The United Kingdoms Sovereign Debt Crisis - Case Study Example

Section/# The United Kingdom’s Sovereign Debt Crisis Introduction to the Issue: Although much ado has recently beenmade over the sovereign debt crisis of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) very little mention has been made of those economies that hold what the media refers to as “moderate” levels of debt. However, the United Kingdom, much like the United States and other developed Western economies has a very high sovereign debt which slows its economic growth and puts a heavy burden on the taxpayer to continually service the interest on the debt; if not work to pay it down. Although the debt situation in the United Kingdom has not reached the epidemic that has proven to plague many of the European states that have thus far been listed, it cannot however be ignored in the hopes that it will simply go away. Rather, firm actions must be taken by policy makers and legislators to seek to reduce the sovereign debt. Furthermore, it is incumbent upon the electorate the continually remind and elect legislators who will pursue such a goal even in the face of difficult decisions, cuts, and further hardship. As such, this recommendation piece will seek to lay out a firm but decisive case for why it is in the best interests of the national economy as well as the individual citizen to work to pay down the sovereign debt even during such trying economic times. Summary Currently, the total sovereign debt that the United Kingdom has amounts to a sum of over £1,278 billion. Unfortunately however, this number is far from static and only increases every hour and second of the day. As such, servicing the interest on the debt rapidly devours over £43 billion annually (Economic Policy Outlook 2012, p. 5). To put this into perspective, merely servicing the interest on the debt requires a sum of money greater than what is spent on defense, industry/agriculture and employment, transportation, housing and environment, personal services, or public order and safety. Such an analysis helps the reader to quickly put the figure into perspective with respect to the level of economic strangulation that running such a high level of debt actually portends for the other sectors of the economy. Naturally, the economic outlook at the present time is not such that it is feasible to pay off the national debt in a short period of time; however, the individual could allow his/her mind to wander with respect to all of the different ways that these monies could be spent differently in order to benefit key components of the economy. In this way, the reader can quickly come to understand that the main reason that other sectors of the economy that are in desperate need of the requisite funding to operate more effectively must do without in order to service the debt for the outstanding money that is owed and continues to be compounded. Scope The scope of the sovereign debt is of course not as dire as has been manifested in other European nations; however, to put the actual cost into perspective on a per-capita basis, it is noteworthy to consider the following statistics. Currently, every man woman and child that resides within the United Kingdom owes over £17,000 towards the national debt. Put another way, for every employed person that currently resides within the United Kingdom, this figure jumps to an astounding £37,000. Such figures help to put the situation into a perspective that the average person can understand. Based on the fact that the national debt is non-inclusive of the bank bailouts, the researcher can quickly infer that this number is indeed an order of magnitude larger if one begins to consider the amount of taxpayer money that has been poured into securing the banks during the 2007-8 financial collapse (Economic Policy Outlook 2012, p. 6). Furthermore, the United Kingdom’s current ratio of debt to GDP (Gross Domestic Product) is a staggering 68.49%. This figure itself, although unbelievably high, is even more troublesome when it is compared with the current rates of debt/GDP percentages that exist within much more troubled economies than the United Kingdom is often thought of. For instance, currently, Spain’s percentage of debt to GDP ratio stands at 53.0%. Likewise, Ireland (another trouble economy) stands at 65.53%. As can be readily noted, both of these nations percentage of sovereign debt as a ratio of GDP fall well below the figures that have been given for the United Kingdom. In this manner, the reader/researcher can quickly note that the debt crisis as exhibited in the United Kingdom, although not yet causing cataclysmic damage to the economy is on par with that of other nations whose debt has endangered the continue borrowing and survival of the European Union. Recommendations: Rather than advocating debt reduction by merely paying the interest plus a small percentage of the debt, what has been adopted by politicians is paying the very bare minimum while each and every year adding more and more to the sovereign debt of the United Kingdom to cover key budget shortfalls that exist as a result of a slowed economy, ever increasing population, the expense of overseas military engagements, an aging population, increasing costs of education, and general inflation to name only a few. Such an approach is of course exceedingly short sighted as it does nothing to either avert the ever increasing size of the sovereign debt or to seek to pay it down in real terms. Although the discussion has come to a higher degree or prominence now than it was only a few brief years ago as a result of the fiscal problems within the European Union, the level to which the government, politicians, and even individual citizens are engaging this issue leaves a great deal to be desired. The constricting nature that such a high sovereign debt exhibits on a nation has been manifestly described. As such, it should further be understood by the reader that in order to affect a real and lasting change on the future of such a situation, it is incumbent upon the government and the individual tax payer to seek to find a lasting solution to such a problem. Several such solutions have herein been described. However, like most difficult problems, they only seem to persist due to the fact that there is no simple and quick remedy to them. In order to seek to remedy the sovereign debt of the United Kingdom, it would be necessary to make painful changes that would have a profound effect on the manner in which the remainder of the economy and the citizens lived their daily lives for many years to come. The situation that is being described is of course one of shared sacrifice. As such, it is easy to understand precisely why no politicians have yet vociferously advocated such a stance. Unfortunately, one of the premier shortcomings of a representative democracy is the fact that the political liabilities associated with attempting to tackle long-term issues is that such solutions can easily span over a period of around 10-20 years or even longer and is therefore a highly unattractive proposition to a politician that sees there career likely not extending beyond 10 years at a maximum. Of course there are a few outliers to this broad trend that has just been described; however, such is not the norm. Similarly, it should be noted that another major impediment towards a governmental solution to such an issue is the fact that a shared sacrifice is not able to be sold to the general electorate. Rather than choosing to tackle the issue and provide a firm and recognizable response to the situation so that it can be effectively handled over a period of many years, the electorate has much more pressing demands that are oftentimes concentric upon keeping the entitlements that are currently guaranteed incoming. Such a self-centered and short-sighted approach is not only counter-intuitive to finding a solution to the given problem, it serves to weaken the overall economy to an even greater degree and make it increasingly difficult to find the economic power and wherewithal to realize an adequate solution to the sovereign debt crisis due to the fact that all available funds are continually poured into a more expansive social safety net and not into seeking to ameliorate the growing sovereign debt. Naturally, what has been described is a prime example of putting off an already bad situation in the hopes that delaying it will somehow return a very different result. However, such a response is short sighted with regards to two specific reasons. Firstly, the level of money that is available to continue funding needed government projects is of course averted so that the sovereign debt can continued to be serviced. Secondly, the amount of time that the government will be able to continue to support the needed social and community programs that the voters so badly desire is necessarily shortened due to an inconclusive and incomplete response to the debt crisis. In order to provide an ultimate remedy, the economy as well as the individual citizen will be required to make some difficult choices with regards to living through increased austerity and necessarily paying a higher tax in order to generate the income to both meet the other budgetary needs of the economy and attempt to not only service the debt interest but begin paying down the overall debt. Naturally, such an approach is likely to be unpopular; however, if the nation is to experience any hope of ridding themselves of this unnecessary encumbrance, it is a path that must be pursued. Conclusion: The issues that have been presented with relation to the sovereign debt crisis of the United Kingdom help to acquaint the reader/researcher with the gravitas of the situation. Rather than a manageable situation that can merely be ignored due to the fact that it has not reached the epidemic proportions that have served to weaken the sovereignty of other nations in Europe and around the world, the scope and reality of the issue involved and the stagnating effect that such an issue has an economy as a whole is a rallying call to all participants to begin to seek to act while the problem is still within a somewhat manageable time frame. Moreover, it is incumbent upon the political structure as well as the individual citizen to begin to express a high degree of alarm at the current juncture in time so as to avert potential catastrophe in the near future. As the debt is only compounding and continuing to expand as wasteful politicians seek to placate key voting segments, there is little if any time to waste in order to rectify such a situation. Reference 2012. "Economic policy outlook." Country Report. United Kingdom no. 2: 5-8. Business Source Premier, EBSCOhost (accessed November 23, 2012). Read More