In Cardiff last Thursday, 7 January, George Osborne warned of a “dangerous cocktail of new threats” to Britain’s prosperity. These include collapsing global stock-market and commodity prices, weak growth in China and Latin America, stagnation in Europe and turbulence in the Middle East. Osborne was right to prepare us for “headwinds”. What he could not admit was that the fragility of the British recovery he now discerns – just two months after his triumphal Autumn Statement – is due, in no small measure, to his own austerity policies.
Over their five years in power, the Conservatives have claimed their austerity policy saved the country from disaster. This purported economic competence sits at the heart of their election campaign. It needs critical scrutiny.
The coalition government has given two main reasons why austerity – cutting the Budget deficit – was necessary. The first is that its predecessor Labour government, living “beyond its means”, left the nation with a rising mountain of public debt. The only way to restore fiscal probity was to start austerity as soon as possible.
The second reason was that commitment to austerity was the only way to reassure the bond markets that the British government would not “go the way of Greece”: that is, default on its debts. Both arguments were false but they have never been properly exposed in the media; and for various reasons Labour has not attacked them with the vigour they deserve.
Syriza’s victory has injected a ray of clarity into the eurozone’s fog. The Greek people have said “enough is enough”. So, we have a new situation – and an opportunity to do things differently.
The Greek election confirmed what everyone knew but wouldn’t say: most of the Greek government’s external debt of €317bn will never be repaid. It would be best if Europe’s leaders openly acknowledged this and stopped trying to “pretend and extend”. They should convene a European debt relief conference, as Syriza has suggested. This would agree to cancel a percentage of the external debt of all heavily indebted eurozone countries. Italy, Spain, Portugal and possibly Ireland would qualify. The percentage would vary with the amount of the outstanding debt and the economic plight of the different debtors. For Greece, a debt write-off of about 50 per cent, leaving it with a debt/GDP ratio of close to 90 per cent, would give a real chance of a fresh start.
The Institute for Fiscal Studies (IFS) has warned that there will need to be “colossal” cuts in public spending to balance the books by 2018-19 – at least £55bn extra. On 4 December, the day after the Chancellor’s Autumn Statement, the director of the IFS, Paul Johnson, said that it wasn’t for lack of effort that the deficit hasn’t fallen. Rather, it was “because the economy performed so poorly in the first half of the parliament, hitting revenues very hard”.
Very true – but what Johnson omitted to say was that the main reason the economy performed so poorly in the first half of the parliament was because George Osborne was busy cutting the deficit. He should have been expanding it!
Vladimir Putin’s policies have damaged his country’s standing and economy. When will the owners of wealth decide that he is not Russia?
In 2004, the Valdai Discussion Club was set up “to promote dialogue between Russian and international intellectual elite”. Each year, two or three days of discussions involving foreign and Russian scholars and journalists would climax at Sochi on the Black Sea in a dinner with President Vladimir Putin himself. One qualification, at least for a foreigner invited to join the club, was not to be viscerally hostile to Russia’s foreign policy. This led some superannuated cold war warriors to call its foreign members “Putin’s useful idiots”. This idiot was asked to join four years ago, and this year’s event was my second exposure. Continue reading
On Wednesday, for the first time in four Budgets, George Osborne will be able to claim plausibly that Britain has come out of the Great Recession. Growth was 1.8 per cent in 2013 and is expected to be between 2.4 and 2.8 per cent in 2014. That’s the good news. The bad news is that the economy is still 1.4 per cent smaller than it was in 2008 and 14 per cent smaller than it would have been had the recession not struck.
George Osborne is bound to crow at the Conservative party conference about the superior performance of the British economy under his stewardship. After three years of “hard slog”, there is at last some good news to report. In the second quarter of this year, the economy grew by 0.7 per cent after “flatlining” for the previous three years. The National Institute of Economic and Social Research has revised its annual growth forecast upwards twice in its latest forecasts. The British economy is now expected to grow by 1.2 per cent in 2013, 0.5 percentage points more than was forecast as late as in February, and in 2014 this will surge to 1.8 per cent. The tables, the media will gush, have been turned on Labour. George has pulled it off. And Osborne will claim a number of things that are either false or implausible.