|The BRICS nations|
First it is important to realise that the £10 billion is entirely hypothetical. It is simply an entry in a ledger somewhere saying DEBIT IMF loan, CREDIT Creditors, there is no actual money changing hands and no one will have to pay anything it is all just an electronic intangible.
Britain once and within my life-time found itself in a position where it was forced to borrow money from the IMF, extract taken from nationalarchives.gov.uk
Devaluation of the pound
The left wing of the Labour Party defeated the Public Expenditure White Paper in the Commons in March 1976. Subsequently, Harold Wilson resigned and James Callaghan took over as Prime Minister. Around this time, investors became convinced that the pound was overvalued and that the government might devalue. A large-scale sale of sterling began, which rapidly lost value against the dollar.
In spite of further efforts to reduce inflation, the pound continued to lose value, reaching a record low against the dollar in June 1976. The US Treasury Secretary now agreed with officials in the International Bank of Settlements that the pound was undervalued. He offered to partially fund a stand-by loan of $5.3 billion to support the pound. He insisted, however, on repayment of the loan by December 1976. Proposals for further cuts in expenditure and tax increases to reduce the budge deficit were debated in Cabinet in July. By September 1976, Britain had already drawn heavily on the short-term loan and it was apparent that a loan from the IMF would be necessary to fund repayment.
The 3.9 billion dollar loan
As pressure on the pound continued, the government approached the IMF for a loan of $3.9 billion in September 1976. This was the largest amount ever requested of the Fund, which needed to seek additional funds from the US and Germany. The IMF negotiators demanded heavy cuts in public expenditure and the budget deficit as a precondition for the loan. Healey's proposals for a cut of around 20 per cent in the budget deficit were hotly debated in Cabinet, particularly by Anthony Crosland and Michael Foot. Eventually they acceded, as it seemed likely that the refusal of the loan would be followed by a disastrous run on the pound. Healey announced the forthcoming reductions in public expenditure to the House of Commons on 15 December 1976.
Following the agreement with the IMF, the overall economic and financial picture improved. Interest rates were soon reduced and the pound quickly appreciated in value. By the end of 1977, partly as a result of new oil revenues, there were improvements in the balance of trade. Britain did not need to draw the full loan from the IMF. Nevertheless, the IMF crisis reinforced a change in policy orientation away from full employment and social welfare towards the control of inflation and expenditure.The US stepped in to prop up the ailing UK economy whilst changes were implemented in policy. As one would expect from an ally of significantly more economic might.
So who now is the key player stepping up to underwrite the Eurozone in these difficult times, is it Europe's ally the US? No it is China. The very nation that is maintaining the US standard of living.
When the US overtook the UK as the global economic hegemon it did so on the basis of revolutions in the methods of production of farming and manufacturing, just as the agricultural and industrial revolutions of the 19th Century had catapulted Britain into a position of economic dominance in the world.
There has been no such innovation in China, their advantage is based simply on the relative labour costs of the US and China, an advantage that can quickly be removed if the economies of the US and China continue along their current paths. The success and future success of China is part of a zero-sum game, their growth depends on the decimation of the economies of other nations, rather than as has previously occurred as part of a non zero sum game where methods have allowed consumption of goods to be more widely distributed and growth to be achieved.
That is not to say that we in the West do not consume too much. We are drowning in our own waste and dying of over-eating, the answer has to be found, as suggested in a previous post YES WE CAN, in making fundamental changes to our economic system and realising that the 'value' of our goods is not in the 'intellectual property', the brand name, the patent, license or trademark but it is in the materials which are used to create the product and the time that a human being has devoted to making it.
The best example of this is in the very money we use as a means of exchange. £10 billion pounds is worthless, £400 billion pounds is likewise of little value except for what it can buy, but it can be churned out by the trillion on a printing press and is only valuable because the government insists that it is.
But the most 'valuable' things are those which are the unique creation of a single human being, the priceless works of art, the unique pieces of jewellery, the furniture which is made by craftsman rather than machine. It is not because Da Vinci painted the Mona Lisa that it is valuable it is the way that he painted it. Work by craftsmen is more expensive because they put their soul and their time into the production.
China has not changed, fundamentally, the way in which agriculture and production is undertaken, there is no philosophical leap which has enabled a new phase of human development, it has simply undercut the West. It therefore differs from previous the previous hegemons: United Provinces (Netherlands), United Kingdom and the United States.
China like Feudal Spain, Napoleonic France and Hitler's Germany on those previous occasions, is I suspect the 'also ran' in the battle for dominance, the nation which upsets the apple cart. Who the sleeping giant is remains to be seen.
We are still looking for the next 'industrial and agricultural revolution', but looking back to the 3 day week of the 1970's one can see that the productivity of the United Kingdom did not actually fall. For whatever reason, maybe due to more diligent working practises the British firms managed to produce as much in three days and they did before and after the 'crisis' in five days.