"It will be the logical extension of an event that took place two decades ago."
The 2016 United Kingdom referendum on the leave-or-remain-in-the-European-Union issue should not have come as a surprise to steadfast observers of relations between the UK and the EU. The reason for this is that over a decade earlier, there was an economic issue that resulted in Britain’s diverging from the rest of the EU membership. That issue was the creation of a single currency and the replacement of the EU members’ national currencies with a new monetary unit called the euro.
The leaders of the EU countries, after extensive discussions on the matter, had reached the conclusion that the creation of a Union-wide currency was a logical progression from the customs union and the Single Market that were already in place and that the EU was now ready for a single currency to replace the pesetas, deutschemarks, franco, and drachmas of the member-countries. All the EU leaders cast Yes votes for the single-currency project. All, that is, except for the UK, which voted to not replace the pound sterling with the euro.
Up until then the EU members—the founding Six plus Britain and the newly admitted Central and Eastern European countries—had acted in unison on all political and economic matters that were of importance to the Union’s status and welfare. Britain’s refusal to join the single-currency scheme was the first crack in the façade of EU unanimity and the first indicator of Britain’s unwillingness to fully integrate itself into the Union.
The UK put forward a number of reasons for its unwillingness to have the pound sterling replaced by the new single currency. Foremost among these was the potential damage that the monetary shift would cause to Britain’s status and reputation as Europe’s leading financial center. The EU’s financial experts argued that the City of London was already firmly established as a financial center and that the switch to another currency very likely would produce no adverse effect. But the UK was adamant, and so it stood firm on its refusal to accept the euro as its new currency.
A severe blow had been dealt to the EU’s image as an institution that united and spoke for, all the Western European countries and most of the countries of Eastern Europe. But the blow was not fatal. The EU continued to thrive and become stronger and the euro gradually became the world’s second most widely accepted currency.
The UK’s action in the single-currency case should have been seen as a possible harbinger of British policy towards the EU’s economic arrangements, but it was not. It was seen as an isolated incident dictated by unique British needs.
Astute observers of British policy and British behavior who caught in the single-currency episode a glimpse of historical British insularness were proven right in their perception. Two decades later, in the now-famous 2016 referendum called by the Conservative government led by David Cameron, the British people voted in favor or Brexit (Britain’s exit from the EU). The Brexit vote was not about withdrawal from an EU economic scheme; it was about Britain’s withdrawal from the EU altogether. British insularness was now in full play.
Barring a second referendum that will reverse Brexit, the UK will leave the EU on October 31 this year. That event will be the logical extension of an event that took place two decades ago.
From my reading of what the economic managers of the Duterte administration have been saying about the inflationary surge of 2018—the steady rise in the inflation rate this year and the measures adopted by the authorities to deal with it—and about the likely inflation scenario for 2019, I have come to the conclusion that their view of the current inflation situation can be summed up as follows: “The surge in consumer prices throughout 2018 is subsidizing and will, as a result of the government’s remedial measures, make possible a return to the 2-to-4 percent annual inflation target set by the Bangko Sentral ng Pilipinas.”
The economic managers—the Secretary of Finance, the Governor of the BSP, the Secretary of Socio-Economic Planning, the Secretary of Trade and Industry and the Secretary of Budget and Management—appear to be saying that the Philippine economy has been undergoing an inflationary ride, that things are beginning to simmer down, that the inflation rate will return to target in 2019 and that all will then be back to normal.
Back to normal? Not quite. Inflationary episodes always leave an aftermath, and this year’s inflation is no different. The 2018 inflation has left—I really should say ‘is leaving’ because there is no certainty about a continued downward movement of prices in the months immediately ahead—behind debris from which the economy will recover in the months immediately ahead.
For starters, there is the upsurge of an inflationary psychology which has not been there in recent times and has a tendency to linger. Once inflationary psychology takes hold, producers begin to indulge in speculation, ever trying to guess whether their suppliers intend to raise their prices and often making pre-emptive price strikes. In that kind of environment—and that is the environment that has come to prevail—marketplace stability is not possible.
With their let’s-move-on mindset, the economic managers believe that the return of the inflation rate to the 2-to-4 percent target range means that things are back to normal and that all is now well. But things are not back to normal. Prices are now higher across the board, and prices, once raised, hardly ever come down. They’re sticky. The price increases that the 2018 inflation has caused producers to implement will have created changes in competitive positions; in the case of Philippine exports, this country’s competitive positions vis-à-vis certain foreign products may well have been negatively affected.
A further element of the aftermath—the debris—of the 2018 inflation has been the generally jarring effect that it has had, and continues to have, on international prospects of the Philippine economy. No longer can the economic managers speak strongly of this country’s sound macro-economic fundamentals. The new wave of price instability has caused foreign institutions and analysts to re-examine the state of those fundamentals. As a result, there have been downgrades in the projections of the Philippine economy’s growth in 2019 and 2020.
The Philippine economy took a beating in the year that is about to end. And largely because of a wayward locomotive called TRAIN 1