Economics and politics - comment and analysis
20. October 2016 I Heiner Flassbeck I Business Cycle Analysis, Countries and Regions, Economic Policy, Europe

The condition of the British economy before the Brexit. Part 3

Almost all observers agree that the major English economic shortcoming lies in the excessive dependence of the UK economy on the financial sector. In fact, those who have been betting on the same horse for decades, as all British governments have done, play a risky game. The great financial crisis of 2008/2009 revealed that the enormous concentration of financial service…


Almost all observers agree that the major English economic shortcoming lies in the excessive dependence of the UK economy on the financial sector. In fact, those who have been betting on the same horse for decades, as all British governments have done, play a risky game.

The great financial crisis of 2008/2009 revealed that the enormous concentration of financial services in the City of London (in English, ‘industry’ is also used for these types of economic endeavour) is well capable of taking hostage the rest of the economy if it is not built on a solid foundation. The current weakness of many banks and investment funds demonstrates this very well. Imagine that the current bubble in the stock and bond markets would burst: the consequences for the financial sector would again be extremely severe and the economy in countries such as Great Britain would be significantly affected.

The defenders of the ‘German path of development’ will point to the benign effects of a functioning manufacturing sector. They are correct, under specific circumstances. A well-functioning and strong economy with a diversified product range is much less vulnerable to outside fluctuations in demand because of its diversification.

But this is not the case for Germany…
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