The-UK-and-EU-flags-010A ballooning current account (or balance of payments) deficit, and an explosion in household borrowing.

These were the two signs of impending difficulty, that Ireland ignored between 2005 and 2008.

 In 2008, Irish public opinion was so optimistic that it felt it could afford to reject an EU Treaty in a referendum, notwithstanding the disproportionate benefits Ireland got from EU membership. It reversed this decision in a subsequent referendum in 2009.

The UK is exhibiting some of the same symptoms of overconfidence at the moment.

The UK current account or balance of payments deficit for the last quarter of 2015 was 7% of GDP – the deepest deficit since 1955.

The UK is spending more abroad than it is earning there.

It is making up the difference with borrowing. A country that is borrowing more abroad must be particularly sensitive to the volatile opinions of foreigners.

UK households now owe almost £1.5 trillion overall, up 4% on a year ago. The vast majority of that debt is in the form of mortgages, where lending growth has been climbing steadily since the start of 2015. Much of that has been driven by the buy-to-let sector.

And now the UK is about to have a referendum on whether it should leave the EU altogether. And in the UK case, unlike Ireland, the government has said firmly that there will be no second referendum

UK voters should be wary of overconfidence. They should remember what happened in Ireland.

The UK needs its neighbours to prosper, just as its neighbours need the UK to prosper.

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http://johnbruton.com/overconfidence-can-lead-to-political-as-well-as-financial-mistakes/
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