The Greek cuts should be a warning to us. One of the reasons they are so strongly contested, is that they come with a sharp decline in living standards attached. One of the reasons they have to be so large is the failure of the Greek and the wider EU economies to grow at a decent pace, despite the chance to recover from the recent recession.
It was worrying last night to see so much violence on the streets of Athens, to see senseless burning of cars and buildings. The Greeks need to create more wealth, not destroy it. It is no good going on strike against the money lenders, when you need to borrow so much money. The murder of three young bankers was alarming.
If you need to slim the public sector, there need to be job opportunities, the hope of a better life, in an expanding private sector. If you decide to make too much of the adjustment by tax increases rather than by spending reductions, you may cut private sector opportunity at the same time as depressing public sector pay and output, in the pursuit of equal misery.
One of the reasons so many UK people are telling pollsters they may vote for a party of the “progressive consensus” – parties in favour of high public spending and borrowing despite the financal backdrop – is they do not wish to experience any more pain and reckon if you refuse to cut spending all will be well. If only.
The Greek example shows us what can happen if you ignore the need to keep borrowing under control. You reach the point where no-one will lend to you on realistic terms. You literally cannot pay all the public sector bills, until you submit to an international plan to slash spending in return for a special international loan. There is no point going on strike against the IMF – you either borrow from them on terms you do not like, or you go bankrupt. It’s too late by then to seek pleasant options.
The UK has avoided this so far because it is outside the Euro and has more options. The UK government has chosen to cut the living standards of all of us by devaluing the pound, cutting by one quarter what we can afford to buy from abroad. It’s a crude device for getting things into balance, but has the advantage that people get poorer gradually without being able to blame anyone in particular. Indeed, people are most likely to blame the oil companies, as one of the most visible impacts is the rising price of petrol. It does mean the balance of payments starts to right itself as people cut expensive imports out of family budgets, seek UK substitutes or go without.
The UK government has prevented fears about its intentions making it difficult for the government to borrow by printing £200 billion to lend to itself. Despite this, the UK credit rating has fallen below Germany’s in the market.
We have to assume that most politicians think they can do no more of the same, that they must not print any more and they must at some point seek a stable pound berore the decline in living standards is blamed to them. So from here we will have more in common with the Greek situation.
If people are to be persuaded that we need to do more for less in the core public services, and less for less elsewhere in the public sector, it is important that politicians expalin why we can’t go on like this. It is even more important that they help create the conditions for strong economic growth in the private sector, so the economy can take the strain of adjustment, and so there are other answers for people who would like a state job or state benefits. One of the dangers for Greece, which is intensifying the political backlash, is the danger that the Greek private sector will be in no condition to respond positively as the public sector is cut. High taxes, the inflexibility of Euro money policy, and the bureraucratic impediments in the way of starting and expanding businesses are all against it.
If the UK is to succeed where Greece is failing it needs to use its advantages of its own currency and money policy to ensure more rapid private sector led growth. There needs to be hope. Hope does not come from high taxes and heavy regulations on the wealth creating sector at a time of compulsory slimming of the public sector. “The progressive consensus” who got us into this fine mess are right about this one thing – you can get into a vicious cycle of decline if you don’t stimulate the private sector when you cut the public. They are wrong that you can avoid cutting the public sector when you are borrowing so much – you need a stronger and bigger private sector to pay the bills.
Ps I don’t suppose all those pro Euro establishment figures will say thank you to the few of us in Parliament and in the commentariat who campaigned against joining it when the fashionable consensus thought it would be a great idea? Thank heavens for the commonsense of the British people which enabled us to persuade both major parties to put a referendum lock on the door of the pound, which worked.
Promoted by Christine Hill on behalf of John Redwood, both of 30 Rose Street Wokingham RG40 1XU
May 6, 2010
Sobering footage from Greece, and those on this blog know how fine the line is between Greek economics today and those of the UK tomorrow.
Too many people appear to have been brainwashed into believing that more borrowing will solve everything, and that everything will sort itself out without effort. All it really does is provide profit to people that the borrowers don't really like!
Good luck today, John.
May 6, 2010
One of the frightening aspects of the Greece crisis is the suggestion I am hearing more and more that Greece should simply default on it's obligations. I'm hearing this on radio and TV and not just from people in the street upset at the prospect of cuts but from people who should know better.
For far too long we've been living in an atmosphere of easy credit for little work with the safety valve that we can always go bankrupt and start again if everything falls apart. It now seems this principle is starting to extend to countries too.
Best of luck today for yourself and all Conservative PPC's, let's hope your next post will be one full of hope.
May 6, 2010
one solution for greeks is of course to emigrate to the UK in search of work. any idea how many are?
May 6, 2010
They might stand a better chance of a job if they tried Germany.
May 6, 2010
The UK is probably their best bet, because if they can't find a job here at least they can enrol for benefits?
May 6, 2010
1. Quite right. Thanks for saving the £.
2. The choice to the public is clear (to me at least). Small cuts now or big cuts tomorrow.
3. Putting too much tax burden on the private sector is like putting too much load on an engine. The engine will stall.
4. What is the problem with a "double dip" recession? I would rather go down twice if it means that the recovery is ultimately stronger and more robust. We should care more about where we are going to be in 5 years time than in the next two quarters.
5. Good Luck today.
May 6, 2010
OK – let's look into the worst case scenario.
We do not cut back on the Welfare State. People get used to their way of life, doing nothing much and being paid lots for it too.
The pound crashes – or declines until something has to be done – then –
cuts – anger – arson – chaos on the streets. Just like Greece.
A man comes along who can control the streets with a few bullets and who can promise all sorts of things.
He looks excellent on TV.
Think of the power he has! Trial without jury. A complete racial breakdown of everyone in the UK. Medical records for everyone (sexual scandals?) Most of their bank details (Corruption charges?) Cameras on every street corner. Postal voting to cope with his permanent majority…..
May 6, 2010
Any of the dictators of the 20th century would have been delighted at the totalitarian measures enacted by Labour as a scheme of control. Perhaps we should also remember that the most famous of them came to power via PR. Be careful what you wish for is a useful motto.
May 6, 2010
Mike
History is full of such examples as you outline.
let us hope the UK population has more commonsense, but I have to say it does not look good. Too many people think that the State has the money, without thinking from where it comes.
Interesting looking at an interview on TV last night with a young lady who said she was voting Labour "because she does not pay any tax" Multiply that by a good number who are in the same position, and you really do start to wonder if people understand the problem we are in at all.
She does pay tax of course, even if she relies upon benefits, as she pays VAT.
May 6, 2010
If he could make the trains run on time, clear the streets of litter and grafitti, lock up the muggers, close the borders, restore order to classrooms … tempting. Not how I ever wanted it but now very tempting.
It appears that under our present system we have the worst of all worlds. A highly surveiled, taxed and persecuted middle class and an out of control and state subsidised (and rapidly growing) under class which sidesteps the rules with impunity.
May 6, 2010
Kevin
How true !
Obay the rules, pay tax on your earnings, sort out your own pension, have a little bit of savings, tell the truth if you are out of work.
Result: you get nothing.
Want care in your old age pay for it yourself. Sell the house.
Register your car in your own name, and you risk getting fined for minor offences in this police state.
Register your car with a fake address, or clone someone elses number plate, no such problem.
Yes a real incentive to do the right thing.
It Must Change.
May 6, 2010
First of all, I hope that al goes well for you today, so that once again tonight you hear the words "as the appointed Returning Officer for the Wokingham Constituency I hereby declare that John Redwood has been duly elected to serve for the said constituency".
As I was reading of Angela Merkel's pitch to the Bundestag yesterday, I noted that she realised we are at a fork in the road so far as the EU is concerned. Clearly she understands that one road leads to break up of the EU, accompanied by civil strife and perhaps even war as PIIGS rebel against the new Napoleon (was Orwell really so prescient?), and Germans themselves reject the burden of providing for others. She seems to think (or at least hope) that the bailout of Greece will solve the problems and return the EU and in particular the Eurozone to an even keel – at least with some fudge of Maastricht criteria as a palliative that at best simply recognises the current reality. Wolfgang Schäuble wants to impose a tight regime of inspections like some prison warder. They are ignoring the next – and much larger – problem of Spain looming over the horizon. This route doesn't seem to lead to ever closer union.
Of course, as you point out, in order to earn sufficient to pay down the borrowings the Greeks will need to have a thriving private sector that is competitive – not hamstrung by too high an exchange rate and over-regulation. Is it too much to hope that soon there will be a majority within the EU to push back the boundaries of regulation, and return it to a viable free trade area, with local control over economies, laws and government spending?
May 6, 2010
There is no way on this earth that Dr. Merkel ( Ph.D. quantum chemistry ) believes this bailout will be the end of it. Unlike the majority of politicians (present company excluded) she will be highly numerate and fully aware of the rest of the PIIGS debt issues. She knows there is a fork in the road, and she has decided which way she is going – EU wide debt union – in defiance of everything post war Germany has stood for.
May 6, 2010
There are elections in Germany’s most populous state, North Rhine Westphallia, on Sunday May 9th. It will be interesting to see if the Greek bailout results in a loss of support for Mrs Merkel’s CDU and the FDP coalition partner.
May 7, 2010
A question that I asked on Com Home, with no effective reply – where would loss of CDU/FDP support over this to go to ? The opposition are the socialists. There is no viable political opposition to the "sell out".
May 6, 2010
Diary of a Don't Know.
Today, I'm going to vote for my new little granddaughter, I want her to be educated in subject knowledge, not brainwashed on social issues.
Today, I'm going to vote for our men in Afghanistan.
Today, I'm going to vote for my mother, so she no longer has to fight the NHS to get the treatment she needs for heart and Parkinson complaints: and can live her last years in more peace.
Today, I'm going to vote for all the young people trying to cross the threshhold to adulthood and responsiblity.
Today, I'm going to vote for my business so I can expand it and pass on jobs and knowledge to those younger than me.
Today, I'm going to remember my father and my grandfather and what they fought for in two World Wars.
I wish today I could vote to rid us of certain overbearing enemies who have gotten a foothold on our green land. But, on this the fight will have to continue.
So, I'm now decided. We need strong Government, and conservative values. And, whilst not perfect, Tory is where my cross is going, in my marginal seat.
May 6, 2010
I feel sorry for the people of Greece, who have basically lived beyond their means and been lied too by a useless bunch of politicans.
But the long and the short of it is Greece should never have joined the Euro. the rules were 'bent' to allow her to do so in the first place and now the chickens are coming home to roost.
May 6, 2010
Another perceptive and well written blog. I wish you well in today's election. If we had more MPs of your calibre there would be grounds for hope.
May 6, 2010
Another good and clear post John.
At least we have one MP (assume you will be re elected) who understands the problems, and can communicate them in a simple and understandable fashion.
May 6, 2010
Cuts? Tax increases? More devaluation? When to do it? I don't envy the next occupant of Downing Street, especially if immobilised in some ghastly coalition with the Liberal Democrats.
Our fundamental problem is that the British economy is not fit for purpose. We are making and growing too little, spending too much, not saving enough and importing too much. We are too dependent on financial services and the oil is running out. Above all are the consequences of our reckless borrowing and money printing. Action plan 1 is pay down the deficit but action plan 2 should be to try to steer the British back into more productive work. Some hope! All the media wants to talk about is gossip in the Westminster bubble and the colour of Nick Clegg's tie.
Tomorrow we will start our tour of the world of unpleasant and unintended consequences. We will also begin to hear the verdict of the markets on the mess we have created and, almost certainly, be led by a Prime Minister in office but not in power. Th the issue of how to appease the Liberal Democrats will be at the top of the agenda. A balanced parliament (code at the BBC for 'keep out the hated Tories') may seem like a cool designer purchase now but what will it be like in three month's time?
There is still time to pray for the miracle of a small Conservative majority.
May 6, 2010
Excellent and hard hitting article by Camilla Cavendish in The Times today on the true size of government debt, with yet another call to bring in the IMF. http://www.timesonline.co.uk/tol/comment/columnis…
May 6, 2010
John,
I too watched the live pictures from Greece yesterday and felt saddened by what I saw.
Something else struck me though whilst watching the pictures and that was this; If the media and government set up a scape goat, in much the same way Hitler did in relation to the Jews, then one cannot be surprised when the public vents its anger at that scape goat. We have heard endless politicians attacking bankers in general and effectively making them all responsible for every ill in the world whereas, in reality, it was only a small number of bankers that caused the problems and they were more akin to casino gamblers rather than those that we know as bankers in the high street. The politicians in this country too have set up bankers in general as scape goats and I suspect we would be likely to see similar scenes here should it all go bad however, I wonder if disabled people would also be targeted as they too are being set up as bogey men by politicians, along with other benefit recipiants.
Good luck today John, I feel forced to vote for you to keep Mr Brown et al out, you are/were a good local MP but, as I have said before on here, I cannot vote just for you, I have to, by implication, back Mr Cameron too due to the presidential style of politics that we now see in this country. Personally I feel UKIP's policies are nearer to the policies that I support and where a real Conservative Party would be.
May I suggest, given the state of the country and taking into account the mess that Labour have made, we should be miles ahead in the polls but we are not, this implies that, with each party on about a third of the popular vote, no party has really popular policies or, in other words, no matter which party comes out on top, about two thirds of the population will not support the government. I suggest that a hung parliament should trigger the parties going back to the drawing board and looking again at their policies inorder to find policies that the people can take to.
I feel in many ways, we are today voting for the party that we feel will be the least offensive to us, rather than the party we really want.
Slightly off topic I know but, although we are told that all the parties and their candidates are out working hard to get votes, I have not had one candidate from any party knock on my door and yet, I had a whole raft of issues that I wanted to discuss with them.
Again, good luck John, not that I think you need it.
May 6, 2010
What happened in Athens is a tragedy and a warning to anyone thinking of inciting a mob that things get out of control very quickly .
If Governments are to successfully implement cutbacks like that there needs to be a sense of social justice .
Regretably it might take (something drastic ed)to get it through to the elite that they are milking us too hard .
Even more regretably a lot of innocent people will pay the price instead .
Just cast my vote for our host .
May 6, 2010
Allister Heath in his City AM editorial echoed my recent posts about my worries about the real state of public finances.
As part of new transparency demanded by Cameron I would like to see public sector debt re-evaluated. Hiding debt off balance sheet is not transparency, it's acccounting fraud.
http://www.cityam.com/news-and-analysis/allister-…
"a more realistic estimate of our national liabilities, including everything from the private finance initiative, the cost of nuclear decommissioning and public sector pensions, is probably around 130 per cent of GDP"
May 6, 2010
Gotta be a lot worse than 130% .
The public sector pension part of the demographic time bomb is at least quantifiable .
The taxpayer of the day will end up either having to support or euthanase the rest of us who are unable to save sufficient for retirement .
Oil imports will increase and the cost per barrel may well rise 10% or more year on year .
Britain is not alone in having to spend to becoming energy independent , building oil and gas storage facilities , upgrading the national grid for gradual transition from oil to electricity
The long term trends of globalisation and offshoring which would have made matters worse anyway are not going to stop .
Wealth is increasingly going to be concentrated by the few , many of whom do not believe in paying their fair share of tax .
Economically independent people are going to desert the UK and spend their money overseas .
North Sea oil has enabled us to live beyond our natural level and population for the last 40 years .
May 7, 2010
I got this spot on. It wasn't difficult 48/50 of the last polls predicted this.
I also got it spot on that Gordon would try to form a Government. New Labour has no honour. Clearly Im the only person who has believed everything that I and every body else has said about them.
Next prediction. Gordon will offer the Lib Dems a referendum on PR as late as possible in the next term on the basis that the libdems would pull the plug the day after the vote.
He will offer deputy pm to Clegg. He will offer chancellorship to vince cable to get rid of Darling and soothe the electorate.
Gordon will also step down. Which could make Clegg the PM during the vote but he won't do that. He will let harman become temp Pm which will open the door to clegg as deputy.
Who can blame clegg. Who will use the low number of seats as an excuse. If I were libdems I would be pushing Clegg to with Brown and a PR referendum.
May 6, 2010
Thanks, John. If you trawl the other websites, you tend to get a lot of ranting and evidence of tribal hatred. If the education system worked properly people might be able to evaluate on the basis of evidence. Still, I had my hair cut a couple of days ago and the young women there were eagerly asking questions. 'How should we vote? We don't understand it all'. Maybe the TV debates will help to revitalise democracy.
May 6, 2010
JR: "is they do not wish to experience any more pain and reckon if you refuse to cut spending all will be well."
The problem here is that people percieve the state as bigger and stronger than the private sector, when in fact it isn't nor can it be, simply because the State depends on the private sector for everything.
It draws tax revenue from the private sector and it uses that revenue to pay the interest and principle repayment on money it borrows from the private sector.
May 6, 2010
Let's hope the Conservatives get enough of a lead to form a Government.
If no agreement is made over the weekend the BofE meets again on Monday to set interest rates (as the meeting was delayed this week). In the event of a run on Sterling they will have to up interest rates.
May 6, 2010
JR: "I don’t suppose all those pro Euro establishment figures will say thank you to the few of us in Parliament and in the commentariat who campaigned against joining it [the Euro]"
You could ask Ken Clarke.
May 6, 2010
Someone told me over the weekend that Greek civil servants can retire on full pension at the age of 53, and that the IMF proposes this retirement age is raised to 67 in one fell swoop. Can anyone confirm this? If so, I'm not surprised at the riots. Imagine a 52 year old expecting to retire in a year's time and being told "Sorry, you have 15 years to go."
On page 6 of today's Daily Telegraph, there is a map of constituencies and a colour coded list of seats that might be captured by another party, combined with the required swing.
There are 112 seats that the Conservatives can capture with a swing of less than 7%. That takes us to 321 seats, 5 short of the magic number. And the Ulster Unionists will take us over the top. Eat your heart out, Nick.
May 6, 2010
On top of I read that they get a 95% final salary pension. Imagine retiring in your mid-50's and still collecting your full salary. It's no wonder they are bankrupt.
Thank goodness our public servants (all 6 million of them) aren't on gold plated pension schemes! Let's hope the next government has the backbone to tackle this problem before the power to do so is taken out of their hands.
May 7, 2010
The IMF route is a bad one, the Germans need to get over their understandable aversion to printing money and buy back a load of PIGS debt, then whack it on the ECB balance sheet and have an arrangement to overdraft the coupons back to the PIGS governments if needs be.
The price? Pension ages go up, pension committments go down and Germany take over more supervision of their fiscal policy so they can't do it again.
If I was a German, I'd be fuming with the PIGS, the UK and the USA for this mess, but I'd still want them to buy my Mercs – Germany taking over Greece and maybe other PIGS is the best solution.
May 6, 2010
Good luck in the election today Mr Redwood. Here’s hoping you will soon be in a position to work towards the nation’s recovery.
May 6, 2010
"It is no good going on strike against the money lenders, when you need to borrow so much money. The murder of three young bankers was alarming. "
I don't suppose the rioters understand that one of the major obstacles to recovery is that their government has ceded autonomy to the EU.
If the pro Euro establishment figures won't thank you for our saving grace then I will.
Thank you.
May 6, 2010
Let us give credit where credit is due – Gordon Brown. Not because he was against joining the Euro, he was/is, but he put the road blocks in place to spite Tony.
Thank goodness because that display of spite saved us from Greece's fate, or, more likely, Greece becoming another UK.
From the ramblings of an infantile brain came (almost) salvation!
And he does not know it!!!!!
May 6, 2010
I sincerely hope that cast-iron Cameron pays the price for his EU policy tonight, but think he may just get a majority or very close to it. I believe the polls are accurate but i have my doubts if the Conservatives really need to be 10% ahead to win a majority. I suspect there was tactical voting in the past to ‘keep the tories out’ which led pollsters to believe this but i suspect that sentiment will be unwinding now and a 5% lead would result in majority.
May 7, 2010
Yes economic growth has always been the get-out-of-jail-free card for politicians. Has any thought been given by any politicians (apart from the greens) as to what to do when physical limits start applying ?
I’m thinking of the coming energy crunch type scenario, and who is going to pay our pensions if we reverse immigration and population growth.
May 7, 2010
So what do the Greeks do ? Grow more olives ? Draft in more tourists ? The reason the public sector is so huge in Greece – and the UK – is because there are so few private sector jobs not servicing Government.
The so-called private sector employment in Britain has expanded most rapidly in a) Hairdressing b) Small Garages repairing cars c) "Caring" ie nursing homes
The fact is these economies have offshored so much to China and India that "Make Work" is Government policy just as it was when Lord Young ran the Manpower Services Commission for M Thatcher.
Greece can only default. The banks should take a haircut and not expect a Euro bailout. If French banks want to lend 20% GDP to Club Med states it is not Germany's responsibility. Prudent lending requires credit analysis not belief in fairy godmothers who pay bills when due.
The Greek affluent shifted 8.5 billion Euros from the country within the past 2 months. It is Argentina and it is stupid to throw good money after bad. Time to force European banks to recognise imprudent lending and put their bonus money into the bank equity base.
May 7, 2010
Firstly, congratulations on your win yesterday, with an increased majority.
The economic growth aspect is important to emphasise. If the forecast growth fails to materialise, then the part of the deficit to be closed by tax increases / spending cuts is substantially greater. This needs to be emphasised and any emergency budget needs to bring this out clearly. Possibly to say over the next five years we expect the economy to grow by x%. A 1% slippage in this forecast
Freeing up the private sector to stimulate the recovery should be emphasised strongly and enacted in parallel to the budget.
Within the budget, there should be a graph relating economic growth to the deficit, so show how necessary this growth is to reduce the pain. Possibly to say over the next five years we expect the economy to grow by x%. A 1% slippage in this forecast will impact the deficit by £ybn. Exact estimates are difficult to make, by a ball-park figure would help focus minds.