JUNE 24, 2015
GREXIT: A STRONG POSSIBILITY?
DUBAI COLLEGE
UK AntiAusterity Protests
Freddos: A New Measure of Inflation?
In the UAE
DC ECONOMICS GREXIT With the most recent talks on June 22, the possibility of a Greek default on its Euro 1.6 bn repayments due to the IMF by end of June again seems less likely. In a typical ‘European response’ to dealing with crisis last minute, a resolution may well be found in the form of a restructure and extension of loans in return for a reform plan from Greece that is more agreeable to its official creditors - IMF, EC and ECB and other EU govts. Greece claims it requires the last tranche of the Euro 7.2 billion from its Euro 247 bn bail out programme to run the government and be able to pay wages and pensions to its employees. The package expires in 2015 and Greece has not received any funds since 2014. It has managed to stave off a default on its repayments so far by drawing on its reserve accounts with IMF and emptying out the surpluses and reserves of its municipalities, state owned enterprises and even hospitals. Greece is insolvent despite having generated a fiscal surplus of 0.6% of GDP for the first time in 2014 (which would otherwise indicate at least a reduced reliance on external debt). It has delivered on the stringent austerity conditions imposed by its creditors with reduction in wages, cutting of govt. jobs, reducing pensions and increasing VAT rates. Yet its debt has risen to over Euro 340 Bn with the sovereign debt to GDP rising from 109% to 177%, unemployment from 15 % to 28% and its real GDP has contracted by more than 25% since the financial crisis. As deflation set in as the crisis deepened, there was no new investment or growth that would have generate additional income through taxes and the few employed saw their disposable income and spending shrink with wages and pension cut. If deflationary conditions persist, increasing social benefit obligations will put pressure on the budgetary surpluses required to service debt and Greece’s debt will keep on rising. Economist such as Stiglitz and market analysts (JP Morgan) are unanimous in their view that the IMF, ECB and EC ‘’badly misjudged the macroeconomic benefits of the bail out programme they imposed on Greece’. IMF and ECB published forecasts for the original (2010) and second restructuring of Greek debt in 2012 have proved to be too optimistic in their assumption of the austerity measures in generating growth and surpluses needed for debt sustainability. In the absence of a mechanism within the European Monetary Union framework that does not allow a country to leave currency union, Greece will be forced out of the EU if it defaults on the Euro 6.7 bn repayment due to the ECB in July 2015. Sara Kachwalla
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JUNE 24, 2015
UK ANTI-AUSTERITY PROTEST Tens of thousands of protesters gathered in Parliament Square rallying against the newly re-elected conservative government’s plans for five more years of austerity measures. The Conservative Government plans to cut welfare spending by 12 billion pounds through measures including reducing the benefits cap, reforming housing benefits as well as restricting tax credits. Many worry that these cuts will have a deep effect on schooling, healthcare and other publically-funded services, rendering them unable to adequately serve the public. The government, however, says that the austerity moves are necessary in order to cut the deficit. Data from the House of Commons Library suggests that the austerity measures to be brought in by the Conservative Government will lead to 3million workers being worse off. President David Cameron has ruled out touching benefits for elderly people and child benefits, meaning the bulk of the savings will have to come from other working-age welfare payments - the most likely cuts are restrictions on child tax credits and housing benefits. Mr Cameron said: "There is what I would call a merry-go-round. People working on the minimum wage having that money taxed by the Government and then the Government giving them that money back and more - in welfare," he said. Harriet Harman who is the acting leader of the welfare party, on the other hand, has said reducing tax credits would be the worse thing to do as it is going to hit hard at families where they're going out to work but they're low paid so they need tax credits to top up their income.” Britain’s budget deficit currently stands at just under 5 percent of gross domestic product, higher than in almost all advanced economies. Fresh from an unexpected election victory last month for the ruling Conservatives, Osborne has said he wants to run a surplus by the 2018/19 tax year and commit future governments to the same. The exact areas of the cuts are still to be announced. Ashna Gupta
FREDDOS: NEWEST MEASURE OF INFLATION? Freddos: frog shaped chocolates made by Cadbury, because nothing makes chocolate taste better than a happy green frog on the wrapper! Once hailed as sacred by mostly every British youngster for their measly 10p price, Freddos were all the jazz back in the day, and for good reason. But then one fine day, according to sources, the price increased to 12p. And then to 15p. And then it increased to the dreaded 20p mark. I can’t myself articulate the pain of the English during this time, but I presume it’s somewhat similar to if,
DUBAI COLLEGE
Recent News Headlines That Have Caught Our Eye… ‣ Syria’s economic output has shrunk by as much as 60% since the conflict began in 2011. Syria’s mining and construction workers have been hardest hit with exports dropping from $12bn to $2bn. The Syrian pound has also lost 80% of its value since the conflict began. ‣ UK consumer prices returned to positive growth following a brief period of UK deflation, rising 0.1% in the year to May. ‣ A new IMF research paper based on 30 years of global data concludes that there is a direct link between how an economy's income is distributed and its growth prospects, with greater inequality hampering growth. ‣ Chinese imports of coal fell 38% in the first four months of 2015, as a result of China's efforts to increase energy efficiency.
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JUNE 24, 2015
DUBAI COLLEGE
here in Dubai, Neon candies became 1 AED. In a weeping madness, people started to claim that the increase in Freddos was a ‘’sign of inflation in the UK’’. But, is this true? Can we trust the nonsensical, satirical comments of teenagers on social media? The short is no, we can’t. The dark truth behind the jump in Freddo prices has to do with the rise in price of Cacao beans; a truth darker than any dark chocolate. Requiring very specific conditions, only countries a certain distance from the equator can house the growth of Cacao beans (such as the Cote D’Ivoire, which provides 30% of the world's Cacao beans as of 2012). War in the Cote D’Ivoire has really hampered output, but as various developing economies (like China) continue to grow and grow, demand for chocolate continues to increase a lot, but, droughts and war have hampered production severely, leading to an increase in Chocolate prices that’s only going to keep going up. And the number of Cocoa farmers in countries like the Cote D’Ivoire and Ghana isn’t increasing as much as we would want it to, meaning every Dairy Milk we buy is a potential 5 AED we may have saved about 5 years ago. Times the difference in current and previous price by weekly consumption… and you have my University tuition fees that I could’ve paid for. Analysts and chocolate companies alike predict prices to keep on increasing, but we’ve seen countries like Namibia utilize some bold maneuvers to maintain agricultural stability. In 2013, Namibia brought Indian farmers to Namibia to grow rice, in order to wade away a primary product dependency they had regarding certain fish, and at the time, diamonds. Unlike nearby countries like Angola, which have had an almost total dependence on oil, Namibia slightly specializing with a little help from these Indian farmers allowed them to survive the very recent plummet in the prices of oil. Perhaps we could see countries like the Cote D’Ivoire and Ghana move away from cacao beans during these harsh times, and so perhaps, in the future, the prices of chocolate could keep creeping up and up. Perhaps this increase in cacao prices won’t stop for the foreseeable future. Unlike a quality chocolate bar, the future of chocolate prices isn’t necessarily sweet. Aditya Prakash
IN THE UAE: The UAE has always been a model of prosperity and stability in a region beset by uncertainty. According to global consulting firm Frost & Sullivan, the size of the UAE economy based on its GDP is estimated to grow from $416.44bn (Dh1.528 trillion) last year to $440.18bn (Dh1.615 trillion) this year, thanks to its economic diversification, increased public sector spending and huge foreign reserves. Large amounts of money will be spent on vital infrastructure programmes over the next six years, including Dh100 billion on airport expansion plus significant investment in other transport and tourism projects, real estate and financial services. However, it is important to note the short that will be taking place from construction work and building projects towards investment and research by 2020. This will form part of the bid to increase employment in the “knowledge economy” from 22 per cent to 40 per cent by 2021. The plan involves boosting Emirati participation in the workforce by more than two-thirds to 460,000. Increasing investment into human capital will help the UAE prosper beyond the era of oil. In the real estate market, Dubai property prices could fall 10 to 20 per cent over the remainder of this year and early 2016 coming “after three years of sharp price appreciation” as a result of increase increasing supply and weakening foreign demand. Ashna Gupta
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