By Alex Brummer
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George Osborne must stop blaming Europe for all of Britain's economic woes - it's not as if the eurozone crisis has been a surprise
The claim by George Osborne that the ‘crisis on our doorstep’ is killing off Britain’s economic recovery should be taken with a large pinch of salt. At the core of the UK’s stumbling performance is a failure of imagination by a government that has eschewed a bold growth strategy and stood on the side-lines while output has stalled.
The implosion in Europe has not just arrived â€" it has been with us for two years.
One by one, Greece, then Ireland and Portugal, have been thrown into the stifling arms of Brussels and the International Monetary Fund and forced to beg for bailouts. Now that the same crisis has reached Spain, the fourth largest economy in euroland, Osborne is blaming Britain’s own pitiful performance on our neighbours.
If the Chancellor really believed Europe’s woes were at the heart of Britain’s double-dip recession, the Government would surely not have been so consistently over-optimistic about our economi c prospects.
Successive budgets and autumn economic statements have over-egged expansion prospects, and it was only in March â€" after the double dip loomed into view â€" that the blame shifted to instability in the euroland.
But there is a large hole in the Chancellor’s argument. The more peripheral economies in the EU, which have had to take the IMF’s austerity medicine, have seen output plunge, unemployment soar and living standards battered.
But Europe’s more prosperous economies â€" Germany, France, Holland and the Nordic countries â€" are still growing, if only just.
If George Osborne really believed Europe's woes were the reason for Britain's double-dip recession, the prospects for our recovery wouldn't have been so over-optimistic
Admittedly, Spain is a particular problem for Britain. Our banking system is intimately connected to Madrid’s and at the end of the first quarter of this year, our high street banks had £49.5billion of exposure to those in Spain. (Although, Santander UK â€" the British offshoot of Spain’s strongest bank â€" is the least exposed of all.)
Similarly, several of our biggest corporations including BAA (the airport owner), the generator Scottish Power and the telecoms company O2 are Spanish owned, and labour under the heavy debt used to buy them. As a result, they are severely constrained when it comes to making new investment.
But the point that the Chancellor should worry more about what is happening in this country â€" which he has some control over. He is right to point out that the steps he took in his emergency Budget in 2010 to lower Britain’s deficit and stabilise ballooning debt have worked.
The UK can borrow at extraordinarily low rates over ten to 30 years. But his assumption that contracting the size of the public sector would create room for the economy to expand has simply not worked. Four years after the ‘Great Panic’ of 2007-09, the total output of the UK economy is more than 4 per cent below where it was at its peak before that crash.
Limited risk: Spain is a particular problem for Britain, but Santander UK is the least exposed of all
Britain’s is the only major economy that has failed to make up the lost ground. This is partly due to the size of our banking and financial sector, which is far larger, as a proportion of total output, than any of our competitors, including the US.
The Government rightly remains focused on stabilising our banking system, and we will learn more of Osborne’s plans in his Mansion House speech this week.
But the coalition could do more to help the banks succeed. By heaping so much pressure on the banks to reform, valuable funds have been diverted away from lending by demands that they hold large amounts of capital reserves.
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The chief executive of one high street lender has told me his bank has begged the authorities to free up £10billion of the capital sitting on its balance sheet, which could allow it to increase its lending to small- and medium-sized firms by up to £100billion. Instead of making it easier to lend, the Bank of England has withdrawn many of the special schemes put in place.
Osborne should be using Britain’s excellent credit rating to come up with plans to funnel money to businesses and get the economy moving again. It is almost farcical that the Government has control over the Royal Bank of Scotland and Lloyds Banking Group, yet has failed to press them into service.
Similarly, Osborne talks a great game on lower taxes, yet continues to delay implementation. The Budget cut in the top rate of income tax from 50 to 45 per cent does not take place until April 2013. Similarly, the promise to bring down corporation tax to 22 per cent will not be f ulfilled until 2014-15.
One of the most effective ways of helping small firms and encouraging increasing employment is to cut national insurance. This measure has been hugely successful in the US, and is one of the reasons the jobless rate has been falling sharply over there.
The Government will, of course, claim the budget deficit will not allow this to happen. But there are great swathes of expenditure that could be cut elsewhere â€" by local councils on politically correct jobs, and by Whitehall on international aid.
Similarly, the Chancellor could make use of our ‘AAA’ credit rating to speed up infrastructure projects from road maintenance to the Thames super sewer. It could tap into the experience of previous governments, going back to the 1930s, to provide guarantees for construction firms so more houses can be built for a surging population.
All of these are within George Osborne’s grasp â€" and have nothing to do with the chill wind blowing in from the eurozone.
Britain needs a government that refuses to be part of a blame game, and focuses instead on kick-starting production at all costs.
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surely dave and george sit down and look at the big picture their policy is not working ,its time to be bold and try and pull a rabbit out of the hat or face the political abiss.
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A couple of years ago he was blaming Gordon Brown. Now he is blaming Europe. If he looks in the mirror he will see where the problem is.
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Growth comes from spending, guess what we ain't got no money thanks to excessive house prices, petrol, Utility bills, food and insurances. The cupboard is bare thanks to pay freezes and inflation,,,europes fault ? I think not.
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Fair comment; and consistent comment, too!
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'George Osborne can't blame Europe for all our problems' You're right but Gordon Brown and Ed Balls got there first with their tactic of blaming America for the financial woes of this country; and they constantly referred to a 'global problem' while ignoring the fact that, for example, China, India, Brazil, Canada, Australia and even Germany seemed largely untroubled. Even now, the only countries in any great difficulty are those whose politicians just couldn't say no and continued to borrow and spend; and build the debt mountain even higher: Spain has now borrowed a huge amount to add to its existing debt and this is being proclaimed as a 'solution'; even though it is getting perilously close to 100% of GDP and once that is exceeded, as with Greece, the debt can never be repaid!
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Nigel Farage has written an article that sums it up pretty well. Check it out. The man knows his stuff.
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Why is no-one getting this....the whole lot of them want us in the Euro...this was always the plan!! a united state is coming together, they know we are against this hence all the secrecy, mark my words this will happen as soon as they destroy the pound sterling...we are a done deal and all the posturing is smoke and mirrors. The Elite want control and they are ever closer to achieving their long awaited goal...they have the technology now to ensure the sheeple dont upset the plan..they know exactly what they are doing and all is coming together...I do predict a riot..
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Just like many disfunctional families , Mr Osborn and his gang always claim eveything is someone else`s fault . Mr pickles should have a word with him .
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The problem is that the author and the Govt fail to learn basic economics. This is a financial crisis caused by debt. More debt will not solve the problem, nor will massive govt projects. If they bothered to look, they will see that massive govt projects never helped anybody in the 1930s. What rescued the UK faster and better than anybody else was a joint approaches of cutting govt borrowing (drastically), putting money into the consumers pockets (tax cuts), and building houses. Saving 20 mins on a journey from London to B'ham won't cut the mustard, especially with a £32billion price tag. Getting people to borrow more from the banks will only make things worse. What people need is disposable income. As for govt schemes, why not fix the railways and roads that exist now, build the power stations the nation needs, fix the infrastructure, then worry about vanity projects. It worked for the National Govt in the Great Depression, it would work now.
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Yes I am in total agreement with most of the contributors on this page., specially ungarnished. As a Tory voter I am ashamed to say that this particular goverment must be the worst in living memory. They blame everybody and his dop for there lack of action with the economy, furthrmore they have made more u turns than a black cab. Its all hot air and no do with this lot, its time to go.
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