Why austerity policies may not work in the Eurozone

The Eurozone’s disciplines have been nicknamed the politics of austerity for good reason. Each state is meant to keep its budget deficit down to 3% of GDP – way below the large cyclical deficits the UK, US and other single currency areas allowed themselves in the great recession. Each state is meant to keep its total amount of borrowing to below 60%, though most of them have given up on that idea. No individual state can print more money, make its economy more liquid or devalue to provide a private sector stimulus. As a result when a Eurozone state cuts public spending it is likely to lead to a fall in GDP which the private sector struggles to offset or does not offset at all.

We have seen that cutting the growth rate of public spending substantially in the UK after 2010, and in the US cutting national defence spending and State level spending, did not lead to a fall in GDP. The private sector responded well to extra money being put into the system, to the gradual rebuilding of the banks and the spread of some more private credit, and to the available spare resources caused by the great recession. Both countries experienced a recovery despite or because of the action taken to control public sector budgets. Both benefitted from the continued low interest rates, made possible in part by growing control of state borrowing. In the UK real public spending did edge up a little as well. I was criticised recently for quoting deficit reduction as a percentage of GDP rather than in cash terms. As I have often pointed out, the fall was bigger as a percentage of GDP, smaller in cash terms. I used this version on Thursday because I was dealing with those who said budget cuts would lead to another recession, and they always use the figures which show the biggest “cuts”

In contrast, the much harsher budget cuts in Greece have added to the collapse in GDP in that country. Greece today has a national income and output 22% below its peak in 2007. It is amazing that the policies which have created this disaster have been allowed to continue for so long. Even now the Greeks have voted in a government which rightly points out how damaging the policies have been, there cannot be much change as that same government bizarrely wishes to stay in the Euro, the origin of much of their trouble.

The enormous Greek recession has gravely reduced tax revenues. As a result there have to be most severe cuts in public spending to try to get the deficit down to the tough target levels – in Greece’s case even tougher owing to the debt covenants. The private sector so far has been unable to pick up the very considerable slack. owing to weak banks. Greece has no power to create more money, no power to lower its own interest rates further, no power to devalue to price itself back into more world markets. As a result they have experienced the misery of sliding from public sector cuts to less private sector demand, and from less tax revenue to more public sector cuts.

If you wish to see a true austerity policy then look at Greece. They have had major cuts in public spending, major cash reductions in wages and salaries, major job losses, and mass unemployment. Many businesses have closed. Any sensible person is against the kind of austerity policy inflicted on the Greek people. Unfortunately it just seems to go with being in the Euro.

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116 Comments

  1. Ian Scott
    Posted February 28, 2015 at 2:53 pm | Permalink

    “We have seen that cutting the growth rate of public spending substantially in the UK after 2010, … did not lead to a fall in GDP.”

    That’s not true – the austerity, and the threat of austerity, measures undertaken by the government halted growth for two years. It was only the inertia of continuing population growth and financial sector getting back to business as usual that started the growth off again. Nothing could have stopped this – it was inevitable. The two year hiatus was avoidable.

    • Lifelogic
      Posted March 1, 2015 at 7:51 am | Permalink

      Not at all. What stopped the growth initially was banks (such as Natwest/RBS the worse offender) just demanding many of their loans back from businesses and refusing new lending. Thus forcing them to sell assets cheaply, put off expansion plans, reduce stock levels and delay builds etc. The government rescued the banks only to let them hugely damage their customers. It was the customers who needed protecting not the banks, they were rescued incompetently by “save the World” Gordon Brown.

      • Hope
        Posted March 2, 2015 at 10:04 am | Permalink

        Why allow 64.7 percent of laws to be made in Brussels instead of parliament and pretend otherwise! The answer to your question is that nation states are just a front to what is going on and it is the EU bureacrats running the show and making a complete mess of it. Time for change and for countries to run themselves again with trade and peace treaties not an advancement to a single superstate that no one across the continent voted for.

        • Jerry
          Posted March 2, 2015 at 3:12 pm | Permalink

          @Hope; “Why allow 64.7 percent of laws to be made in Brussels instead of parliament and pretend otherwise!”

          I suspect that at least 64.7 percent don’t give a dame if the laws are made in Brussels or London, both are just as inaccessible to the average Pleb, and indeed for many (because, due to PR, there is more likelihood of a sympathetic MEP) might actually feel the EU bureaucracy to be more accessible than the Westminster one!

    • Narrow Shoulders
      Posted March 1, 2015 at 10:07 am | Permalink

      Yes our growth has come about by making us poorer and importing additional markets at 2, 8 million heads in five years.

      Thanks for that

  2. Keith W
    Posted February 28, 2015 at 3:00 pm | Permalink

    Why on earth are you not a member of the government?

    • bluedog
      Posted March 1, 2015 at 5:58 am | Permalink

      Because David Cameron is afraid of genuine ability rather than the gift of the gab.

      • Mark B
        Posted March 1, 2015 at 10:54 am | Permalink

        Yes. That’s why OP and MG had to go, and be replaced by a bit of tokenism.

        • Lifelogic
          Posted March 1, 2015 at 4:49 pm | Permalink

          M Gove and O Patterson surely went because Cameron mistakenly thinks he needs to ape Labour light and chase the few floating voters in the marginals.

          It does not work like that, he needs a positive vision as Lady Thatcher had. People need to be offered a sensible vision of growth, jobs, cheap energy, lower taxes, far less EU, a fair deal for the English and smaller government he is offering them nothing but we have like Labour but not quite as daft and a history of past ratting.

          Will someone please tell Natalie Bennett that the phrase “Mortgage Rate Relief” mean nothing it is “mortgage interest relief” she seems to mean. It is anyway perhaps the most moronic policy I have heard announced so far and the competition is tough.

          Taxing people/businesses on profits they are not even making does not last very long.

      • willH
        Posted March 1, 2015 at 8:11 pm | Permalink

        Typical of Cameron`s arrogance to think he can afford to leave out someone of Mr Redwood`s common sense & experience, yet include idiots like Davey.

    • Lifelogic
      Posted March 1, 2015 at 6:06 am | Permalink

      I assume it is because the party is led by someone who is clearly pro more EU, pro 299+ tax increases, pro expensive green crap energy and AGW exaggerations. pro ratting on the voters, pro ever more daft regulations such as the gender insurance and pensions drivel. Also pro the no if no buts 600.000 open door immigration.

      In short Cameron is wrong on almost everything and JR is largely right.

    • Jerry
      Posted March 2, 2015 at 3:29 pm | Permalink

      Keith W; “Why on earth [is our host] not a member of the government?”

      Perhaps because then people like us would not have a place like this to air our opinions, and perhaps this is how he can best serve the party (and government)?…

  3. Atlas
    Posted February 28, 2015 at 3:13 pm | Permalink

    Agreed.

    I thought it was the German Banks who had lent much of the money to Greece; so it is a tad hypocritical for the German Government to wave the big stick at Greece posturing as if all Germans are ‘prudent’ in their actions.

    • Lifelogic
      Posted March 1, 2015 at 8:05 am | Permalink

      Indeed what is the Latin for “Let the lender beware”?

      • miami.mode
        Posted March 1, 2015 at 11:05 am | Permalink

        Probably caveat faenerator.

      • ian wragg
        Posted March 1, 2015 at 11:22 am | Permalink

        Caveat Emptor or some such phrase.

        • Leslie Singleton
          Posted March 1, 2015 at 1:40 pm | Permalink

          Eh?? I suggest Caveat Creditor

      • Bazman
        Posted March 1, 2015 at 11:26 am | Permalink

        This is also why banks are wary of lending more cash to buy property which if you remember is what caused the crash.

        • Lifelogic
          Posted March 1, 2015 at 12:43 pm | Permalink

          It was not sensible lending on property that cause the problem at all. It was the complex packaging up of debt and then selling them off duff pieces of paper to idiots as grade AAA debt.

          The banks were not lending (not due to any perceived borrower risk) but because the banks were desperate and just needed the money back. So lets stitch up the customers where we can they thought. The no/ very low risk loans, with the better financial positions were more likely to pay back and were often pushed harder. Most borrowers were in far better positions than the bank.

          Labour to introduce a “discrimination” law against people from poor backgrounds. This is moronic even by Dave Cameron (gender/pension equality insurance) standards. Still at least I should finally qualify as a victim. Do they want half the working population to be Lawyers?

    • Denis Cooper
      Posted March 1, 2015 at 1:09 pm | Permalink

      Above all, it was the German Chancellor Kohl who had insisted against strong advice that Italy, and therefore also Spain and Portugal, must be allowed to join the first wave of the euro, which opened the door for Greece to blag its way in a couple of years later.

      This is from May 2012:

      http://www.spiegel.de/international/europe/euro-struggles-can-be-traced-to-origins-of-common-currency-a-831842.html

      “Newly revealed German government documents reveal that many in Helmut Kohl’s Chancellery had deep doubts about a European common currency when it was introduced in 1998. First and foremost, experts pointed to Italy as being the euro’s weak link. The early shortcomings have yet to be corrected.”

      “The documents prove what was only assumed until now: Italy should never have been accepted into the common currency zone. The decision to invite Rome to join was based almost exclusively on political considerations at the expense of economic criteria. It also created a precedent for a much bigger mistake two years later, namely Greece’s acceptance into the euro zone.

      Instead of waiting until the economic requirements for a common currency were met, Kohl wanted to demonstrate that Germany, even after its reunification, remained profoundly European in its orientation. He even referred to the new currency as a “bit of a peace guarantee.””

      “However, the Kohl administration cannot plead ignorance. In fact, the documents show that it was extremely well informed about the state of Italy’s finances. Many austerity measures were merely window dressing — either they were accounting tricks or were immediately dialed back when the political pressure subsided. It was a paradoxical situation. While Kohl pushed through the common currency against all resistance, his experts essentially confirmed the assessment of Gerhard Schröder, the center-left Social Democratic Party (SPD) candidate for the Chancellery at the time. Schröder called the euro a “sickly premature baby.””

      • Jerry
        Posted March 2, 2015 at 4:32 pm | Permalink

        Denis Cooper; “[www.spiegel.de citation]”

        Nowhere in your citation does it mention either Spain or Portugal – the PIGS were not all PIGS before the 2007-on crash….

        There was no problem with Spain joining the Euro in the first wave, it had and still has a decent GDP from a modern industrialised base, it was a housing bubble that did for them, just as it was a housing bubble that almost did for the UK too…

        • Iain Gill
          Posted March 2, 2015 at 9:28 pm | Permalink

          We still have a housing bubble

        • Denis Cooper
          Posted March 3, 2015 at 4:20 pm | Permalink

          Jerry,

          There’s an interesting footnote on page 7 in this 2006 retrospective by Willem Buiter:

          http://www.willembuiter.com/sense.pdf

          “Historically, a key albeit unstated objective of the (mainly Dutch and German) drafters of the original fiscal financial Maastricht criteria was to keep Italy (and perhaps also the two Iberian nations) out of the EMU.”

          But once Kohl had decided on political grounds that the economics should be ignored and Italy should be admitted in the first wave there would have been little chance of Spain and Portugal being excluded; and in fact Greece almost slipped in then as well, it only needed to a couple more years to cook the books.

          • Jerry
            Posted March 4, 2015 at 1:27 pm | Permalink

            @Denis Cooper; “a key albeit unstated objective”

            So not actually a referable fact, that thus had to be a footnote, so most likely just the opinion of the author… Oh and yes I did read his CV before saying that!

          • Denis Cooper
            Posted March 5, 2015 at 10:43 am | Permalink

            Of course you will know better than him, won’t you?

          • Jerry
            Posted March 5, 2015 at 2:06 pm | Permalink

            @Denis Cooper; an unverifiable “fact” is no fact at all, it’s an opinion, he might be correct or he could be wrong, who knows? Even more so when the “fact” has been self-published on the internet by the person making the claim…

          • Denis Cooper
            Posted March 6, 2015 at 11:54 am | Permalink

            I’m sure you’ll know about “unverifiable facts”.

          • Jerry
            Posted March 6, 2015 at 10:45 pm | Permalink

            Denis Cooper; What ever. All your last comment has done is prove that you have no academic credibility what so ever. as anyone with even the slightest academic understanding will know, you really should leant when to stop digging yourself into a deep hole! But never mind, you’re obviously happy to carry on cut and pasting scraps you hunt down on the internet to back up your constant supply of conspiracy theories about the EU…

      • Wireworm
        Posted March 3, 2015 at 2:14 am | Permalink

        Kohl was also being told by Mitterrand that the single currency was the price Germany had to pay for reunification. That presumably trumped any German misgivings. The idea that France could dictate to Germany now seems ludicrous, which state of affairs is entirely the consequence of Mitterrand’s folly.

  4. Leslie Singleton
    Posted February 28, 2015 at 3:17 pm | Permalink

    How did Greece manage in Roman times when presumably the whole of Europe used Gold? At the time, I suspect anyone saying that Gold couldn’t work; and that in and of itself Gold would cause austerity would have been thought mad and to my mind rightly so. Despite being vehemently anti EU I have some sympathy with the idea of a single currency. I remember that 50 years ago for some exam or other on Economics, the one certainty I thought I could perceive was that individual countries should not be allowed to run their own individual currencies. There must be a way to have a Euro other than the lunacy in play at present.

    • Lifelogic
      Posted March 1, 2015 at 6:08 am | Permalink

      They just cut wages drastically in gold terms it was easier to do that then.

    • eeyore
      Posted March 1, 2015 at 8:21 am | Permalink

      The Roman Empire ran on a silver currency. In pre-paper economies which used precious metal for coin, it was not uncommon literally to run out of money in one place or another. Even in 18th and early 19th-century England diarists can be found complaining, “No money to be had for miles around.” The solutions: barter, of course, private token coinage, and boundless credit for even the most trivial purchase. Medieval Europe ran on credit, extended for decades on end and traded in sophisticated ways at great international fairs.

      The euro is a primitive currency which users have no control over and cannot produce more of, so it operates like precious metal specie. Greece has simply run out of it. It should auction off Crete. No doubt Russia would bid.

      • Denis Cooper
        Posted March 1, 2015 at 6:24 pm | Permalink

        And after the Romans left England their silver currency disappeared, not as I understand because they took it all with them but because what was in circulation was either gradually reused for ornamental silverwork or it was taken out of the country to pay for imports, until the Anglo-Saxon kings somehow got hold of enough to start issuing silver coins, pennies; and then the Viking raiders came along and took much of that silver as loot or as payments to go away and do their raiding somewhere else …

    • Stephen Berry
      Posted March 1, 2015 at 9:33 am | Permalink

      Your instincts are right Leslie, a single currency could work effectively in Europe. After all, single currencies have worked many times in the past. The UK was on the gold standard between 1821 and 1914 and it would be difficult to portray this whole period as an economic vale of tears.

      A single currency also seems to work now within the UK. Around 1970 with the decline of the coal mining and the textile industries, Yorkshire became less productive in the economic sense. Is it seriously to be claimed that the subsequent necessary adjustment in prices and wages could only have taken place if Yorkshire had had its own currency? Prices and wages are now lower in Yorkshire than the south east of England, but this necessary adjustment has taken place within a single currency area.

      The Euro would work if the constituent countries had flexible economies, limited government and entrepreneurial workforces which adjusted rapidly to labour market shocks. The adjustment of the southern European economies has been an extremely tortuous process and it seems that the institutional arrangements in these countries make it extremely difficult to lay off and take on workers or lower wage rates. It’s the difficulty in adjusting prices and wages in these countries which is the problem, not the so-called austerity which the Germans not unreasonably require in return for extending loans. As far as I know, the Spanish government undertook labour market reform in 2012 and the Spanish economy, as it recovers, is now reaping the rewards. That is the real lesson for the Greeks.

      • yulwaymartyn
        Posted March 1, 2015 at 9:55 pm | Permalink

        Stephen Berry. Gosh. A sensible clear headed analysis for a change. Just one thing to add – Spanish labour costs are 12% lower and, as you say, they are now reaping the rewards.

      • Jerry
        Posted March 2, 2015 at 4:47 pm | Permalink

        Stephen Berry; “a single currency could work effectively in Europe.”

        Of course it could, the idea that it can’t is only put about by those would like nothing other than for it to fail, that is not to say there are not problems but non that can not be solved – even if that does mean “more Europe” for the EZ, such as perhaps a proper federalisation.

        • A different Simon
          Posted March 3, 2015 at 1:47 pm | Permalink

          That is the ONLY way it could work .

          By turning Europe into a single country .

          Is that what you want ?

          • Jerry
            Posted March 3, 2015 at 3:32 pm | Permalink

            @ADS; That’s not for you, me or even our host to say, the UK is not in the EZ, and very unlikely to be any time soon even if the nation decided via a referendum to stay in the EU – so until such time as we are in the EZ the question you asked is on a par with the one about asking if I’m still abusing the wife…

          • Denis Cooper
            Posted March 3, 2015 at 4:22 pm | Permalink

            Hang on, Jerry, that question was directed at you and so you could answer it for yourself! Is it what you want?

          • Jerry
            Posted March 4, 2015 at 1:47 pm | Permalink

            @Denis Cooper; Unlike you Denis I won’t try and tell other nations what they should or should not be doing, it if for the EZ alone to decide if they want for form a EZ federalised union, the UK is not in the EZ so what anyone in the UK thinks is irrelevant.

          • Denis Cooper
            Posted March 5, 2015 at 10:47 am | Permalink

            Jerry, you were asked:

            “Is that what you want?”

            Nothing to do with what others might want; either you do or you don’t want it, so why not answer the question?

          • Jerry
            Posted March 5, 2015 at 2:33 pm | Permalink

            @Denis Cooper; “why not answer the question?”

            Because as I said, the UK is not in the EZ so what anyone in the UK thinks is irrelevant. Meaning, I HAVE NOT EVEN COINCIDED WHAT ANOTHER SOVEREIGN COUNTRY SHOULD DO, if I was say an ex-pat in Spain (or should the UK decide to join the EZ) then I might have not only though about it but actually have the right to hold an opinion. Get it now?

            Apologies for shouting

          • Denis Cooper
            Posted March 6, 2015 at 11:56 am | Permalink

            The question was “What do YOU want?”, so why are YOU trying to wriggle out of answering that?

          • Jerry
            Posted March 6, 2015 at 11:00 pm | Permalink

            @Denis Cooper, I don’t want anything, I’m not living in the EZ!

            /End of…

      • libertarian
        Posted March 9, 2015 at 10:28 am | Permalink

        Stephen Berry

        Sorry the fact that you think that the gold standard was a single currency undermines your arguments quite a lot.

        There has never been “single” currencies in the history of money. Until 1971 the value of money was linked to various forms of precious commodities or allowed to float free. The UK joined the Gold Standard in 1924 and left again in 1931 as it was too much of a drag on growth ( incidentally one of the major reasons the UK recovered 7 years quicker from the depression than the USA and their so called new deal)
        In 1944 the Bretton Woods agreement came into force. A bit like the Euro BW was designed to stabilise countries economies but of course ended up doing the opposite ( when will politicians learn to stop meddling with markets? )

        In 1971 President Richard Nixon abandoned the slow growth BW and introduced Fiat Money.

        Reply Prior to end of gold standard there were still national monopoly monies that were legal tender in their respective countries.

    • Narrow Shoulders
      Posted March 1, 2015 at 10:05 am | Permalink

      Bretton Woods and the US being tied to the gold standard was in effect a single currency for the world with some variation allowed.

      Hockey stick economics has prevailed since the seventies with unfettered creation of money by private banks.

      It was and is not sustainable

    • David Murfin
      Posted March 1, 2015 at 10:19 am | Permalink

      Greece was part of the Roman Empire. Within a political union (free or enforced) a ‘gold currency union’ was quite possible.

    • Denis Cooper
      Posted March 1, 2015 at 1:32 pm | Permalink

      Well, silver was more generally used for everyday transactions in ancient times, rather than gold, and copper alloy coins were introduced, and at times even the nominally silver coins contained hardly any silver:

      http://en.wikipedia.org/wiki/Roman_currency

      “A persistent feature was the inflationary debasement and replacement of coins over the centuries.”

      According to Plutarch the Spartans deliberately used heavy iron bars as their currency to make it difficult for anyone to accumulate and hold large wealth in that form, and moreover the bars were treated so that the iron itself was no longer practically useful and had no intrinsic value, so I suppose that could be seen as a kind of fiat currency. However leading Spartans were susceptible to bribery by foreign powers, which presumably involved them getting their hands on gold and/or silver rather than the iron bars circulating in Sparta.

      • Leslie Singleton
        Posted March 1, 2015 at 6:25 pm | Permalink

        Denis–I should be interested to learn what the treatment was. If the iron could and apparently was smelted and melted in the first place and then set in to iron bars it is hard to imagine what could prevent re-melting. Best I can even begin to think of would be something added to the original molten iron that would produce noxious fumes on re-melting but hard to see how that wouldn’t be just as dangerous in the original melting. Happy to be educated as ever!

        • Denis Cooper
          Posted March 1, 2015 at 7:33 pm | Permalink

          Life of Lycurgus, the Spartan law-giver:

          http://penelope.uchicago.edu/Thayer/E/Roman/Texts/Plutarch/Lives/Lycurgus*.html

          “9 Next, he undertook to divide up their movable property also, in order that every vestige of unevenness and inequality might be removed; and when he saw that they could not bear to have it taken from them directly, he took another course, and overcame their avarice by political devices. In the first place, he withdrew all gold and silver money from currency, and ordained the use of iron money only. Then to a great weight and mass of this he gave a trifling value, so that ten minas’ worth required a large store-room in the house, and a yoke of cattle to transport it. When this money obtained currency, many sorts of iniquity went into exile from Lacedaemon. For who would steal, or receive as a bribe, or rob, or plunder that which could neither be concealed, nor possessed with satisfaction, nay, nor even cut to pieces with any profit? For vinegar was used, as we are told, to quench the red-hot iron, robbing it of its temper and making it worthless for any other purpose, when once it had become brittle and hard to work. “

          • Leslie Singleton
            Posted March 2, 2015 at 2:20 am | Permalink

            Denis–I rather doubt that vinegar would stop re-melting

          • Denis Cooper
            Posted March 2, 2015 at 10:14 am | Permalink

            So do I, Leslie, but the whole story is “according to Plutarch” who may have been wrong about all of it!

  5. Margaret Brandreth-J
    Posted February 28, 2015 at 3:37 pm | Permalink

    And all we can do to help is going to Greece for holidays.The hotel sector there still thrives.

  6. ian
    Posted February 28, 2015 at 3:47 pm | Permalink

    Like i say GDP is only for borrowing money, if it go up they borrow more if it go down they can not borrow money,that why the government hear has help to buy to push up house prices and lowered stamp duty and so on, drugs and prostitution so they can keep on borrowing money on your behalf. they got no tax system no pension system that work well they are all crap not brain between them apart from looking after their back pockets. You should give greece your mentality so they can borrow more money. It got nothing to do with making a profit.

    • Lifelogic
      Posted March 1, 2015 at 8:00 am | Permalink

      Lowered stamp duty! 12% and even 15% for companies buying – it used to be 1%.

  7. Lifelogic
    Posted March 1, 2015 at 6:18 am | Permalink

    The Tory party, with Major as chancellor and later PM was nearly all in favour of the idiotic and predictable disaster that was the ERM in their EU phile way. That buried the party for 3+ terms. This was a mild version of what is going on in Greece. What is so surprising is how little that the Cameron, Major, Clark, Clegg types and the leaders in Greece have learned from it. It was all obvious when the UK joined the ERM as Alan Walters, JR and many other sensible people pointed out at the time.

    Being proved right seems to be a barrier to promotion in politics.

    • Lifelogic
      Posted March 1, 2015 at 8:11 am | Permalink

      Off topic, but hugely corrupting & highly damaging to the economy – C Booker has it right again today.

      http://www.telegraph.co.uk/comment/11441696/Forget-MPs-and-cabs-for-hire-the-green-lobby-is-already-at-the-wheel.html

      • Bazman
        Posted March 1, 2015 at 11:37 am | Permalink

        If this is corrupting and highly damaging to the economy where does banking and the housing sector rate?!
        I suspect him and his like have little to say on this, but concentrate on the idea of clean sustainable energy and its various corruptions due to ignorance and bigotry. Much like yourself posting this. Where does nuclear fit into this? It dwarfs the costs and subsidies of renewables with no guarantee of generation. Got that? No guarantee of generation by the companies who have yet to build one plant with large guaranteed prices.
        Over you head isn’t it?

        • fedupsouthener
          Posted March 1, 2015 at 7:11 pm | Permalink

          Nobody wants to invest in gas or nuclear without a guarantee of payment. Why? Because it is so expensive to build with no guarantee of a return for energy produced because we have to take the wind energy first. What about when the wind doesn’t blow and what about the lack of base power? We need a constant flow of base power and wind does not provide this. We only have to subsidise fossil fuel energy now because of the fact we have to take wind power first now. This means we have to fund two different kinds of energy. When I read that a woman in Scotland is earning over £3000 from her green energy schemes in her home it makes me very angry. There are millions of people in fuel poverty and many dying from hypothermia because of fuel costs and yet we have to pay this woman money for her solar panels and her ground source heat pumps!! All these subsidies come out of our energy bills. It is all totally immoral and we still need to back the grid up with gas, coal and nuclear and always will have to. If our politicians listened to the experts in energy they would abandon this right now but they are still listening to the likes of FOE, WWF and the blindfolded Greens who admit they are only trying to defeat capitalism. What and admission. Where the hell do they think this country would be without it? Soon it will be welcome to the dark ages and everything that goes with it. Why not invest in nuclear fusion where there is a strong possibility of using power from natural resources like the sea and lowering our CO2 emission (if this is important) far faster than we are now? Why not go back to a system that does not require subsidies? Too much like common sense!

          • Bazman
            Posted March 2, 2015 at 7:54 pm | Permalink

            I’ve posted other links showing the cost of nuclear the wiki link is dubious to say the least and says so. The French state owned company EDF are in argument about costs additional safety features which says a lot. If you think it is the same as wind then there is no helping you wind is by no means the answer alone, but costs are falling and the turbines becoming longer lasting and efficient. Quite happy to chase nuclear fission which may just be on par with perpetual motion, but not to look at viable sources of wind and other sustainable sources. Why is that. If it is viable why are you against it? Yes you are. Its not about viability is it its about the continuation of the use of fossil fuels and using nuclear, No amount of argument and science will change this right wing religious belief.

        • stred
          Posted March 2, 2015 at 10:32 am | Permalink

          Baz…You posted a link to the wiki on the nuke ordered by Eural McCameron’s team at Hinkley. The cost is supposed to include clean up etc and came out around the same as wind farms, ie. very high. In fact, the most costly on Earth by far, twice the new one ordered by Finland from Russia and many times similar ones being built much more quickly by the Chinese. As you haave learned more from the net than at uni, are you having problems reading and remembering your own references?

      • fedupsouthener
        Posted March 1, 2015 at 12:19 pm | Permalink

        Just read this and once again all this ‘green’ energy crap is tainted with money for developers, ministers and landowners. They couldn’t give a stuff that businesses are struggling as are householders to pay their energy bills but just carry on raking in what they can before the bubble bursts. Not much chance of that all the time we have Cleggy, Cammy and Milly at the helm!

      • fedupsouthener
        Posted March 1, 2015 at 1:41 pm | Permalink

        I fail to see how any minister with an iota of sense can claim that this renewable crap is good for the UK economy. The only thing it’s good for is the bank balance of a few ministers with a vested interest. No wonder they are advising government that this is a good thing! Shame on Cameron for listening to them. He surely has had a good enough education to see through the whole thing? If not, then one has to question if he would have been better off going to a run of the mill comprehensive. It’s about time Cameron started to actually lead the country instead of cowing to the ideologically minded, money grabbing, self centred, selfish individuals peddling this garbage. As I have stated before John, you and Roger Helmer have a much better grasp of the situation and could replace Davey tomorrow – if Cameron would allow it of course.

        • Lifelogic
          Posted March 1, 2015 at 7:20 pm | Permalink

          “He surely has had a good enough education to see through the whole thing?”

          Well a decent maths or physics A level should be enough. The real question is are the Davey/Cameron actually stupid enough to believe the greencrap or do they think it is all nonsense but might get them votes in marginals or do they not give a dam at all, because they and their mates are on to a good cash cow of taxpayers money?

          • fedupsouthener
            Posted March 1, 2015 at 10:15 pm | Permalink

            I think the answer lies with votes but I think they underestimate the electorate. If they were actually told the truth about renewables they would deplore the actions of our leaders. As it is they all think renewables are the answer and somehow believe that using wind, solar etc will bring our bills down because that is what Davey and co want them to believe. etc ed

      • stred
        Posted March 2, 2015 at 9:37 am | Permalink

        Re Wiki. Mr Hendry has quit as MP for his Sussex constituency, sold his London home and bought a castle in Scotland, where he obtained his degree and was a leading light. So his directorship of the offshore wind and interconnector to Iceland companies must be entirely proper. After all he is only saving the planet. Perhaps he could stick a wind turbine on top of his castle too.

        Let’s hope the next government asks the DECC minister to read the book written by their former chief technical advisor, where he states that an interconnector to Iceland could only provide a very small contribution, and of course, at great cost.

        • stred
          Posted March 2, 2015 at 10:13 am | Permalink

          I should have said, he is about to quit in May.

  8. bluedog
    Posted March 1, 2015 at 6:21 am | Permalink

    The stupidity of the Europeans is truly remarkable.

    Poor Greece is being told to cut is borrowings as a percentage of GDP to 125% from the current c185%. But as the economy contracts, Greek borrowings expressed as a percentage of GDP automatically increase even when the quantum of borrowings is unchanged. You would think that the EMU brains trust would be able to recognise this particular ‘debt trap’ and offer the Greeks a less destructive solution to their financial problems. We should not forget that the Greeks submitted false accounts to get themselves in to the EMU. But at this stage the EMU authorities should hang their heads in shame at the damage being done to Greek society after the Greek economy has collapsed by nearly 25% and with youth unemployment rising to over 50%. The EMU authorities may not intend to cause a civil revolt, but their policies are a text book case of how to cause a revolution.

    Without British help, Greece would not have broken free from the Ottoman Empire in the 1820’s. Again in the 1940’s we tried to defend Greece, but unsuccessfully, from the predations of Nazi Germany. If the British Government today were not in thrall to the current European empire, we would probably be offering Greece support again at every level. While there is no direct linkage, our position in Cyprus may depend on not appearing too close to the EU and being more supportive of Greece.

    Once lost, these bases could probably not be recovered, and Putin seems to have his eyes on them. Call it Orthodox solidarity..

  9. Lifelogic
    Posted March 1, 2015 at 7:01 am | Permalink

    As you say “Any sensible person is against the kind of austerity policy inflicted on the Greek people. Unfortunately it just seems to go with being in the Euro.”

    Indeed and to a large degree it goes with being in the over regulated, socialist, undemocratic, over taxed, ever larger government, EU too (even outside the EURO). The EU with its huge misdirection of the private sector through CAP, the common fishing policy, all the green crap, OTT regulations and the rest of the nonsense does immense damage. Hence the total lack of growth despite all the huge advances in technology.

  10. Mark B
    Posted March 1, 2015 at 7:21 am | Permalink

    Good morning.

    Look on the bright side. Germany’s doing well.

    It is not just the things that you mention that have been problematic for the Greeks. The Greeks have been the main problem all a along. They have failed to recognize that the Euro is not for them and, are only willing to vote for parties that guarantee them continued access to the Euro. They have, as I have said before, a very Laissez-faire attitude to taxation. They think that only other people should pay for what they think they are entitled to. This does not make for a happy solution. The Greeks will not change, but the Euro and the rules of that little club, require it to change. Hence the resistance to change and the lack of a clear solution.

    The EU and Eurozone members do not want Greece to leave the Euro. That would be a major political (it is a political project) set back.

    Neither can there be money transfers between richer and poorer areas, like we see in the UK and US. Germany does not want it.

    This is going to go on and on. I mean, how many of us hear about Iceland ? We don’t ! And that to me is the true measure of this crisis and the failure of the EU. Here is a large Supranational State, and it cannot help one of its smaller members. Yet, little Iceland does the right thing and, well, you don’t see them voting in Governments that are going cap in hand to the EU do you ?

    Think about that !

    • stred
      Posted March 2, 2015 at 12:23 pm | Permalink

      The Greeks have become used to the Euro money for motorways, airports etc. They have a motorway to Peloponnesia that is tunnelled through a mountain. It had very little traffic when I drove to Olympia and would have paid for finishing the A303 if they had given us the money instead. The money is in addition to the huge loans, as far as I know. They still have to finish the one around the coast, then they can give the finger to Germany.

  11. alan jutson
    Posted March 1, 2015 at 8:08 am | Permalink

    When the State sector is responsible for more than 50% of the spending in the economy, of course when it is cut back hard it causes a recession.

    When the private sector is not large enough to offset that reduction by the state and the country does not have the history of private initiative, (other than the alternative economy) then of course it will take time for that mantra to sink in.

    The Greek people could start to help themselves if they paid their taxes, retired a little later than at present, and did not vote continually for more Social spending by the government.

    Like all Socialist Countries Greece have eventually run out of money, because those who pay the tax, are fed up with the waste and spending, so tax evasion is rife, but in addition they still want all of the benefits that socialism promises.

    They must learn, as must many others.

    You cannot have your cake and eat it, whilst continually expecting others to pay for it.

  12. Bert Young
    Posted March 1, 2015 at 10:15 am | Permalink

    The plight that Greece suffers is much of its own making . In the first place it should not have “cooked the books” in order to qualify to join the EZ , secondly it was wrong to allow the various forms of tax evasion to exist for so long , last – and by no means least it should never have tried to tag along to a form of discipline it was never capable of following .

    I fully agree that the solution is for Greece to go independent , face the consequences of the international markets and to return to the lifestyle that best suits its laid back culture . The Germans make the mistake in believing all countries are capable of adopting its forms of discipline ; a great deal of inward investment and development is necessary before this can happen . Germany has received the advantage of a low cost currency to support its products and should now be prepared to invest in its politico/economic dream .

    There are other “Greeces” in the EZ who face a similar problem and are never likely to do the catching up to equal the standards required . Unlike the USA where the migratory effects of its population is swallowed up by its self-sufficient economy , the same can not happen in the very divergent Europe . Creating a strategic master plan and expecting it to be achieved without the day to day management controls in place and a willing labour force is living in “cloud nine”.

  13. acorn
    Posted March 1, 2015 at 10:27 am | Permalink

    Greece still has the power to create (spend into existence) new Euro, the nineteen national central banks are still the “lender of last resort”. The Bank of Greece still supplies the liquidity and does the “clearing” for Greek commercial banks. The national central banks settle through TARGET2 with the ECB acting as the supranational Euro currency issuer, and rule maker, for the Eurosystem.

    The big difference as far as I understand it is, Greece HAS TO “borrow” by issuing Greek bonds in the Euro market to get some actual existing Euro; like all Euro countries. Making Greece vulnerable to market interest rates and the willingness of the ECB to control those rates using OMO or OMT operations.

    Contrast that with the UK (or US) Treasury / Central Banks, that issue their own currency, and do not have to issue bonds to get some Pounds or Dollars. (They issue Gilts / Bonds voluntarily as welfare payments (pay interest) to rich people and for policy interest rate control; BUT, they do not issue them to “borrow” money to spend on public services etc.

    It costs the ECB nothing to issue more Euro, as it costs the UK Treasury / BoE nothing to issue Pounds. The only worry they have is issuing too much for the physical capacity of the economy to supply goods and services and create inflation. Unfortunately, they are controlled, democratically, by politicians who don’t understand how fiat currency systems work. The still think the government has to borrow and tax before it can spend. And they still think those taxes actually physically pay for something.

    Say the ECB, was to disconnect Greece from the Eurosystem settlement machine, the Greek central bank could continue issuing Euro debt and the “market” would interpret the situation as two separate Euro currencies and start trading them. Can you imagine the chaos, particularly if Italy and Spain joined in. How many different Euro could you have before the Eurozone and the EU collapsed into a blackhole. 😉

    Remember that the UK Treasury and its BoE, can never run out of Pounds Sterling in exactly the same way as a Cricket scoreboard, never runs out of numbers to display the England score against Sri Lanka 🙁

  14. David Murfin
    Posted March 1, 2015 at 10:29 am | Permalink

    I fail to see why GDP is considered so important. It could easily be increased by providing government grants for every household to install a special incinerator for waste packaging, though I can’t see that would increase national prosperity much. It would increase debt in cash terms, though perhaps not the debt/GDP ratio. Alternatively, if prostitution can be included, why not employ the unemployed to collect some new taxes, house to house? The footware industry might benefit (in UK or in China).

    • Lifelogic
      Posted March 1, 2015 at 11:21 am | Permalink

      Every time the government does something daft it hits national prosperity – it does this almost every day. Is it incompetence or MPs acting in the interests of maximising their fee income or outside interests?

      • fedupsouthener
        Posted March 1, 2015 at 1:54 pm | Permalink

        Is it any wonder the electorate have lost faith in the 3 main political parties when they continue to act as they do??? What is happening in politics today is a disgrace. Many of our politicians are acting in their own interests and couldn’t give a stuff about the state of the country as long as they have feathered their nests for a relaxed, public funded retirement.

        We need a change if only to give our illustrious leaders a warning that we are fed up with the status quo. The general public will only put up with so much and I feel the time is fast approaching where our politicians will not be able to ignore what we are telling them. So many people are working long hours for little in return while they see the very people who are supposed to be making things better for the country putting forward ridiculous ideas that will push this country to the brink. It has to stop.

    • Leslie Singleton
      Posted March 1, 2015 at 1:50 pm | Permalink

      David–This was discussed some time back with our host saying categorically that he thought it didn’t matter whether what is being measured is useless (at best) or not; also that because the rest of the World agrees that makes it right. I thought and said then and think that that is bonkers especially when so much play is made on tiny movements in something so ill-defined.

  15. Richard1
    Posted March 1, 2015 at 10:30 am | Permalink

    The nice thing about the Greek situation is it does illustrate very clearly that if you have a high spending socialist government and you max out on credit and become insolvent, you have to beg. A country with its own currency such as the UK can obfuscate to an extent through devaluation, as the Brown govt did before 2010. But in the end you can’t escape. A high spending bad-for-business leftist govt means eventual insolvency and then begging. Labour showed us this in 1976 and almost did so again in 2010. Mr Miliband’s anti business rhetoric and return to tax borrow and spend policies would threaten to take us there again.

    • Bazman
      Posted March 1, 2015 at 11:47 am | Permalink

      Who caused the crash bankers or a Labour government?
      It was a Labour government backed to the hilt by the Tories allowing big business such as banks to do what they like. By accident or design they where put in control and crashed the system blaming everyone but themselves and of course taking the money for doing so.
      Business is obviously bad for businesses. A point lost on you and many others. Free market fairies will save the day, but in the end the state did and had too. Yes they did. No silly fantasies about allowing the market to self correct the civil unrest would not have self corrected? No civil unrest? Please try to get real if you can Richard.

      • Richard1
        Posted March 1, 2015 at 6:34 pm | Permalink

        Difficult as always to figure out what point you are trying to make. The reasons for the financial crisis and recession have been explained extensively on this site in the past by JR and various others. The principle reasons were: an explosion in leverage in the banking system; a useless regulatory reorganisation by the last govt; foolish monetary policy; the running of consistent structural deficits by the Labour govt then compounded by the foolish bank bailouts. Many people are culpable, certainly including many people running banks, but undoubtedly also including the Labour govt. whilst the heads of the bust banks have been forced from their jobs, many of the responsible Labour ministers are happily putting themselves forward for office again at the next election.

        • Bazman
          Posted March 2, 2015 at 8:02 pm | Permalink

          The big lie in British politics is the Conservative invention for the criminally gullible that Labour spending created the deficit.
          It didn’t. The global banking crisis collapsed the economy. The deficit is a public consequence of a private disaster.
          That is the point I am making. Do you somehow dispute this?

          • Richard1
            Posted March 2, 2015 at 9:16 pm | Permalink

            Please re-read the above. The single biggest reason for the banking crash was excessive leverage in the banking system, itself a product of bad regulation and monetary policy – and foolish decisions by individual banks. It is no lie at all to say the fact that the UK went into the crisis with a 5% structural deficit was a huge contributory problem to the depth of the subsequent recession in the UK. This was compounded by the foolish and unnecessary bank nationalisation programme. You and other leftists may deny it, but Labour will never escape their rightful huge share of blame for the crash and Great Recession.

          • libertarian
            Posted March 9, 2015 at 10:36 am | Permalink

            Bazman

            There was NEVER a global banking crisis. Australia, Canada, South Africa and many many other countries banks were completely untouched by the 2007 meltdown

            It was a Labour govt and chancellor that prevented Northern Rock from accessing lender of last resort service from BOE and it was a Labour PM and Chancellor that crashed LLoyds Bank and then poured billions of taxpayers money into propping up 7 failed banks ( there are more than 400 banks in UK )

        • A different Simon
          Posted March 3, 2015 at 1:59 pm | Permalink

          The policy in the U.K. and U.S. was “Let them eat credit” .

          Bill Clinton even went as far as to threaten financial institutions with revocation of their banking license if they did not lend more to minority groups .

          They stupidly did what Clinton said and lent regardless of the ability of the borrower to service the interest (let alone pay it back) .

          The Greek situation has similarities but the motives are quite different – predatory lending .

          The same policy is aline and well in the U.K. in 2015 . Rather than reduce the costs of accommodation to a level where the country can be internationally competitive we have new wheezes on a regular basis to expand credit/increase wages to uncompetitive levels , e.g. “Help to Buy” .

      • Edward2
        Posted March 1, 2015 at 6:38 pm | Permalink

        Thats a very partial view of the 2008 crisis Baz.
        There was no free market at that time in Banking. The market was dominated by just a few big players.
        Yes, the Banks must hold prime responsibility, but Labour handled the crisis poorly.

        If Brown had allowed the failed banks to be taken over by the successful banks instead of rushing to save the world by trying to nationalise them then we would have saved billions.
        Nationalisation was in his DNA, as was a desire never to see RBS fail.

        A quick and firm reassurance by the Bank of England to those worried their money was in jepardy that their money was 100% safe was all that was required.

        • Jerry
          Posted March 2, 2015 at 5:45 pm | Permalink

          @Edward2; “If Brown had allowed the failed banks to be taken over by the successful banks”

          Hmm, except that there were very few successful banks, and it has since come to notice that even those banks that appeared successful had internally known “problems” of their own -that might have become public, as indeed they have now.

          “A quick and firm reassurance by the Bank of England to those worried their money was in jepardy that their money was 100% safe was all that was required.”

          That’s a very simplistic suggestion, the BofE and government made such a reassurance almost from the off, but it’s not just knowing that their money is safe that worries the average Pleb but knowing that they can access it (and remember that often means being able to access Cash via at least a local bank), thus safeguarding the the ‘Bank’ and not just the deposits was the best approach due to the problems of (software etc.) integration between banks.

          • Edward2
            Posted March 2, 2015 at 10:40 pm | Permalink

            Arguing for the sake of it as usual Jerry.

            The majority of banks were stable and profitable.
            RBS and Northern Rock were the two main duds.

            The Bank of England could have kept cash available at cash points had it been required to do so by Gordon
            But he had other ambitions.

          • Jerry
            Posted March 3, 2015 at 3:51 pm | Permalink

            @Edward2; The only person arguing for the sake of it you, for party-political idealogical reasons no doubt, the facts are clearly in the public domain, the history books written, whilst erratas to those books are being written as we speak due to the new and current banking problems from that period and before coming to light.

          • Edward2
            Posted March 3, 2015 at 4:52 pm | Permalink

            My politics are beside the point, which is that it is wrong to say all or even the majority of banks were in trouble either here or in the USA in 2008.
            Banks, that despite recent problems with regulators, were then, and are now, still making profits in the billions.
            Gordon rushed in and spent hundreds of billions in his nationalising spree, which had he kept calm, could have been avoided.

            You are right on one thing the facts are coming out.

          • Jerry
            Posted March 4, 2015 at 2:00 pm | Permalink

            @Edward2: Still arguing I see, even though you accept that there were problems, that are now come into the open.

            Sniff, sniff, is that just a blocked drain or actually a bad smell, when the thermostat on a fridge has failed and contents have gone putrid it’s often best not to open it, and certainly not if you have the health inspectors visiting…

          • libertarian
            Posted March 9, 2015 at 10:42 am | Permalink

            Jerry

            Total nonsense

            There were more than 400 Banks in UK at the time of the crash. One of the banks ( Lloyds ) was highly successful until Gordon forced them to bail out BoS.

            Barclays offered to buy out Lehman Bros but was stopped ( they eventually bought it after the dust had settled for a fraction of what they had offered)

            The BoE is supposed to be the lender of last resort and Gordon stopped them from propping up Northern Rock. Domino effect from there on in.

            In my opinion the single biggest problem with retail banking was the demutulisation of Building Societies.

          • Jerry
            Posted March 10, 2015 at 3:42 pm | Permalink

            libertarian; There were more than 400 Banks in UK at the time of the crash.”

            More to the point, how many of those 400 are still trading in 2015, and how many have a clean bill of health after the various stress tests, and/or investigations etc?

            “One of the banks ( Lloyds ) was highly successful until Gordon forced them to bail out BoS.”

            Exactly, and indeed that was folly, but it came about to the ultra capitalists complaining that Labour were nationalising all the banks’…

            “In my opinion the single biggest problem with retail banking was the demutulisation of Building Societies.”

            Well at least we can agree on that, but I suspect that we would not be in agreement as to why.

    • Leslie Singleton
      Posted March 1, 2015 at 1:54 pm | Permalink

      Richard–I believe it is true to say that literally all Labour governments have left office under a record debt level. The only thing that puts doubt in my mind on this is why the Conservatives do not point this out more often and loudly.

      • Lifelogic
        Posted March 1, 2015 at 7:24 pm | Permalink

        Well Cameron is leaving with one too in a few days time.

      • Jerry
        Posted March 2, 2015 at 6:00 pm | Permalink

        @Leslie Singleton; Because the next question will be “why is that?”, and of course the last thing Conservatives will want the electorate to do is ask that question as too often (but admittedly not always) it had nothing what so ever to do with domestic Labour policies! For example many of the economic problems of the early 1950s were the result of the Korean war, many of the economic problems of the early 1980s were due to the Oil Shocks in the early and late ’70s, our current economic and banking have their origin with the USA Sub-prime mortgage problems.

  16. miami.mode
    Posted March 1, 2015 at 11:20 am | Permalink

    Whilst your argument in general terms is correct you do tend to have a habit of picking examples that are not really like for like.

    It would appear that Greece has a very poor record on tax collection which if replicated in the UK would perhaps double the deficit, and similarly comparisons with the US at times seem unfair as if we did not have the NHS our deficit would be non-existent.

  17. ian wragg
    Posted March 1, 2015 at 11:27 am | Permalink

    What growth! Here in the East Midlands wages are still way below 2008 levels on average. The only growth has been zero hours contracts, nail bars and car cleaning. Per capita has increased which is the only thing fuelling growth.
    I believe our finances are a fantasy and the ..it will hit the fan after the election.
    I have been out delivering UKIP leaflets and people are furious about the latest immigration figures.
    Describing the deficit as a percentage of GDP does nothing to reduce the interest charges payable. £1.4 trillion, disgraceful.

    • Jerry
      Posted March 2, 2015 at 6:11 pm | Permalink

      @ian wragg; “I have been out delivering UKIP leaflets and people are furious about the latest immigration figures.”

      Your point being what exactly? I suspect that anyone who accepts a UKIP leaflet and wants to talk about them will be, but what of the others, all those who do not accept your leaflets, or take them but then quietly bins them, not wanting to make a scene?…

  18. Denis Cooper
    Posted March 1, 2015 at 11:37 am | Permalink

    Basically we were saved from sharing the fate of Greece on March 3rd 2009 when Alistair Darling sent this letter to Mervyn King:

    http://webarchive.nationalarchives.gov.uk/20100407010852/http://www.hm-treasury.gov.uk/d/chxletter_boe050309.pdf

    In a previous letter dated January 29th 2009:

    http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/d/ck_letter_boe290109.pdf

    Darling had authorised the Bank to set up an Asset Purchase Facility, APF for short, to buy up private sector assets, with the purchases being funded by the Treasury, but now he changed that scheme in two crucial ways.

    Firstly, the purchases would no longer be funded by the Treasury, instead they would be funded by the Bank creating new money, “Central Bank money”.

    And secondly the range of eligible assets was extended to include gilts, bonds issued by the Treasury which the Bank could start to buy up on the secondary market.

    In addition, the limit on the APF’s purchases was raised from £50 billion to £150 billion, of which £50 billion were still to be private sector assets as per his previous letter, and with the Treasury still indemnifying the Bank and the APF against any losses.

    And in the last line of that second letter, Darling gave the game away, saying:

    “However, the Government will not alter its issuance strategy as a result of the asset transactions undertaken by the Bank of England for monetary policy purposes.”

    And so the “money-go-round” was set in motion, with the Bank creating new money and lending it to the APF to buy up previously issued gilts from investors, while in parallel the Treasury funded the government’s massive budget deficit by selling new gilts to much the same set of investors at much the same rate; and it ended up with the APF having spent almost all of £200 billion of new money on propping up, or rigging, the gilts market and hardly any on buying up private sector assets.

    Suppose that had not been done, for some reason, what would have happened?

    Well, the Labour government was having to borrow about a quarter of all the money it was spending, and there was the strong likelihood that it would run out of investors willing to lend it so much at any feasible interest rate, or even at all; and then just like the government of Greece it would have run out of money to pay its bills.

  19. petermartin2001
    Posted March 1, 2015 at 12:09 pm | Permalink

    The Conservative/ Lid Dem coalition has been criticised for NOT cutting public spending anywhere near enough. IF they had the result in the UK would have been no different to the result in Greece. That is depression levels of unemployment. Having the pound has meant that the Government hasn’t had to adhere to arbitrary rules like the 3% rule.

    Conclusion #1 should therefore be under no circumstances should the UK ever join the Eurozone!

    The UK’s deficit has fallen not because of cuts to public spending but because the economy has improved. If had improved more the deficit would be lower.

    Conclusion #2 is that government should forget about deficit reduction per se and concentrate on the performance of the economy. Inflation should be in its target band (2-3%) and not too low. Certainly not negative. Therefore levels of public spending and levels of taxes should be adjusted to provide the desired level of economic performance. Those on the left might argue for a higher level of spending. Those on the right might argue for a lower level of taxation. Neither should be arguing they should necessarily be equal. At moment there is scope for both to have at least some of their way.

    • Denis Cooper
      Posted March 1, 2015 at 6:11 pm | Permalink

      Overall they haven’t cut public spending at all, indeed to quote JR above:

      “In the UK real public spending did edge up a little as well”.

      They would have to have gone a long way to match the severe cuts in Greece, and some other countries as well; that was a course of action recommended by some people commenting on this blog, but I have to say never by myself.

      • stred
        Posted March 2, 2015 at 1:54 pm | Permalink

        After the banking crisis, caused by too much artificial money creation by banks and incompetent regulation by governments, regulation was tightened with the result, as LL describes, that SMEs were hammered. As SMEs provide a major source of employment, the money did not flow into private sector salaries. Where there has been jobs growth, it has often been in low paid low tech service companies and job sharing.

        On the other hand the negative savings rates engineered by QE has taken money from retired people, who have had to spend less on private products, while more on taxes. While those in public employment have on the whole seen their earnings maintained, and in some cases very much increased. The payoffs and re-employment in the NHS come to mind. There are still customers to keep the coffee houses going and expensive cars driving out of showrooms. Some private companies have done very well out of QE, and the resultant stoking of house price inflation and other assets.

        So why has there been little inflation and now the danger of deflation? The anwer must be that QE has allowed the governments to increase and pay for spending while reducing the private part of the economy that would have occured in previous booms in equal value. It is difficult to see why any goverment would decide to shrink itself by very much, while those running the show can print themselves into highly paid secure employment and keep their lifestyles. Why worry whether an investment is a hoplessly uneconomic project ,will return a profit or even break even when stealth money printing and quietly squeezing the private sector appears to keep the population happy and in the dark.

        • Denis Cooper
          Posted March 3, 2015 at 4:25 pm | Permalink

          Well, QE has added something like 6 – 8% extra to CPI.

  20. Vanessa
    Posted March 1, 2015 at 12:39 pm | Permalink

    The whole world is now borrowing because the governments spend beyond their means. Who on earth is lending all this money or is QE providing all this “borrowed” money ? For governments to keep buying up their own debt by printing more and yet more fake money seems to me to be utterly unsustainable. When will this horrendous situation “burst” and money will no longer be able to support our amazing lifestyles ?

    In the next 10 years (maybe sooner) the whole lunacy of what governments spend, supposedly to make our lives better will come crashing down on top of us all – then what?

    • petermartin2001
      Posted March 2, 2015 at 10:36 am | Permalink

      Who on earth is lending all this money… ?

      The National debts of all countries add up to about $61 trillion.

      see http://www.nationaldebtclocks.org/

      We can, I think, safely rule out the possibility that this has been lent to Earth by extra terrestrials, so we have to assume its been lent by anyone on Earth who has any financial assets to various currency issuing governments. According to the principles of double entry bookkeeping, every debt and asset in the world counterbalance – to the penny.

      So there’s no need to worry unduly. Every time I’ve looked at this debt total it’s gone up another trillion or so, and it will never go down. The only worry is worry itself. If politicians react the wrong way and try to reduce what needn’t be reduced, then we do have a problem when we needn’t.

  21. turbo terrier
    Posted March 1, 2015 at 1:38 pm | Permalink

    All these austerity measures that keep getting rammed down our throats lacks any form of respectability, transparancy and honesty when yet another article hitting the headlines that the favoured ex ministers are making fortunes out of the RE scam. It might be within the rules but to us out here in the real world “it sucks” The rules need changing and very quickly if the few honest ones left in Westminster want to get credibility and be trusted. Perception is all there is!!

  22. ian
    Posted March 1, 2015 at 3:09 pm | Permalink

    They got just over handful of years left before this country go under and then be forced to make chanage to the tax and pension system but they will not move first they wait for instructions from the world institution and the usa and eu before they move to chanage things.

    It is within their power today to sit down and rewrite tax and pension laws but the only new laws they interested in are ones that take away your rights, that should tell you how bad they think it is going to be when the big cuts start but the cut will not be at the top with quangos and job like that, i think you know. This game called look after your own.

    So this what going happen while con/lab/libs sit around waiting for instructions. tinkering around with the tax and pension systems and coming up with more ideas to keep GDP up.

    One thing the greek people have on their side is they live in the countryside and islands with holiday makers not in big citys like us.

  23. Fairweather
    Posted March 1, 2015 at 3:56 pm | Permalink

    Just met a dairy farmer from Kent who has 200 cows. He is finding it difficult to make a living because of the price of milk
    The British dairy farms will all be gone soon because tankfulls of cheap milk is coming in from Romania. The cows there are not checked for health in the same way as in UK and they do not have the load of paperwork our farmers have to do.
    Cheap labour is also a factor
    While we are in EU we can’t do anything about this. Another industry bites the dust!
    Make sure you all buy milk with the red tractor sign (British milk)

    • Denis Cooper
      Posted March 1, 2015 at 6:05 pm | Permalink

      All part of the plan; once he’s been driven out of business the farmland will be available for housing to help cope with the effects of mass immigration. It may not be immigrants themselves who occupy the new homes, it may instead be people overflowing from London which is the nearby funnel for the flow of immigrants into the country, but it will still be largely to help cope with the effects of mass immigration. 500 more new homes to be built near us in coming years, with various residual open spaces to disappear and the leisure centre to be moved to the outskirts to make that site available, further changing a town which has already changed very much for the worse since we first moved here.

    • Jerry
      Posted March 2, 2015 at 7:34 pm | Permalink

      @Fairweather; “He is finding it difficult to make a living because of the price of milk”

      Indeed but, ask yourself who are the largest single buyers in the market for milk these days, the supermarkets, who has been allowed to use Milk as a “lost-leader” due to there being no regulation on such basic foods, the supermarkets, then before blaming just the EU, ask yourself who were the cheerleaders within the old EC for a single market, and who effectively abolished the Milk Marketing boards etc, the Tory government of the 1979-94 – and they (used to?) call the Tory party the friend of Farmers…

      @Denis Cooper; “once he’s been driven out of business the farmland will be available for housing to help cope with the effects of mass immigration”

      Nice rant! Funny though, almost literally within throwing distance of were I live, at the end of the road, an estate of something like 600 new homes plus amenities are being built, about two miles as the crow flies in the other direction there is another development of around 700 homes plus amenities are also being built, non have significantly impacted on the farms that the building land was sourced from, and for all the local protests about such a large number of new homes, many people now hardly notice them, whilst everyone is benefiting from the new roads that have been built and the inward investment that those roads have allowed as further land has become accessible. As I’ve said before, we also have a quite high level of migration from eastern Europe, but far from your doom-laden story of woe, around here life is good…

      • Denis Cooper
        Posted March 3, 2015 at 4:26 pm | Permalink

        Good for you, maybe.

  24. ian
    Posted March 1, 2015 at 5:37 pm | Permalink

    When look at people at the top of government and councils and company with their pensions i see top government workers having three pension the old age pension, government pension and their private pension also eu pension free of tax if they have worked there and not forgetting isa at 15,000 a year now. same with company people company pension shares old age pension and private pension and isa. most people working in this country can not afford a pension let alone a isa.

    It cost 52 billion a year out of tax for private pension and maybe the same again for government pension if not more and nearly all this money is going to the top 10 per cent, then you have isa which taxfree till you die which must come to a few more billion, on top of that you got buy to let and holiday homes 24 billion a year, rent for the buy to let from the government to houses the poor 24 billion a year, R&d billions a year so people leaving uni have a job to go to because without government money they would have no job to go to, more billion a year, oil and windmills 24 billion a year, companies not paying tax 20 billion a year, oversea aid up to 13 billion a year, eu up to 13 billion a year. imf sitting with 20 odd billion of your money to bail out the world i could go on and on but the point is what do you get out of all this spending while the government talking about cutting and making more money available for wars in other countrys.

    They talk about 20,000 extra nurses 10,000 doctors as if they grow on trees and the best part is they have got no beds, most doctors are sitting around because they have no beds.
    They leaving country around the world with no doctor or nurses.
    They say there no money.

  25. lojolondon
    Posted March 1, 2015 at 9:11 pm | Permalink

    John, this reminds me of a joke – it is not the falling from a great height that kills you – it is the sudden stop at the end. So, with the Euro economies, it is not ‘austerity’ that is damaging their economies, it is the fact that for decades their corrupt governments have borrowed and spent with no plan to ever balance the books – Labour-like, believing that all spending is good and that the government is really a powerful creator of wealth, whereas we all know it is the most expensive and wasteful use of taxpayers money.
    So Austerity is not bad for Euro economies, it only looks that way because what goes up must come down, no matter how much the politicians would like to pretend otherwise.

    • Jerry
      Posted March 2, 2015 at 7:44 pm | Permalink

      @lojolondon; Surely you have your analogy around the wrong way, borrowed and spent = “the fall”, austerity = “the sudden stop”, thus if there is a soft rather than a hard landing then the economy and thus population will more likely survive. That said, no one is defending the sort of spending spree the Greeks went!

  26. Lindsay McDougall
    Posted March 6, 2015 at 11:19 am | Permalink

    Let’s keep it simple. Greece’s main problem is that it doesn’t have its own currency and money supply. To date, the Euro has been managed for the benefit of countries like Germany, not Greece.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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