What will happen after Birmingham goes bankrupt?, No sun never sets

According to CCTV News, on September 5th local time, the Birmingham City Government in the UK announced bankruptcy.

In a statement released on the official website of the Birmingham City Government regarding the 114 clause notice, it was mentioned that there is a funding gap in debt repayment due to equal pay cases, with a direct budget shortfall of £ 87 million this year. This notice means that, in addition to legal services such as protecting vulnerable groups, all new expenditures in the city must be stopped.

The bankruptcy of the Birmingham government may sound rare, but it is actually not uncommon. Previously, both Greece and Iceland had experienced this situation, and even within the UK, the Birmingham City government was not the first to go bankrupt. However, as the birthplace of the British Industrial Revolution and a major industrial and commercial hub, Birmingham's bankruptcy has still attracted a lot of attention. What did it go through? What kind of impact will it have? What warnings will the bankruptcy of a city government bring?

Birmingham

Heart failure in England?

"I heard today that Birmingham has gone bankrupt, which is not surprising. Birmingham's streets are old and some walls are covered in graffiti, and no one has cleaned them up in years." Yingwen, who is studying abroad in the UK, told Chao News that she lives in Coventry, which is only an hour's drive from Birmingham. Apart from needing to take international flights, she rarely goes to Birmingham. "It used to be a very prosperous city, but now there is only a feeling of decline and decline."

Birmingham was once extremely red. In the minds of many people, it was the place where James Watt invented the bi-directional cylinder steam engine and was the "world workshop" of the industrial economy era. It was once known as the region with the most flexible and adaptable industries in the world, capable of producing everything from a nail needed by manufacturing to a machine tool. More importantly, Birmingham's automotive industry boasts world-renowned brands such as Aston Martin, Jaguar, and Land Rover.

"However, with the change of the world economic situation, the local industry has been impacted by global competition and technological change, leading to industrial recession, declining urban development potential, gradually losing its appeal to investors and consumers, and the income input such as taxes has also been reduced. In the long run, there will be an imbalance between income and expenditure, or even a situation that cannot make ends meet." Ding Chun, director of the Center for European Studies of Fudan University and professor of the World Economic Research Institute of the School of Economics of Fudan University, said in an interview with Chao News reporter that in the past decade, Birmingham has been wandering under such circumstances, coupled with the impact of the COVID-19 epidemic, Brexit, the welfare burden, and poor balance of budget revenue and expenditure, which ultimately led to this result.

"Whether it is a country, a city, or a company or an individual, the fundamental reason for bankruptcy is that they cannot make ends meet, their assets or income cannot keep up with the pace of expenditure. The reason may be a significant decrease in income, a significant increase in expenditure, or both." Liu Chunsheng, associate professor at the Central University of Finance and Economics, told Chao News reporters that urban bankruptcy and corporate bankruptcy have both similarities and differences. The bankruptcy of a company may be due to various reasons, such as competition, unexpected industry shocks, or a crisis of trust, which can all lead to bankruptcy. But like government bankruptcy, the ultimate cause is insolvency.

Liu Chunsheng believes that on the surface, the claim for equal pay for equal work is the direct cause of bankruptcy, but there are underlying reasons behind it. "One reason is that the local government's income has not only not increased, but has also decreased due to the UK's deindustrialization." Liu Chunsheng said that Birmingham was originally an industrial city, but in recent years, it has become increasingly detached from reality and virtual, with a large number of manufacturing enterprises transferring, while other industries cannot keep up, leading to hollowing out of the manufacturing industry.

"Secondly, this is related to the economic situation in the UK and Europe as a whole. During and after the pandemic, the UK repeatedly raised interest rates, leading to an economic recession. In order to restore the economy, the government had to spend heavily. Under multiple pressures, fiscal revenue significantly decreased, and the book's income exceeded its budget, ultimately leading to bankruptcy," said Liu Chunsheng.

What warning does urban bankruptcy give?

Government bankruptcy is not uncommon. For example, in 2009, Greece declared bankruptcy due to a debt crisis, and Iceland also declared itself on the brink of bankruptcy due to its involvement in the 2008 financial crisis. Even within the UK, in recent years, the parliaments of Northampton, Croydon, and Theroc have all declared bankruptcy.

So, what impact will Birmingham's announcement of bankruptcy have? Some Chinese studying and working in Birmingham shared their views on social media: "Maybe there will be more fines in the future, such as parking fines." "I only care about whether there is anyone else collecting garbage." "If the municipal tax rises, I really won't be able to survive."

In Ding Chun's view, it may be different from what people imagine. Although the government goes bankrupt, it is not yet enough for the city to completely shut down. However, if there are new projects launched locally, there will be no opportunities as there will be no new expenditures, and next year's fiscal budget may also be difficult.

Liu Chunsheng believes that the situation will be even worse. "In the future, Birmingham will face operational difficulties, such as infrastructure construction, larger scale medical expenditures, or government transfer payments, which may not be possible. In more serious cases, the government may stop operating."

Can the Birmingham government save itself after bankruptcy, especially after the UK government previously stated that it did not intend to provide assistance? Liu Chunsheng stated that in the short term, the government can offset its debts by selling its own assets, such as selling the property rights of government infrastructure. However, in the long run, it is still necessary to solve the problem of income by developing industries. In the coming years, it is necessary to not only open up resources but also reduce costs.

Someone is curious, will Birmingham bankruptcy be the first domino to fall? In Liu Chunsheng's view, this incident can at least give us some warning, and has a guiding significance for local governments and even central governments of various countries.

"The desire to revive the economy is good, but the government needs to live within its means. Especially in exceptional circumstances or when encountering unexpected huge shocks, the government has to bear the burden of debt to save the economy. This can be understood, but it must be limited, and predictable income and expenditure calculations must be made. Unrestricted expansion of expenditures cannot lead to insolvency in the end." Liu Chunsheng said.