Why the Greek crisis is relevant to the UK election

Much of the money lent to governments can be bought and sold daily in the markets in the form of government bonds. This government borrowing usually has the highest rating from credit agencies, or AAA, because investors often believe that money lent to governments is as safe as you can get. Governments, they argue, will pay all the interest owing on time, and will be able to repay the loan at the end of its life without difficulty.

They take this optimistic view for a couple of good reasons. Most governments control their own currencies, so they can always print enough to pay back the money if all else fails. Governments have draconian taxation powers, so they normally lay their hands on large sums from people and businesses resident in their areas to meet the bills. These powers mean governments can normally borrow to pay interest and borrow again to repay expiring loans.

History tells us, however, that from time to time despite these advantages governments do default – they do not pay all the interest or they fail to repay the capital on time. Yesterday rumours about the Greek governent’s excessive borrowing and financial difficulties culminated in a Ratings Agency downgrading Greek government bonds to the lowest grade, or junk bond status. This followed a period when investors sold or stayed away from Greek government bonds, driving their price down and demanding ever higher interest rates to reward any new loans to the Greek authorities. Greece is having to offer 21% per annum to borrow money for two years.

Greece as a Euro member does not control her own currency, so one of the two reasons why investors often think a government will always be able to repay does not apply. Euro zone countries have the added hazard that they can only print the money needed if the Euro authorities agree. Although Greece does have strong taxing powers, her electors seem to be in no mood to either pay more tax or to watch their public spending being cut. As a result the markets are telling the Greeks that they are being unrealistic. This is producing an accelerated crisis where Greece cannot borrow enough money at any sensible rate of interest to be able to carry on as she has been doing. She has run out of money to pay the state wages and benefits. She needs an emergency loan. As readers of this site will know, borrowing ever larger sums, and borrowing to pay the interest, is not a sustainable option for a government any more than for an individual. Cutting spending earlier is not only less painful but is the only realistic option.

Why does all this mater to Britain, some ask? Because the UK government is seeking to borrow a similar sum relative to the size of its economy this year as the Greek government is doing. If you adjust the UK understated official figures for the debts and obligations of the state the UK, like Greece, is already a heavily indebted country. The UK has just prevented a Greek style public finance crisis by printing the huge sum of £200 billion to cover all its borrowing needs for the last year. Most experts and even the government now believe it cannot do this again next year. Money printing has delayed a Greek style crisis but cannot be relied on to do so again.

So now getting the UK through without a Greek collapse relies on the UK following stricter and more responsible public spending policies than the Greeks have been prepared to do. The markets so far have been kind to the UK. They have assumed that after the election any government will get on with substantial cuts in spending to prevent a bond market collapse. Yesterday a leading think tank asked the important question of all the political parties – how will they each make the cuts needed on the scale and within the timeframe required to avoid a Greek outcome? This Thursday’s debate provides the ideal platform for a response. How the public react to each party’s programme, and how the leaders respond to that challenge, are now important to the future cost of borrowing for UK taxpayers. On current policies we are too similar to the Greek situation. The next few days matter for our financial solvency and success.

The wider ramifications of the Greek collapse will be measured in slower Euroland growth, more market fears about other highly borrowed Euroland countries like Portugal and Spain, and worries about European banks. Banks above all rely on government paper as “reliable assets”. European banks will not have dumped all their Greek government bonds, and have plenty of government bonds outstanding to other high borrowing countries. The governments that helped prop up banks with dodgy private sector paper could now become part of the problem for the banks with their own overextended credits. The bonds fall sharply in value in a Greek style meltdown, leaving banks that own too many of them yet again with damaged capital and reserves.

Promoted by Christine Hill on behalf of John Redwood, both of 30 Rose Street Wokingham RG40 1XU


  1. JohnOfEnfield
    April 28, 2010


    “matter” instead of “mater”

  2. Mike Stallard
    April 28, 2010

    This website has, for ages, been warning what will happen if just one of our banks needs propping up. Dodgy bits of paper were the cause of the crash when mortgages were offered to people who could never hope to meet the repayments. Now we have lots more dodgy bits of Greek paper used like money.
    Banks deal in billions. The government does not have anything left in the kitty. Apparently, our debt goes up £6,000 a second.
    Then, of course, Spain, Portugal (mentioned yesterday), Italy and we in Britain are all in the queue.
    I am an OAP. I get a lot out of the government. Am I prepared to do without? Yes, actually, I am. Are you? Are the millions people who depend on our taxes prepared to lose their livelihoods too?

    1. ken from glos
      April 28, 2010

      Agreed !!! I am just south of the top ten percent of 'earners. in this country on two pensions . I dont pay N.i.c i get winter fuel allowance and all sorts of other benefits. It is madness and unsustainable. Means testing please.

  3. StevenL
    April 28, 2010

    Yep, here comes the bond crash.

  4. Richard
    April 28, 2010

    I hope you are part of the team preparing David Cameron for tomorrow. If he was able to get some of this over in straightforward language it should be a walkover. Spurious figures on UK debt are being pushed into the media now by the Government to try to obfuscate the comparison with Greece. The main one is 'UK debt is only 56% of GDP'. Obviously this figure is nonsense as it excludes huge hidden debts. But most importantly its heading rapidly in the wrong direction.

  5. Paul Danon
    April 28, 2010

    Excellent stuff as ever. Although you are a party-member, can I tempt you, Mr Redwood, kindly to say what cuts you would make? Social security seems the largest chunk. Would you stop all universal benefits such as child-benefit and old-age pension? Would you also make the NHS and state-education free only for those who are means-tested as not being able to afford it? Would you renege on commitments on unfunded public sector pensions, allowing hard-up ex-civil servants to claim means-tested benefits like the rest of us? These cuts might not make you popular, but they are necessary and fair.

    Reply: I have written many pieces on this site setting out what I woulod do to control spending and the deficit.

    1. Paul Danon
      April 28, 2010

      Oh. What a pity. I'd thought better of you. I may not be a constituent but I am a voter. Maybe I'm a bigot and not worth a reply, even in the form of a URL.

      Reply: I did give you a reply. This website is full of ideas for cutting spending without damaging important services.

  6. OurSally
    April 28, 2010

    The opinion column in our serious German newspaper this morning was talking about this. They mentioned Greece and Britain in one sentence as bad examples.

    The theory is, the German government could actually earn a lot of money by lending to the Greeks in this way. But only theoretically, because they might never pay it back, or even pay any interest…

    They didn't say ditto the Brits, kind of them.

  7. Antisthenes
    April 28, 2010

    Greece is only the tip of the iceberg all the EU countries have shaky economies. For years the public sectors have grown larger at the expense of the private sector and wealth creation. Welfare has grown out of proportion to real needs and public and private debt has grown to a point where default is more likely than not.

    The pressure relief valve has already blown once culminating in the banking crisis. Governments wrongly interpreted the problem as being a banking one only when it was in fact the governments policies at fault. The governments answer has been to throw more fuel on the fire in form of bailouts, subsidies and printed money. So now the pressure has rebuilt and the valve is about to blow again but this time not only will the valve will blow but the boiler as well.

    So one by one governments who failed to take the right actions by dampening down the fire will have it dampened for them.

    Recession, you have seen nothing yet and I do not believe there is any way of avoiding the looming crisis. How governments respond now even though it is too late to avoid the crisis will effect the severity of the collapse. If public sector protection is the goal or using public sector as cushion then the recovery will never happen. Abandonment of the public sector to it's fate and concentrating of all efforts on the survival of the private sector will eventually be the key to recovery and a return to prosperity.

  8. alan jutson
    April 28, 2010

    Probably the best account of the Greece situation, and its relevence to the UK position I have read.

    What a shame that our National press and other forms of media have not covered it so simply and clearly.

    The sad fact is that because most of the General Public seem to either be in denial or ignorance of the position you outline, spilling the beans on what needs to be done is thought by all Parties (which have a chance of Government) to be counter productive on gaining votes.

    The effect of coming clean will be lost votes, the effect of not coming clean, but having to take the full corrective action (when in power), will mean that politicians will seem once again, to be people who cannot be trusted.

    Given that the present Government has not had a recent audit on the economy, the challenging Party's have some mild form of excuse as they have not seen the books, but this present Government who have access to all Treasury information, have no such excuse.

    Any incoming Government therefore needs to hold an idependent Audit rapidly on gaining Power, and publish it all, in full, for all to see the desperate state we are in.

    In debate number three, DC needs to be right up to speed on all aspects of the economy, (and the 6 billion spin) he needs to nail the lie that it was all caused by Bankers and affected all Countries in the World, and he needs to nail Brown as the man who was responsible for our financial demise.

    All Labour Governments in History have run out of money, all Conservative Government have therefore had to put it right, and its happened again (How many more times).

    High taxes kill the incentive to work or work harder, high benefits kill the incentive to work, high government spending means people have less money to spend as they like.

    Cameron needs to win, and win big on Thursday night.

    Anything other than a Conservative victory will leave us to the risk of us being exposed to outside influence over our financial affairs for many years.

  9. Javelin
    April 28, 2010

    As far as I can see the political parties have only stated about 20-25% of the necessary cuts.

    The BBC said that cutting all public sector pay by 5% and freezing spending, cutting free TV licence and heating allowance, freezing tax credits etc, etc was only 25% of the necessary cuts.

    So what else is needed …

    I've seen 1,000,000 to 500,000 jobs cuts mentioned.

    I've seen tax rises of £400-£700 pounds per year.

    I've heard removing public sector pensions, paying at point of service in the NHS, VAT rises etc, etc

    All this will be needed just to break even …

  10. The Great Ignored
    April 28, 2010

    Thank you for the best article I've read on the matter.

    I still don't understand how investors are happy with us using QE to repay debt. Surely this method devalues the money being repaid.

  11. Sally C.
    April 28, 2010

    I am still hoping against hope that the Conservatives will win a working majority next week. However, given that Nick Clegg has said that he will work with the Labour party ( although not with Brown ) after the election, the Conservatives may find it impossible to pursue their agenda and we, as a country, will find ourselves in serious trouble. The end result will be more money printing. Sterling will continue to devalue and we will all be worse off.

    1. Stuart Fairney
      April 28, 2010

      In fact he has said he will not work with Brown if he finishes third (not defined) and so the wriggle room is on the 'coach and horses' scale

  12. Stronghold Barricade
    April 28, 2010

    Maybe I misheard, but on the Today programme they were talking about 2 year interest being 21%, which was liable to bring about default.

    I believe that you also need to "unspin" the words of David Milibland who appeared on the programme to put the government position. He did at least sound credible, and it may be words that the next government has to rely upon because their actions may not have an immediate effect.

  13. simon
    April 28, 2010

    A few months ago UK local government pensions fund managers deposited money with Icelandic banks . They were warned about the risks but decided to ignore them because the interest looked so good .

    Simmilarly with Madoff , investors did not ask probing questions all the while they were receiving good returns .

    Are institutions who continue to lend to Greece just betting that they will be repayed a high enough proportion of it before the stack of cards come down ?
    Or are they just focussing on the rewards to the exclusion of the risk ?

  14. Brian Tomkinson
    April 28, 2010

    Why are the three main parties failing to explain clearly, before the election, how they will reduce the deficit over the next five years whilst at the same time doubling the public debt? There can only be two answers. The first is that they don’t know, in which case they are not fit to be elected. The second is that they do know but don’t want to tell the voters as they think that by so doing they will lose the election. By deceiving the electorate and kidding themselves they may well find themselves in office and then what will happen? Presumably, they will begin to reveal what they dared not tell us before. Having been denied the truth before the election the public reaction to this is likely to be hostile and may well result in strikes and even riots. The government will have no clear mandate for their actions as they will have deliberately concealed their intentions for their own benefit. Those in opposition will have a no more credible position than those in government but will exploit the weakness of their opponents and exacerbate the situation. The media have belatedly woken up and realised their own failure to hold these parties to account before the election. All the parties should be made to realise that it is in their own self interest, never mind the country’s, for them to be explicit to the electorate about their plans to reduce the deficit before the election.

  15. Citizen Responsible
    April 28, 2010

    Another good post from JR which lays out in plain understandable language the economic choices facing our country and the example of Greece.

  16. Matt
    April 28, 2010

    I’m not so sure that you’re correct in that Friday’s debate “Provides the ideal platform for a response”

    I wish it were likely, but the debates have provided the opportunity for the leaders to waffle on throwing out “Facts and figures” without much challenge.

    Witness Mr Clegg’s claims on Trident … he wants a big number so he puts a 40 year cost on it. Other budgets are measured in yearly terms.

    Messrs Brown & Clegg say that the £8bn (or is it £10bn) NI is un costed ….well so is the projected £1.4 trillion debt. In this economy there's a lot that's uncosted.

    Mr Brown says that the NI is taken out of the economy, the logic being that if it’s in the government’s coffers it’s in the economy, but if it’s in my account it’s not in the economy. (Where is it then?)

    No John, the debate will probably centre on a lot of unchallenged “Facts” and the summing up will be that a winner is declared, on the basis of his nice suit and smile, body language and integrity.

    The best we can hope for is that Mr Cameron finds a way, in a few words of saying that Mr Brown took a good economy to the brink of ruin in a decade, bringing about huge debt and if this wasn’t bad enough

    ………… in the course of his journey has wrecked final salary pension schemes, depreciated sterling, increased income tax and its sister NI, held personal allowances, increased stamp duty land tax, imposed new green taxes, flogged half of our gold reserves at rock bottom prices … yet all of this isn’t enough. He needed debt as well

    Then he presides over a benefits system where over 5m people don’t work. The cost of this dwarfs everything else.

    1. simon
      April 28, 2010

      Yep , so they've reduced our preparedness for the demographic time bomb .

      Made housing less affordable and scarcer by encouraging mass immigration

      Ceded more of our powers to EU .

      Done nothing to provide Britain with energy independence .

      Final salary pensions would have gone to the wall anyway . There was no need for them to ransack the private pensions of everyone who did not work for the state though .

      Eviction from parliament is not enough , these people need to be(tried-ed) for treason .

    April 28, 2010

    As we blogged last week we agree that the Greek crisis is absolutey relevant and, given Thursday's finla economic debate, extremely timely. It would be disappointing if DC doesn't convert this to a major telling blow against both other parties' shilly-shallying with an immediate action plan.

    If we may now our final pre-debate blog (unless something else occurs to us at our girly lunch today inwhich case we'll post again tomorrow!)
    Thanks for the forum and privilege of stating our views here.

    THE FINAL DEBATE – Wednesday's contribution

    Other random matters for attention, mention and emphasis:

    * The Lib-Dems unscrupulous use of the proceeds of crime and refusal to repatriate the £2.4m (dubious)donation of money to its rightful owners. (At least Ashcroft's money was clean)

    * The futility and effect of the Lib-Dems illegal immigrants' amnesty.

    * Terry Leahy and Digby Jones unequivocal complaints that kids have to be taught to read before they can get their business training.

    * Labour's secret plans to cut doctors and nurses.
    CHARING X HOSPITAL – 49 doctors & 265 nurses
    UNIVERSITY HOSPITAL, N.STAFFS – 84 doctors & 239 nurses
    NOTTINGHAM, LINCS, DONCATER & DURHAM HOSPITALS – unspecified as yet but similar cuts.

    If Tory policy is to force any unelected PM to go to the country within 6 months his/her lifetime perks package should be suspended until after that election.

    * Is it still true that aviation fuel is tax free?
    We read sometime ago that VAT could add £10bn to the exchequer and we doubt that its introduction would greatly reduce demand. It also hits those that can most afford it and is a cost-effective and immediate way of boosting sorely-needed revenue.


    1. Stuart Fairney
      April 28, 2010

      what is the URL of your blog ?
      http://www.johnredwoodsdiary.com or http://www.johnredwood.com gets you there.

    2. waramess
      April 29, 2010

      An increase in VAT must decrease demand. We can only spend what we earn and an increase in the price of one thing reduces our capacity to consume another….unless we wish to borrow future income and then the result is only a delay.

  18. Noel Bell
    April 28, 2010

    Listening to David Miliband on Radio 4 he makes the following points:
    Why Greece is different to UK.
    UK has 56% debt of National income v 115% in Greece.
    Average debt maturity for Greek bonds is 3 years v 14 years for UK bonds.
    Current account deficit is less than 2% of GDP of national income in UK v 10% in Greece.
    Growth is rising in UK but negative in Greece.
    12% is the annual budget deficit in UK but 13-14% in Greece.

    is he wrong?

    Reply: He is wrong overall. UK debt is much higher than 56% but Labour exclude many off balance sheet items which need to be included. He does not point out that the UK has larger banks relative to its size and has committed large sums to supporting them. UK growth is almost non existent. He is right that we have a better term structure of borrowings.

    1. APL
      April 28, 2010

      Noel Bell: "UK has 56% debt of National income v 115% in Greece."

      I doubt that includes PPP financing the whole purpose of which was to disguise a decade of excessive government spending 'off balance sheet'.

      JR: "He is wrong overall."

      Generous, he was lying.

      Why did we have Miliband on R4 talking about the economy, you might have thought that was the brief of the Chancellor?

  19. Neil Craig
    April 28, 2010

    The BBC News yesterday referred to Greece's 12.7% borrowing as "unsustainable" which it clearly is. For some reason they have yet to describe Labour's borrowing of 12.5% with the same word.

  20. Keith McBurney
    April 28, 2010

    Thank you for using everyday language to inform us plainly of what others obscure by insider's terminolgy. Professional expressions and abbreviations have their place, but none if they can not inform the holder's of unlimited liability: us.

    Grateful if you would answer the following questions if you have time, even if pointing me to what you've said already here, or that the IFS briefs/reports are as good as it gets anyway.

    1 To what extent are the Treasury and other Govt Dept "books" open to opposition parties, especially between Parliament standing down and MPs being re-elected? How far ahead do they look/plan for on the basis of stated assumptions and normative values.

    2 Where on an authorative online site can our UK current and forecast deficit, debt and interest due on borrowings be seen and on what basis/assumptions.

    3a Given the enormity of the financially induced dire state we're in and its far reaching consequences, i understand that we're going back to '45 by '40; ie on BIS 300's conservative assumptions to a UK national debt – depending on how off-book liabilities such as some PFI, but predominately unfunded public pensions and other effects of ageing populations are 'managed' in the interim – of btwn 300-500% of GDP by 2040.

    3b In the circumstances, do you agree all parties should tell the public what and when they intend to introduce banking reforms – especially of the toxic CDO trading which is srill going on and could precipitate an engulfing tsunami when we are in up to our necks already.

    3c And, in detail, albeit with less over time, how they intend to handle the public finances in not only the short (up to 5 years/one parliament), but also the medium (btwn 5-15 years) and long term (btwn 15-35 years) by the nature and extent of
    their fiscal policies to:

    – cut non-essential/wasteful spending
    – foster sustainable growth
    – vary taxation
    – maintain low inflation and interest rates

    4. Finally, as it is all our futures which have been sold to pay for the present, do you agree there is merit in a much more participative democracy than hitherto? And , if we are truly all in this together, why should we not be involved fully in determining what is to be done and how, in order to do as we would be done by in service to the true debt we owe each other: strong societies?

  21. Carol Whitaker
    April 28, 2010

    All three leaders are afraid to be honest and tell us the truth that fiscal incontinence by Labour means that the state is massively too big and needs to be reduced in size and scope by 25% minimum. Now that Wales, the North West and several other areas are totally reliant on state spending whoever admits this will probably lose millions of votes.
    They continue to try and kid us that the next government will have a choice of when and how to cut even though anybody with a brain can see what's coming.
    Personally I think quick and very large cuts will result in a lot of short term pain but far more gain in the long term.

  22. Peter Turner
    April 28, 2010

    What is it called when our government sets or allows to be set a bank interest rate that actually penalises savers, many of whom are pensioners, who have deposited money in the banking/insurance/building society mechanisms of this country i.e. in government promoted ISAs? Why is it considered a proper thing to do in order to subsidise home buyers who have taken out a mortgage for the purpose of purchasing a home and find that they have overstretched themselves? Is this policy, in fact, theft and what will the Conservatives do about it?

    1. APL
      April 28, 2010

      Peter Turner: "Is this policy, in fact, theft and what will the Conservatives do about it?"


  23. Simon D
    April 28, 2010

    Most people now expect that the TV reality game show called 'The UK Presidential Election 2010' will result in a hung parliament – it will depend on what colour of tie Nick Clegg wears on election day, how he combs his hair and whether he chooses a nice suit.

    The political class and the electorate (left-liberal Britain) are both winging it. They believe that the equivalent of Greece just can't happen in the UK. After all James Purnell said so on This Week. 'Britain is a strong economy etc etc.'

    Meanwhile the unions and the protesting classes are on standby for serious poll-tax type protest after the election and even the BA cabin crew are planning another strike. The hung parliament will find the necessary cuts politically impossible to deliver and, in any case, will be preoccupied by street rioting, the sound of breaking glass and what the BBC said about protesters' human rights on the last news bulletin.

    Meanwhile, a child of ten could tell you how the bond markets will react to all this. Buy gold before the gold dealers are overwhelmed with buyers on 7th May. And don't blame me – I loathe reality TV and I have already voted Conservative.

  24. Acorn
    April 28, 2010

    I read the IFS has put the cat among the pigeons. No party is telling us the truth about UK debt and deficits. The opposition parties may have been shown the books by the Treasury; as part of due diligence for the May 6th take-over bid; I don't know?

    On the Treasury site for PESA 2010 statistical publication it says; I quote:- "The PESA 2010 National Statistics release is now available, containing updated outturn data up to 2008-09. Updated information for 2009-10 and 2010-11 cannot be published until after the election."

    Why not? Anyway, even next door's dog knows, that we have to chop about £120 billion out of the public sector annual spend, tout de suite! For those that follow such things; you will have noticed that UK's sovereign debt rating dropped two levels from "aaa" to "aa" a while back.

  25. Mike Wilson
    April 28, 2010

    We have a government that has printed money to buy its own debt – like a serpent eating its own tail.

    Yet still 30% of the people in this country think Labour is competent to run the economy.

    This statistic alone shows the extent of the failure of the conservatives to nail Labour on their record.

    The goalkeeper is on the floor at the edge of his area injured. All the defenders are at least 30 yards away. The opposition centre forward is a yard from the goal, he has the opportunity of a lifetime to score – the home team have really made a mess of everything ….. and yet he misses the goal!

    Everyone in the crowd thinks 'has he got money on the home team?'

    Whereas everyone in the country is thinking 'Do the conservatives want to win this?'

  26. Pauper
    April 28, 2010

    Once in five years power returns to the sovereign people. Which party is brave enough to speak truth unto power? Never was such courage more needed, and never will the lack of it be more severely punished.

  27. DBC Reed
    April 28, 2010

    MR Redwood is apt to remind us from time to time that the government has no money of its own and has to rely on taxation and borrowing.Does n't this strike you as odd?Credit is being created hand out over fist by the banks but the government cannot create credit to pay for its own public servants.
    As the man said: we cannot go on like this.We are straight back to being held to ransom by world financial brokers who are proven incompetents if not worse.

  28. Dr Bernard Juby
    April 28, 2010

    With our own financial parlous state of affairs brought about by Brown's profligate ways shouldn't we decide that we will not throw any more money into the E/U pot until they finally get their accounts audited?

  29. wrinkled weasel
    April 28, 2010

    So, the BBC has a different clip to play incessantly (the "bigoted woman"). I think you are finally off the hook for the Welsh National Anthem.

  30. Javelin
    April 28, 2010

    The UK won't default – worst case scenario is that UK investors in Government bonds would take a "Gilt Haircut" of 10-20%.

    1. Stuart Fairney
      April 28, 2010

      Could we not do a technical partial default if we print and/or devalue some more? Sure.

      1. waramess
        April 29, 2010

        I suppose that if investors have their forex sorted out we could devalue by another 50 cents against the dollar and reduce the sterling debt further without anybody noticing.

        Except, that is, the man in the street.

  31. Peter Beresford
    April 28, 2010

    I echo previous comments that today´s post is a clear and well-written account of the current financial crisis. Reading your blog has gradually made me aware, for the first time in my life, how finance works. Thank you very much.

  32. Alan Wheatley
    April 28, 2010

    I have always thought of two particularly good JR characteristics as preciseness and conciseness, and here we have a fine example.

    Coupled with a clear understanding of the issues, what better source could a Conservative leader wish to call upon?

  33. Mike Fowle
    April 28, 2010

    I have an uneasy feeling that we are looking over the abyss. As Jack Nicholson said in a film – you want the truth? You can't handle the truth. I fear that is the case with so many of the British public. Their sense of entitlement and lack of understanding will mean riots and bloodshed when it all goes bad.

    1. Stuart Fairney
      April 28, 2010

      Yes "a few good men" as I recall ~ how we need them. But, nil desperandum ~ people still make money in Zimbabwe even now. So the UK maybe going to hell, but individuals need not. Just strike a few good deals.

      1. alan jutson
        April 29, 2010

        Problem is Stuart, a lot of those who are making money have guns to help them!!!

        Not all, but some.

        Law, order, and justice, is rather different from here.

        If you support the right Party (over there) you stand a better chance of getting enough to eat, than if you do not.

        1. Stuart Fairney
          April 29, 2010

          Yes, fair point which I entirely accept.

  34. A.Sedgwick
    April 28, 2010

    Yes, we cannot afford the EU, we cannot afford the Afghanistan war, we cannot afford overseas aid, we cannot afford generous and misplaced welfare, we cannot afford illegal immigrants, we cannot afford an inefficient NHS, we cannot afford the interest on projected debt levels, is it £1.4trillion, we cannot afford public employee pensions at current levels.

    All subjects the "Big 3" pussyfoot around on and basically are deceitful on the magnitude of the problem.

  35. ps
    April 28, 2010

    Great article John.

    Re DC V Brown & Clegg on the economy TV show, have you briefed DC on this and other topical areas.

    It seems to me Brown will attempt to steamroller the audience with dubious facts and figures to reinforce his bigoted Marxist/socialist/Keynesian view of the world.

    This is his area of strength in that the electorate have been programmed by the BBC etc to assume this is the only way to fix our problems. Clegg will probably gang up with Brown as this agrees with his big government/interventionist agenda.
    A nice historicist argument showing the inevitability of socialists leading our country(& others) to financial ruin might have the desired effect of causing Brown to explode in front of the TV camera. If DC allows him to stay in his comfort zone Brown could still rescue his situation.

    Good luck to the blue team!

    Reply: Yes I have sent my thoughts in as well as publishing here.

  36. Socrates
    April 28, 2010

    To paraphrase Vergil :-

    "Euro ne credite, timeo Danaos et debitos ferentis"

    Perhaps Eddie George might appreciate that one!

    1. Socrates
      April 29, 2010

      Looking back on this after posting, I realise that the reference is probably rather lost on those whose latin is a trifle rusty.

      The original quote from Vergil’s Aeneid about the Trojan horse is “Equo ne credite, . . . ,timeo Danaos et dona ferentis” – In english, roughly “Don’t trust the horse, . . . ,I fear Greeks bearing gifts”.

      I hope my paraphrase translates as “don’t trust the Euro, . . . ,I fear the Greeks bearing debts”.

      1. OurSally
        April 29, 2010

        Well that’s how I read it. Thank you for cheering me up!

  37. Lindsay McDougall
    April 28, 2010

    This is an excellent arguement. So will David Cameron have the b___s to go for it tomorrow night? Fortune favours the brave!

    1. ManicBeancounter
      April 29, 2010

      Because he is on the other side?

  38. Ian Pennell
    April 28, 2010

    FROM: Ian Pennell

    28th April 2010

    Dear Sir John Redwood

    Sir, another excellent post, very timely in view of the report by the Institute for Fiscal Studies highlighted in the Daily Telegraph today. It seems that another £50-60 billion of spending cuts need to be fleshed out to show that the Government is serious about reducing Britain’s massive debts. And the danger is, if Labour get back in (either with or without a coalition with the Lib Dems) Britain will be heading the same way as Greece, with much more severe austerity measures being forced on us (perhaps by the IMF) in a few years time.

    It is absolutely essential therefore that Sir David Cameron’s performance tomorrow night is good, because if Gordon Brown (with his “experience” and “gravitus”) wipes the floor with David Cameron we will certainly lose the Election and Britain will be well and truly stuffed!

    And this is why I am again writing to you Sir 24 hours before the Big, all important TV Debate, on BBC 1 on the Economy. It is THE Debate we Conservatives must, MUST win! I am a Conservative Supporter and I would again IMPLORE you to get our Leader to use the Script that I have suggested (and highlighted) below. Sir David Cameron has GOT TO WIN!

    Now, there are hundreds of quangos and initiatives that either need the chop or they need drastically cutting down to size. They are questionable value, even if they are needed they should still be cut down; THIS WOULD FREE UP £50 BILLION TO ENSURE WE CAN SHOW TOTALLY THAT OUR POLICIES ARE DOUBLY-WELL FUNDED AND THAT WE ARE SERIOUS ABOUT PAYING DOWN DEBTS. These are Weapons that we should be using to the full against the Prime Minister: BRITAIN IS IN DEBT BECAUSE THIS GOVERNMENT HAS WASTED COLOSSAL SUMS OF MONEY!!

    I suggest you Sir, MAKE David Cameron take along this Script so that when Gordon Brown says (AS HE WILL!) “Now David Cameron, WHAT SERVICES ARE YOU GOING TO CUT?…BE HONEST WITH THIS AUDIENCE!”, Sir David Cameron can say (AS HE MUST), the following:

    “No, Gordon, your Government has WASTED a lot of money on stuff that DOES NOT go to the front line. Here is a list of the QUANGOS and BUREAUCRACIES we will cut. This will release £50 billion a year by the third year of our first Parliament in order to pay existing Conservative Policy commitments and to cut the huge Budget Deficit that YOUR LABOUR GOVERNMENT HAS RUN UP: They are:

    ” 1: EXISTING COMMITMENTS to curb excessive spending as proposed by the Conservatives, NAMELY:

    “a) A one-year pay freeze for Public Sector workers earning over £18000.
    “b) Abolishing the national Child Trust Fund for families earning over £50000.
    “c) Cutting the cost of politics.
    “d) Bringing forward rises in the State Pension age, raising it to 66 years old for men in 2016 and for women to 65 years old in 2020.
    “e) Cutting the cost of Whitehall by a third by reducing bureaucracy and back office efficiency savings
    ” and f) Putting a £50,000 cap on Public Sector pensions.

    “These proposals already announced will save over £7 billion a year immediately.

    “2) IN ADDITION these are the QUANGOS we would slash altogether.

    “a) The British Potato Council
    “b) The Local Authorities Co-ordinators of Regulatory Services (or LACORS, for short). It is a waste of space!
    “c) The Economic and Social Research Council (ESRC)
    “d) The NHS Confederation, another waste of money.
    “e) The National Patient Safety Agency (NPSA), -WHAT do we have doctors and nurses for?, we don’t need a quango!
    “f) The Connecting For Health IT Programme.
    “g) Parenting Early Intervention Pathfinders.
    “h) Primary Strategy Consultant Leaders- how about a few more teachers instead?!
    “i) Social and Emotional Aspects of Learning Resources (SEALS for short)-another waste of space!
    “j) School Improvement Partners.
    “k) The Secondary National Strategy.
    “l) The September Guarantee- what do we have parents and teachers for? To make sure their kids go to school at the start of the new term!
    “m) Pathfinder Partnerships- WHAT has this got to do with Education?!
    “n) Education Improvement Partnerships.
    “o) Every Child Matters Programme.
    “p) The Cross-Government Safeguarding Programme Board-the WHAT?!
    “q) Local Safeguarding Childrens Boards.
    “r) Apprentice Ambassador Network.
    “s) Youth Matters.
    “t) The Trust Schools Toolkit.
    “u) The Numeracy Taskforce.
    “v) The London Challenge.
    “w) Care To Learn. Another waste of space!
    “x) Chartered London Teachers.
    “y) The Sixth Form Presumption- WHAT DOES THAT DO, Gordon??
    “z) The Framework For Personal Learning and Thinking Skills- maybe some more teachers would be cheaper and more effective than this stupid quango! Audience, do you think we could pay down some debt by removing this little waste of space?
    “and Alpha) Every Child A Reader.

    “3) ALL remaining Quangos will be reduced to two-thirds of their current sizes by reducing their budgets by 15% a year. We will encourage delivery of this with our excellent Conservative policy of having every item of Government expenditure above £25000 published online for the public to see. Since YOUR GOVERNMENT Gordon spends £120 billion a year on quangos I am confident we can find the extra £43 billion, making up to £50 billion to fund our commitments.


    And that is what Sir David Cameron MUST SAY, Sir! He has to use this vital opportunity. All this Government Waste is identified in David Craig’s book “Squandered- How Gordon Brown Is Wasting Over One Trillion Pounds Of Our Money” published in 2008 and the Taxpayers Alliance “The Bumper Book Of Government Waste:P 2008″. These are vital resources that must be used to the full. Gordon Brown has presided over colossal amounts of borrowing, spending and waste and he should be nailed for it!

    Our Leader, Sir HAS NO EXCUSE! You, Sir can give him this script to use, to take along to the TV Debate on Thursday. Our only guarantee of winning the Election is for Sir David Cameron to wipe the floor with Gordon Brown.

    On the other hand Sir, if Gordon Brown wipes the floor with Sir David Cameron we are stuffed, we may as well prepare for another period of Opposition and watch Gordon Brown (with or without Nick Clegg) irrevocably weld Britain to the EU Superstate and cause more (and lasting) damage to the economy! Moreover, if David Cameron does not use this Script, loses in this All-Important Debate and subsequently we lose the Election, many Conservative supporters (me included) will not easily forgive Sir David Cameron- perhaps you, Sir should then take over as Leader! It is IMPERATIVE Sir, that you impress on our Leader within the next 18 hours that FAILURE IS NOT AN OPTION! This is Sir David Cameron’s Job Interview with his prospective Employer (The UK Taxpayer!); if he screws up it means we Conservatives are stuffed!

    Lets make sure Sir David Cameron really GIVES IT SOME WELLY in this last, so vital TV Debate on the Economy, on the BBC. He must ATTACK Gordon Brown over the waste, ATTACK Gordon Brown over massive debts and ATTACK Gordon Brown over excessive taxes! I pray fervently and trust it will go well, that the rest of the Election Campaign goes well and that we win the General Election!

    Best Regards

    Ian Pennell

    1. simon
      April 29, 2010

      Quote "f) Putting a £50,000 cap on Public Sector pensions."

      This is the wrong way to go about it as it implies a continuation of defined benefits pensions .

      Public sector pensions must move over to defined contributions like everyone elses have .

      It's the only way to ensure they are funded fully by the current generation and that the risk is borne by the beneficiary .

  39. Andy
    April 29, 2010

    I know Greece very well. The roots of Greeces problems are are bloated public sector and a poor taxation system – dodging tax is a sport.

    Also it should never have joined the 'currency of the damned', aka the Euro. The figures were fudge and after the spike in inflation somehow disappeared. Odd that. Now you buy a cup of coffee in a tiny Greek village and you pay more than in central London, and don't even bother in central Athens. 5 Euros is not uncommon !! Lets hope the Greeks wake up and leave the Euro.

    1. Acorn
      April 29, 2010

      Don't think so Andy. When they converted to the Euro. They needed 340 Drachma to buy a Euro. Seven years earlier they would have needed only 240. A lot of Greek debt, will be denominated in Euro and Dollars.

      How many Drachma do you think they will need now, to pay off a Euro's worth of debt?

      1. Andy
        April 29, 2010

        Yes the drachma converted at 340 to the Euro. I also remember the huge 'spike' in inflation – for example a bus fare went from 250 drz to 1 Euro. Prices went up by on average 15% and quite a lot more. It was a disaster.

        If they leave the Euro, which they should, I would be unsurprised if the rate was something around 500drz to the Euro, maybe even more. As I said they should never have joined in the first place. It is s stupid currency.

  40. BillyB
    April 29, 2010

    JR's key sentence is "The markets so far have been kind to the UK". i.e. the City has the power to undermine any elected government.

    Think on.

  41. ManicBeancounter
    April 29, 2010

    In recent years our politics has become too like those of the countries that have defaulted in the past – like Brazil, Argentina and like Greece has become now. It has become about presenting a public face of concern and competency, whilst privately just wanting power and prestige. It is also about defending of that image by denigrating the opposition and distorting the reality of events to an extent that George Orwell would not have imagined.

    As a result, we had a structural deficit built up in the boom years and a refusal to recognize that growing debt was an issue. We have delay upon delay about tackling the issue, or even recognizing the problem. Now every minor proposal to tackle it is met with cries of destroying public services and ruined lives.

    The false face of the boom years and the delayed recognition means we have a much bigger problem. It will mean more painful cuts and more growth-damaging tax rises. However, like with personal debt problems, being open and honest there is a severe problem is the first step to solving it. Then you prioritize what is most important, both by area and within each area. That priority should be based on meeting needs – on serving the public – and not on maintaining jobs.

    As part of that recognition, we should divide the deficit between the structural part (using OECD guidelines) and the cyclical part.

    Like with a financial plan for families who have got into debt, we can see, year-by-year, how that deficit is reducing. It should not be enshrined in law, but at least will show how the pain of narrowing the deficit is bringing the nation back to financial health. Then we can also explain how targets are not being met – e.g. through growth faltering, or failing to meet targets.

  42. Robert George
    April 29, 2010

    21% interest is a poor investment if you stand a chance of losing half of it. Greece alone is of no importance because they represent about 0.7 to 0.8 % of world GDP. Unfortunately whilst sovereign debt in USA and UK both represent about 60% of their respective GDP's with similar numbers in the PIIGS countries it is a massive Western world problem.

    I do not think we are seeing the end of the era of social welfarism (sorry about the 'ism) but we are seeing the beginning of the end. The successful western nations will be those which abandon statist, overcentralised, over taxing government first.

    I am a pensioner and would willingly sacrifice the whole of it . My private pension is in 6 figures so why do I need it? why does the middle class need family benefits? and why should I pay people benefits who are unwilling to work. Means test the lot and apply an independent medical review to invalididty benefit and I would be better off without the aged pension.

    PS. In the 1990's Aasian crisis Western banks effectively bankrupted Thailand and Indonesia (their GDP fell by 50%) and no South Korean bank remained solvent. The Oriental nations have not forgotten and won't bail us out.

  43. gerardus kohlinger
    April 29, 2010

    Sorry to say, but in principle the Greek situations has no relationship with the UK.
    We are not into the Euro zone, therefore we can decide the up and down of our own finacial situation. The BOE can make solitaire any move to adapt to any crisis. Our loans are long term and therefore the costs are more easenly to spread.
    We are in control of our own taxes and can extend or curtail when needed.
    None of this is relevant to Greek. They are bound on the Euro zone instructions and levies. They have short term loans. They are bound to the fluktuations of the Euro.

    In short they are not able to control their own finances. We are in control of our own currentcy, our own trade and our own financial fluktuations vir the BOE.

    Therefore the Greek situation has no relevance to ours. Mind you the politicians will use it to scare people.

    Reply: I pointed out that not being in the Euro helps, but it does not guarantee that we will avoid the consequences of seekign to borrow too much. We were not in the Euro when we had a debt crisis in 1976 under the previous Labour government, and had to go to the IMF to get a loan and to be told how much to cut state spending.

    1. BillyB
      April 29, 2010

      Haven't the IMF also said that it is unwise for western economies o slash public spending this year? Do the Tories know better than the IMF? How? (serious question)

      Reply: We need a private sector recovery which requires banking changes, and need to protect ourselves against a Greek public debt crisis by starting to curb spending in sensible ways.We are not talking about "slashing" – just stopping the increase would be a start!

    2. ConradJ
      May 1, 2010

      It's true – we aren't in the Euro – yippee! But on the other hand – Greece might revert back to the Drachma – devalue – Greek savers would lose – and then they'd return to the Euro. The UK wouldn't have to spend any time reverting back to sterling and can devalue immediately. Doesn't that fill you with a warm fuzzy feeling.

      Why did Gordon Brown selll all that Gold in 1999-2002?
      I don't get it. He was advised not too. Who is supporting Gordon Brown? Maybe that's the key. If we found out who wants Gordon Brown in No. 10 we would find out what the real manifesto is. The one they don't publish.


  44. ConradJ
    April 29, 2010

    Dear John,

    I have one word which stands for how the future Government will get the deficit down "Inflation". QE is just another term for it.
    Who gains? People who borrow large sums of money – Who pays? People who save and are responsible with their finances.

    Are the Banks incompetent? Of course they're not because they know that the larger they are; the more likely they will be bailed out (supported) by tax payers – not governement.

    The Government should have let Northern Rock Fail. This would encourage other Banks and Financial Institutions to operate like Businesses and not state run concerns. Savings should be backed by Government – not the Bankers. Golden Goodbyes on failed, bailed out Bank executives – should be made illegal.

    It's about time we returned to a philosohpy of not buying everything on the 'never-never'. If we can't afford it – don't buy it.

    Remember – Inflation IS TAXATION.

  45. ConradJ
    April 29, 2010

    Benjamin Franklin Quotes:

    "I believe that banking institutions are more dangerous than standing armies… if the American people ever allow private banks to control the issue of currency… the banks and corporations that will grow up around them will deprave the people of their prosperity until their children wake up homeless on the continent their fathers conquered."

    "Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote. "

    "…a frequent recurrence to fundamental principles…is absolutely necessary to preserve the blessings of liberty and keep a government free. "

    Thomas Jefferson

    "I am the most unhappy man. I have unwittingly ruined my country. A great industrial nation is now controlled by its system of credit.
    We are no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men."

    Gordon Brown might empathise with this quote.

  46. blue monkey
    May 8, 2010

    Greece and Spain won't pay back. The only thing Germans can do is:
    REPOSES 170 Leopard 2AEX Battle Tanks from Greece, and 190 Leopard 2A6E Battle Tanks from Spain.
    U.S.A must REPOSES 170 F-16 Jet Fighters from Greece, … the rest is gone with the wind …forever …
    Greece must stop paying lucrative pensions with borrowed money, reform the free health care system, and cut down, 4 times the military budged.

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