely of two-way trade in similar industrial products. In 1994, almost 40 per cent of this trade was in machinery, cars and car parts and other transport equipment.
Of $276bn (pounds 184bn) in total transatlantic merchandise trade, very little, in relative terms, was in politically sensitive industries such as textiles, clothing, steel and agricultural goods, where trade frictions are concentrated.Much of this trade is already quite free due to a combination of Uruguay Round commitments to reduce tariffs and the Information Technology Agreement reached at the Singapore Ministerial of the World Trade Organisation. Indeed, most transatlantic trade will face either relatively low tariffs (generally less than 2.5 per cent) or zero tariffs by 2005, even without a preferential trade agreement. The notable exception is continued EU and US protection in sensitive items such as agricultural products, textiles and fisheries, but politicians are unlikely to tackle these "sacred cows" in a bilateral setting.Because protection is relatively low, a narrow preferential agreement leading only to the elimination of tariffs on industrial goods is likely to have little, if any, discernible impact. We estimate that national income in North America would rise very slightly and the effect on EU income would be almost zero.A deeper agreement that went substantially beyond tariff liberalisation to include barriers such as those tackled by the EU's Single Market Programme (for example, eliminating anti-dumping duties and opening up government purchases to importers) would generate modest increases in income and wages for the two regions.
