A good election to win

This election could be an especially good one to win, according to some figures out this morning.

I'm referring to the ECB's numbers (pdf) showing that the M1 measure of the euro zone's money stock rose by 10% in the year to March, its fastest growth rate since May 2010.

My chart (source) shows why this matters. M1 - adjusted for inflation - has been a good leading of euro zone growth; accelerations in M1 growth in 1996, 1999, 2003 and 2009-10 all led to pick-ups in growth.

This could well benefit whichever party forms the next UK government, in two ways.

First, it should help reduce government borrowing. A stronger euro area economy gives us a chance of exporting more. It could also increase business confidence and investment here. On both counts, this should mean stronger domestic growth and hence tax revenues.

We can put this another way by thinking about financial balances. A healthier euro zone should help reduce the UK's current account deficit. That deficit is another word for foreigners' surplus. And if foreigners' financial surplus falls, UK residents' financial deficit must also fall: sectoral balances must sum to zero. This should mean a lower government deficit - especially if companies increase investment because of confidence about the euro area thus generating a corporate deficit.

Secondly, a stronger euro area economy will create jobs in the region - maybe lots of them if the euro area sees the same weak productivity growth as the UK and US. In a couple of years, therefore, the noblest prospect an unemployed Spaniard will see might no longer be the easyJet to London but the road to Barcelona. This could reduce immigration - not just because EU workers don't need to come to the UK to find work, but also because some non-EU workers will get jobs in the EU rather than the UK.

If the euro area does recover well, therefore, the next government will be able to say: "Look, we promised to reduce the deficit and immigration and we've done just that." Such a claim would be spurious, but  post hoc ergo propter hoc seems good enough in politics.

Of course, there's a massive caveat here: given the unpredictability of recessions, we cannot be very confident the euro area will continue to grow. Perhaps a stronger inference, then, isn't that this is a good election to win but rather simply that the fate of the next government will depend in large part upon what happens elsewhere in the world. Which is something else that politicians aren't saying.

Comments

[Pension60]

If the Nazi gold was returned, this is about the entire German GDP.

Returned not to Greece. But to EU to pay off all debt in its entirety.

And who says anyone will win in 2015. No big party won in 2010.
Most people did not vote.

www.anastasia-england.me.uk

[Luis Enrique]

is it possible that the previous episodes where endogenous, responding to increased optimism or whatever, hence a presage of good times, whereas this time it's exogenous, reflecting QE, and so perhaps not same signal?