Tag Archives: austerity

Britain, Economic, Financial Markets, Government, Politics

Spring statement 2025: A stage built on myths

BRITAIN

BRITAIN is tightening its belt. The chancellor’s spring statement arrives with the gloomy tone of inevitability. Welfare payments for the sick and disabled will be shrunk, and public services from transport to criminal justice face much leaner times. The language is that of necessity. There is no money. The choices are hard, but unavoidable. So runs the rhetorical script.

The notion that painful cuts are inevitable is political theatre and grandstanding. Either Rachel Reeves knows the constraints are self-imposed – or, more troubling, believes they are real. Last October, she announced £190bn in extra spending, £140bn in additional borrowing, and £35bn more in taxes than previously forecast. The Treasury has expounded upon this by insisting “you can’t pour that amount of money into the state and call it austerity”.

Yes you can. Particularly where tens of billions are siphoned off in debt interest to uphold economic orthodoxy rather than meet social needs. The UK now spends more than £100bn a year on debt interest not because it is financially insolvent, but to a substantial degree because the Bank of England is offloading vast amounts of gilts, bought during quantitative easing, at a loss. The Treasury must cover these losses, while the flood of gilts into financial markets drives up interest rates on new borrowing. This is quantitative tightening (QT), with the state left to foot the bill for soaring interest costs and Bank payouts. Nonetheless, the Office for Budget Responsibility assumes that it will continue, locking in high costs.

This is ideology posing as policy. And it’s far from prudent. No money for free school meals or youth clubs, some parliamentarians warn, yet billions pour into the pockets of bondholders, for the sake of “stability”. Ending QT could redirect that money to public services – a better priority than reassuring markets with symbolic gestures.

If the Bank won’t stop on its own, it must be pushed. Under Gordon Brown, the Central Bank gained its independence in 1998 but included a safeguarding caveat: in “extreme economic circumstances” ministers can override the Bank in the public interest. If £100bn in spending isn’t extreme, what is? QT should be paused. The Bank stands alone among G7 peers in actively selling bonds and demanding Treasury cash to cover paper losses. This is self-defeating in a dangerously volatile world. Gilts could be strategically managed. Before New Labour, Kenneth Clarke often ignored the Bank’s advice – and was often right. But such thinking is now deemed heretical in a political culture that treats Central Bank independence as sacred, even when it deepens and exasperates public hardship.

The deeper irony cannot be lost on anyone. The chancellor refuses to raise taxes on the wealthy, will not relax her fiscal rules, and has ruled out borrowing more. So she claims that there is no alternative to cuts. Yet, these are self-imposed constraints – combined with deference to an unelected monetary authority – that sustain the illusion of necessity. Labour has been here before: Snowden did the same in the 1930s, and very nearly destroyed his party.

The spring statement is a performance. She asks the public to accept a diminished state as the result of external forces, when actually it’s the result of internal dogma. Worse, she may believe the script – failing to recall the economic tools once used to steer interest rates, debt, and public investment. Austerity isn’t the price of prudence, but the cost of forgetting. We have a chancellor of the exchequer who wears the mask of making tough decisions, but on a stage built on myths. The better choice would be to trim the Bank’s power, even if the spotlight has been carefully trained away from its damaging role.

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Banking, Economic, European Union, Greece

The Greek bailout: Athens is still being betrayed by the EU

ESSAY

AFTER several years in which Greece was kept afloat by the munificence of the eurozone countries, Athens was trumpeted by many media outlets this week as being free at last from an EU bailout programme worth 61.9billion euros (£55billion) in emergency loans. That was part of an eight-year rescue package worth £258billion.

Despite the reports of economic privation and the dark clouds over Greece finally lifting, the reality is that Greece is far from saved from pecuniary disaster. The harsh economic medicine forced on the country by the EU and Germany in particular as conditions of the bailout has resulted in death by a thousand cuts.

The country’s once elegant capital has become one of the most depressing and untidiest cities in Western Europe, a city that is now in terrible decay. Shops on once booming boulevards are shuttered, while heavy machines and cranes stand idle over the shells of unfinished buildings. Much of Athens is covered in ugly graffiti. Even the awnings around Greece’s most revered ancient site the Parthenon, on the Athenian Acropolis, is covered in unsightly painted drawings.

The hardships and deprivations are everywhere – all the more heart-breaking in that this downward spiral had been caused by European leaders who were masquerading as people bearing gifts. Most Athenians are struggling to make ends meet.

 

HOSPITAL doctors, for example, have seen their monthly pay cut to just over a thousand pounds a month. It is only through social conscience and the love of their country that has kept some of them in Athens.

Some 70,000 highly skilled professionals including doctors, dentists and pharmacists have left the country as part of a broader Grexodus of 500,000 people.

The best way for any country to emerge from financial crisis is to increase its national income so that tax revenues rise and global debts can be paid off. But during the last eight years, Greece has moved in precisely the opposite direction. National output has slumped by an astonishing 25 per cent. The result is adult unemployment of 20 per cent. Even more shocking and socially disruptive, some 40 per cent of 18 to 25-year olds are out of work.

Without any income for the young, it is now commonplace for three generations of the same family to be forced to live cheek by jowl in the same crowded apartments. The fact is that the austerity imposed by the eurocrats has ruined Greece and done nothing to relive it of its monstrous level of debt.

It has snuffed out entrepreneurship, as well as created a poisonous political legacy where a far-Left Marxist party headed by Alexis Tsipras rules with the support of fanatical politicians on the populist Right.

The end of the EU’s bailout programme may technically mean that Greece can return to the international markets to borrow again, but any notion that the world’s commercial bankers and financiers will be queuing at Athens’ overcrowded and dilapidated airport to lend – and pour good money after bad – is a fantasy.

After all, the country is still sitting on a debt pile of 289billion euros (£258billion) which the International Monetary Fund (IMF) puts at 191 per cent, or almost twice the nation’s total annual output.

To place that in context, it is more than two times the ratio of Britain’s national debt to output, which after a decade of UK cuts to public services and surging tax incomes as the economy has grown is now, thankfully, on a downward path.

Not only that, Greece’s stricken financial system is currently being kept afloat by short-term cash assistance of some 40billion euros (£35.6billion) per month from the Frankfurt-based European Central Bank. Without this help, which is akin to that provided by the Bank of England to the British banks at the height of the financial crisis a decade ago, the four biggest Greek lenders would be effectively bankrupt.

Together the bad loans on the books of these banks – Piraeus, Alpha, Euro Bank and National Bank of Greece – amount to 101billion euros (£90billion) or 50 per cent of the total, the highest level of any country in the European Union. Indeed the banks, the lifeblood of any Western economy, are so indebted that they cannot lend any more.

 

WHICH means the small and medium-sized enterprises that are the country’s business bedrock cannot get the finance they need to carry on and invest. Nor do ordinary consumers find it possible to obtain credit.

This desolate financial scenario is a direct result of the austerity conditions demanded by Brussels eurocrats and German central bankers. Over the last eight years successive Greek governments have been forced to attend no fewer than 95 meetings at which the most stringent measures have been imposed on them.

The results for the Greek people have been nothing short of catastrophic.

Yet in their determination to preserve the greater political project of the eurozone and the EU, and to keep Greece as their client state, Brussels and German politicians have been utterly ruthless.

In spite of personal appeals from the IMF’s euro-supporting managing-director Christine Lagarde to forgive Greece its debt burden and allow the country to be given a fresh start, the eurofanatics have been unrelenting in their determination to keep the debt anvil hanging around its neck.

Greece is in an armlock it cannot escape because of a combination of its debt burden and the fact that its membership of the eurozone means it can longer devalue its currency. And the EU and Germans are determined to keep it that way to save their precious euro.

So, despite the joyous and uplifting media reports about the bailout this week, be in no doubt that this Greek tragedy is very far from being over.

 

GREECE should ditch the euro as it emerges from eight years of austerity caused by punishing EU bailouts.

The country also should have been afforded the right to have gone bankrupt at the height of the eurozone crisis instead of having been forced into a strict rescue package dictated by Brussels and Germany.

The EU pushed the country into accepting massive loans to save German and French banks from collapse. Greece’s creditors effectively turned the country into a dead colony that had been left devastated by fiscal austerity, with citizens having endured years of pain and misery.

Greece has now existed the final stage of an eight-year, £258billion bailout programme, which has left Athens crippled by soaring unemployment.

On the face of it, what has really changed? Greece’s state debts have not become lower, but higher still. The state is still destitute, private citizens have become poorer, companies are liquidating at an unprecedented rate, and its gross national product has decreased by 25 per cent.

The bailout was intended only for German and French banks who had, against all reasonable logic, loaned vast sums of money to the Greek state and oligarchy. As for the Greek banks and state, they should not have been saved. The country should have been allowed in declaring insolvency, to have suffered the consequences but then being allowed to have picked themselves up and by moving on – something these huge bailouts prohibited.

In a television interview, Yanis Varoufakis, a former minister who served in the Left-wing Syriza government, said: “It was absolutely necessary that the country be prepared to return to its national currency”. Unable to pay its debts, Greece faced a so-called “Grexit” from the eurozone in the aftermath of the global financial crisis of 2008. The economy has now returned to modest growth, but one in five Greeks are unemployed, average incomes have dropped by more than a third and taxes have rocketed.

Critics have argued that Greece would have fared better outside the euro, enabling it to carry out a range of measures including devaluing its currency and lowering interest rates to make the economy more competitive.

EU figures have this week tried to paint the bailout programme as a success, with European Council president Donald Tusk saying: “You did it! With huge efforts and European solidarity, you seized the day.”

Rather, the EU put Greece into a permanent coma and prefer to call it stability.

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Britain, Economic, Financial Markets, Government, Politics

UK economy: Growth is returning and the signs are promising…

SPENDING REVIEW

The Chancellor, George Osborne, is determined to stick to his guns, with yet another £11.5 billion of budget cuts to be delivered in an election year. Some may say this is a massive gamble for a Conservative Chancellor who will wish to see his party elected at the next general election.

But the Chancellor has to retain the confidence of the financial markets by showing he is willing to tackle the legacy of deficit and vast levels of debt left by Labour.

If the markets no longer have confidence in the economy, Britain’s low interest rates, which are so vital a component to recovery and growth, will come to a shuddering-halt. If that was to happen, many would face financial disaster.

The first fruits of Mr Osborne’s determined approach is seen in the latest publication from the Office of National Statistics which has presented its revisions of gross domestic product (GDP), the key measure of the total output of the economy.

After a dreadful couple of years, the economy appears to be genuinely on the mend. In the first three months of this year it recovered healthily, despite some poor weather which usually slows down performance, but this trend is confirmed by all the major economic indicators and surveys.

The influential National Institute of Economic and Social Research, an often stringent critic of the government, says that output expanded by 0.6 per cent in the last three full calendar months.

This means that the ‘modest recovery’, often referred to by the retiring Bank of England Governor Mervyn King, is well and truly underway.

Earlier estimates of GDP underplayed the actual health of the economy. Early estimates of construction activity, for example, fell short of the true picture. Building programmes ranging from shopping centres in Leeds, to new office towers in the City of London, as well as new homes being built across the land is evidence of that.

The building industry certainly looks to be doing much better than was previously thought. It is this improvement – together with a formidable robust service sector, sharply better production from the North Sea, and higher export levels (especially to America) – that is turning the economy round.

According to fund managers Henderson of the City of London there has been a strong pick-up in the amount of money circulating in the economy. They suggest that, on current trends, the UK could be among the fastest-growing leading Western nations this year, expanding by a remarkable 2 per cent.

In his House of Commons address, Mr Osborne hinted at the underlying strength of the economy. He pointed out that for every one public sector job that has been lost as a result of austerity and cost cutting, another five have been created in the private sector.

Essential to the delivery of continuing growth, however, will be the discovery of new markets for Britain’s goods and services – not least because of the appalling health of the economies of our major trading partners in the European Union.

The Chancellor said that one of the keys to this will be a ‘strengthening of trade and investment links with China’. As a spending priority, the Government is planning to work with Britain’s exporters to set up a series of centres to promote British goods and services in China’s fastest-growing cities. Switching the focus from Europe to the new wealth-creating economies of Asia is going to be critical for our continuing recovery.

In the meantime, however, it is Britain’s close trading and financial relationship with the United States and its recovering economy that is proving most important to export-led growth. Exports of both goods and services to the U.S. have been climbing strongly in recent months.

Amid the intense interest with what is going on in Brussels and the eurozone, it is often forgotten that America is by far our most important single marketplace. The UK exports to the U.S. everything from Rolls-Royce engines to defence equipment as well as music made by British iconic figures in our pop industry.

No one, though, should underestimate the task of what the government is faced with in building up the economy to the peak it reached before the 2008 financial crisis.

The UK’s debt is continuing to climb despite the cuts and will not reach its height until 2016, when it will be the equivalent of an alarming 93.2 per cent of the nation’s output according to the latest IMF forecast.

If items such as public sector pension liabilities, which are hidden from the country’s balance sheet, are included, our debts will actually exceed national output in 2016. The Chancellor’s latest reductions in spending, in fact, represent less than 0.1 per cent of the national debt as projected in the year 2015-16.

The Chancellor’s trimming of the national budget, despite the hysteria of hard-hitting cuts, is no more than a holding operation designed to stabilise market confidence between now and the election.

The arrival nest week of the new Bank of England Governor, Mark Carney, poached from the Bank of Canada, has the task of not just keeping inflation close to the Government’s 2 per cent target but also to support growth.

Now that the housing market finally appears to be recovering from the shock of the financial crisis, and more small and medium-sized businesses are taking out bank loans to expand, any increase in interest rates by Mr Carney would be the last thing the Treasury needs. Mr Carney will chair his first meeting of the interest-rate-setting Monetary Policy Committee next week and will set in place the new mandate for the Bank of England as outlined in the budget.

Mervyn King has warned of the dangers this would pose in terms of homeowners struggling to pay mortgages and the loss of confidence in business circles.

The financial markets, it should be remembered, are still extremely jittery. The mere suggestion last week that the United States might curb its huge amounts of quantitative easing (Q.E.) – or printing money – sent share prices crashing across the globe. Mr Carney will want to prevent that happening at all costs, as will the Chancellor.

State spending reductions, while necessary and essential to calm the markets, can only make a small dent in Britain’s deficit and debt. It is higher-than-expected growth that could radically alter the picture.

The greater the output of the economy, the more taxes are paid – and the less money is paid out in welfare benefits because so many more people are employed.

If Mr Osborne can deliver sustained growth by the election, he would then be in a strong position to be even more radical, by taking a long-overdue axe to Britain’s mammoth social security bill – by removing, for example, many generous benefits to wealthy pensioners – and put the economy on a path to true prosperity.

 

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