The Maastricht controls on debt and deficit

The most recent UK figures on debt and deficit come as part of the UK’s reporting to the EU on these important matters. We are reminded in the official communication that

“The Protocol (to the Maastricht Treaty) on the excessive deficit procedure defines two criteria and reference values with which member states should comply. These are a deficit (net borrowing)to GDP ratio of 3% and a debt to GDP ratio of 60% ”

The latest EU reports show that 14 member states still exceed the 3% control on budget deficits, and 16 remain with debt over 60% of their GDP. Some are way beyond the targets. Italy and Portugal have debts at more than 130% of GDP. Spain and the UK remain well above a 3% deficit target amongst the larger EU countries.

The total Euro area has a debt to GDP ratio of 92%, and the EU 28 a ratio of 86.8%. The Euro area as a whole has now got its deficit down below 3%. The UK in the year to March 2015 ran a deficit of 5.1%.

 

I read that the left of centre parties who won the Portuguese election have not been allowed to take office because they have dared to challenge the Euro disciplines. The Euro once again overrides democracy.

One of the main arguments in the Euro area is when and how will the Maastricht criteria be enforced? All the talk of a Euro Treasury follows hard on the introduction of the so called EU semester, an attempt to intensify the reporting and the pressure to conform with the required controls on debt and deficit. It is difficult to run a single currency without imposing a strong discipline on total government borrowings in the single currency area. Surplus countries dislike borrowing countries attempting to free ride at lower interest rates based on their prudence. Borrowing countries resent the tight controls on their borrowing the surplus countries wish to establish. So far the Maastricht criteria have not been observed by a majority of states. They are nonetheless an important constraint on worse performance, and they are now once again in the centre of the argument about establishing a Euro Treasury.

Meanwhile it is difficult to see why the UK has to report its debt and deficit to the EU at all, when successive governments clearly have no wish to hit the EU targets, and when there are rightly  no penalties for failure to do so. The most recent figures show the UK deficit gradually reducing, with tax revenues growing more quickly than the growth in public spending, as planned.

What is curious is that the left wing UK parties in the UK who thunder against “austerity” by which they mean cuts and controls on public spending and borrowing never fulminate against the more intense public sector austerity the EU requires under its Maastricht criteria. Why do they not spend some time and energy trying to change that?

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33 Comments

  1. formula57
    Posted October 25, 2015 at 5:25 am | Permalink

    So given “The Euro once again overrides democracy” would the UK joining not act as a backstop bulwark against Corbynism, should Corbs and his mates ever assume office here?

    Reply That remote prospect does not make it a price worth paying to be in the EU

    • Denis Cooper
      Posted October 25, 2015 at 11:32 am | Permalink

      Heath had the same undemocratic, indeed anti-democratic, plan.

      To paraphrase Lord Tebbit, who mentioned and condemned that scheme at a public meeting a few years ago:

      “If the British people vote for Corbynism, then they should get Corbynism.”

      • Lifelogic
        Posted October 30, 2015 at 5:03 pm | Permalink

        Well perhaps, but there is an inherent problem with democracy (at least ones where non net taxpayers are given a vote). These people will often vote for endlessly higher taxes on “the rich”, rent controls, price controls etc. if dishonourable (or very foolish) politicians like Corbyne can convince them he will spend the proceeds on them.

        It is just in essence buying votes with money stolen of others. It destroys economies, reduces supply and kills incentives. The effect is huge damage to the poor especially, the tax base, people’s jobs, the economy and indeed the rich too. Impoverishing everyone in the end.

        Fortunately voters as a whole in the UK are not usually that stupid. As indeed we saw with the potential landlord thief Ed Milliband losing even to Cameron. This despite the endlessly dripped anti -business & anti-landlord propaganda of the BBC.

    • James Sutherland
      Posted October 25, 2015 at 11:43 am | Permalink

      Subjugating ourselves to tighter EU control to reduce the damage in case Corbyn takes the helm does seem akin to pouring sugar in your own petrol tank in case the case gets stolen…

      I must admit I have mixed feelings about this. I welcome the EU’s lip service to fiscal sanity, but dislike the interference it represents in member state finances; perhaps if they managed to achieve these goals for each country within the Eurozone, they’d be in a much better state now – which would be good for them, but bad for us both as a nation competing with them, and as a political faction opposing them.

      I do wish Osborne and co could do a better job hammering this point home: for all the so-called “cuts” and “savage austerity”, we’re still over-spending by almost double the EU limit, as well as spending more than ever before. On the bright side, polling suggests the public still understands that we need to cut spending – even if that has yet to be reflected in our government’s ever-expanding budgets and debt. Perhaps one day we’ll see an actual spending cut!

    • Richard1
      Posted October 25, 2015 at 3:50 pm | Permalink

      Yes this is one of the strongest arguments for remaining in the EU. It was the strong argument for joining in the 70s and 80s and is the reason Southern European countries have been keen on EU membership: bad and undemocratic as rule by the EU bureaucracy may be its better than the economic collapse, misery and corruption which home grown socialism brings. If it looks like we might get Corbyn we’d be better in the EU as EU rules would prevent many of the more egregious socialist absurdities including wide scale nationalisation and expropriation of property. Like people in the Ukraine EU rule would look attractive by comparison.

  2. Lifelogic
    Posted October 25, 2015 at 6:40 am | Permalink

    We have seen no real austerity in the state sector which continues to waste money hand of fist. A lot of austerity in the private sector though, due to Osborne’s huge tax grab, pension muggings, landlord thefts, reductions in tax credits and his national minimum wage proposals. All of these are huge tax grabs from the private sector. Thus slowly killing the goose that lays the golden eggs.

    His approach is the complete opposite of what is needed.

    You ask why the left wing parties (clearly including the Tories) do not try to change the Maastricht criteria controls on public spending.

    Clear this is because it is above the heads of their voters and indeed most left wing politician. The left just concentrate on the politics of envy and “unfairness” that is how they get their votes. Their money comes largely from state sector unions.

    Another complete idiot on the BBC saying housing benefit does “not benefit the tenant it go straight to the landlord” about three a day it seems. Indeed and the money they get for food goes straight to Liddle or Tesco, and the money they get for heat & light goes straight to EDF or British Gas, for clothes and shoes to the clothes and shoe shops.

    The benefit is the accommodation, the food , the heat & light and the clothes and shoes. Just how dim are these people?

    • Ex-expat Colin
      Posted October 25, 2015 at 9:57 am | Permalink

      In S. London I/we know the rents match what the council will cough up. Just get a few kids with a couple of women (mother/daughter), no husband and the rents are matched. No doubt the husband (ex?) has another gathering somewhere else? Then the cars turn up at the weekend for a kiddy visit. Look at the cr*p cars and wonder where the £1.1k pm rent for a 2 bedroom tiny flat comes from? Cleaners etc don’t make that kind of cash.

      Across the road is a large council funded block of flats for women and children with quite high churn. (Word left out ed)mattresses and garbage regularly all over the street. Etc ed

      They have human rights alright that impact directly on the taxpayers human rights. Thats the tax payer type that don’t continually take the p*ss.

      Etc ed

      Its becoming very intolerable !!

  3. Richard1
    Posted October 25, 2015 at 6:43 am | Permalink

    They do don’t they? Corbyn and various other leftists welcomed the election of Syriza in Greece – though Syriza has ended up having to do the EU’s bidding. One hears occasional calls on the left for less ‘austerity’ in the EU which they attribute to the EU’s ‘neo-liberalism’. The plain fact of which the left throughout Europe is in denial is the taxpayers of Germany and other surplus countries are not willing to make the direct and indirect transfers to deficit countries which abandonment of EU imposed ‘austerity’ would imply.

    A coherent case for staying in the EU was made in the FT by Sir Mike Rake the other day. But it seemed to boil down to the threat of losing market access if we leave. The piece made the valid point that the UK whilst in the EU can make a positive contribution by blocking nonsense such as the financial transaction tax. But it’s clear the In campaign will chiefly be making the point that for business, Out is a leap in the dark.

    Reply In is more of a leap in the dark, as they are on their wild ride to political Union. Ee would not lose market access if outside. 160 countries worldwide are not EU members but sell things to the EU

    • Denis Cooper
      Posted October 25, 2015 at 11:38 am | Permalink

      That is supposing that the UK actually could, and would, block a financial transaction tax; there have already been suggestions of ways in which other EU member states could circumvent the current UK government’s opposition to it.

  4. alan jutson
    Posted October 25, 2015 at 7:38 am | Permalink

    I suppose at least the EU have recognised that all Countries need minimum standards of financial prudence to stand a chance of financial stability for the whole.

    • petermartin2001
      Posted October 25, 2015 at 8:11 pm | Permalink

      Well no they haven’t! As the disaster known otherwise as the Eurozone shows.
      I’m not quite sure why what should be simple macroeconomic principles should be so hard for the otherwise intelligent people in Germany and the Netherlands to grasp.

      To illustrate the problem in the eurozone, we can consider a baby sitting circle where the members price sitting at one token. If everyone sits, and is sat for, in equal numbers then the system works well. But if any members take it upon themselves to accumulate tokens, by running a deliberate trading surplus, then the system breaks down. We still have the same demand for baby-sitting but there aren’t enough free tokens to allow that to happen.

      So the governing council has to borrow back the tokens from those who’ve accumulated them and spend them back into the circle to get it working again. What’s the alternative? Confiscate the tokens as those on the extreme left would argue we should?

  5. matthu
    Posted October 25, 2015 at 7:39 am | Permalink

    Is the government going to allow farmers to erect permanent hoardings across the countryside proclaiming how they have received funding from the EU? Is that really what we want to see when we drive through our countryside?

    Should householders also erect hoardings to advertise how they have received tax rebates or child benefit or bus passes or TV licenses from the UK taxpayer?

    Why not erect hoardings to advertise how they have been stung for inheritance tax or green taxes to finance somebody else’s windfarm?

    The government needs to put a stop to this idea before it takes hold, particularly as it is clearly aimed at influencing our referendum.

    • fedupsoutherner
      Posted October 25, 2015 at 9:24 am | Permalink

      Matthu, what a great idea. I would erect a dirty great big sign on my property announcing the extortionate amount of money my neighbour’s solar panels are costing me and the 10 turbine wind farm 1.9km in my clear view that is enriching my farming neighbour to the tune of over £1m in 25 years for handing over a few acres of land. He only has 6 turbines on his land and his neighbour has the other 4. I wish all those in fuel debt and poverty could also erect signs.

    • Paul Cohen
      Posted October 25, 2015 at 10:21 am | Permalink

      Appropriate for the French though, seeing that the CAP was loaded in their favour.

      All these stupid initiatives coming from the EU are illustrated as part of the need to a shark constantly moving to stay alive! (“Au Revoir Europe” by David Charter)

      Mrs Merkel meanwhile seems Teflon coated in avoiding censure for her off side actions.

    • graham1946
      Posted October 25, 2015 at 10:47 am | Permalink

      You never know, perhaps the hoardings will be truthful by saying that for every pound they get back from the EU, the paying public coughs up a fiver. No? No, of course not, but it is something we need to bang home. I don’t think farmers driving round in Range Rovers putting up notices saying they are sucking millions from the EU is going to impress many people, other than farmers, especially as EU membership costs us 20 quid a week on our shopping bills.

      I hope that if the hoardings do go up, they all go through the proper planning permission procedures regarding advertising. When our local action group put up notices in their own gardens against mass house building on green belt, the council tore them all down and threatened householders with £1000 fine for each one put up.

      Within weeks we had the general election, with our MP putting up 20 foot hoardings all over the place, but I did not see any planning permission application in the press or any report of planning meetings regarding this, and the boards were still up weeks after the election. No doubt politicians are a ‘special case’ as with their salary increases etc.

      • turbo terrier
        Posted October 25, 2015 at 9:23 pm | Permalink

        Graham 1946

        I don’t think farmers driving round in Range Rovers putting up notices saying they are sucking millions from the EU is going to impress many people,

        Nobody seems to take any notice either when they are receiving millions of pounds over twenty five years for having wind turbines.

        All the public ever hear is about the poor farmers struggling to make ends meet on the BBC. Say it enough times and people believe it.

        It’s time that our George started to claw back revenue from these obscene payments big time.

    • oldtimer
      Posted October 25, 2015 at 10:50 am | Permalink

      I suppose they could install them facing the “wrong” way – and on the back facing the “right” way add a notice proclaiming “Defacement of the countryside by order of the EU but paid for by you”.

    • Denis Cooper
      Posted October 25, 2015 at 11:45 am | Permalink

      The government, ie DEFRA, is the EU’s local agent in this and other matters, and is instructing farmers to do it or face penalties:

      https://www.gov.uk/guidance/countryside-stewardship-manual/8-terms-and-conditions

      “If the total value of public money (including EU funding) to be paid during the life of an agreement exceeds €10,000, the agreement holder must comply with the following mandatory publicity requirements:

      Agreement holders must display the following material to publicise receipt of EU funding, at a location readily visible to the public:

      an A3 poster – where all payments to be made over the life of the agreement exceed €10,000;
      a plaque measuring at least 300mm x 300mm – for capital items where payments exceed €50,000; or
      a billboard – for capital items where payments exceed €500,000

      It is likely that the majority of agreements containing multi-year options and capital items will exceed €10,000 in value so at least a poster will be required.

      The poster, plaque or billboard must be put in place at the start of the agreement and must be kept in place for the duration of the agreement. Failure to display the required poster, plaque or billboard, or to replace those which are lost or damaged, will be a breach of the agreement and subject to a penalty or recovery of payments.

      In addition, where the agreement holder has a website for professional use, it must give a short description of the agreement which links the website and the financial support provided, highlighting the financial support from the EU.

      For investments, if the value of the total payments exceeds €50,000, a permanent plaque must be displayed, and if the value exceeds €500,000, then a permanent billboard must be erected. This is likely to include cases of woodland creation in excess of 7 hectares, and woodland infrastructure grants.”

  6. The Prangwizard
    Posted October 25, 2015 at 8:54 am | Permalink

    Speaking for England – today is the 600th anniversary of the battle of Agincourt. One day we will be free again to be ourselves.

  7. DaveM
    Posted October 25, 2015 at 8:56 am | Permalink

    OT – to follow on from yesterday’s discussion:

    If it was the 600th anniversary of Bannockburn, would the BBC be showing films and such like?

    600th anniversary of Agincourt today.

    Say no more.

    • Denis Cooper
      Posted October 25, 2015 at 11:48 am | Permalink

      I don’t expect much more will be said.

    • Denis Cooper
      Posted October 25, 2015 at 1:16 pm | Permalink

      Oh look, BBC Wales has its own special take on this:

      http://www.bbc.co.uk/news/uk-wales-34618197

      “Was the Battle of Agincourt really a victory for Wales?”

      “Henry V’s army of around 8,000 was outnumbered by as much as five to one, yet 500 nimble-fingered Welsh archers were able to cut the heavily-armoured French knights to ribbons after cornering them in a narrow clearing.”

      Well, there are various estimates of the size and composition of Henry’s army, as for the French army, but I’ve not yet seen one where the only archers Henry had were “500 nimble-fingered Welsh archers”, most assessments give him about ten times as many as that, and presumably the rest were English not Welsh.

      Still, “Never pass up an opportunity to do down the English” seems to be the motto of the BBC, and the BBC is far from alone in that.

  8. Mike Stallard
    Posted October 25, 2015 at 9:11 am | Permalink

    Mr Redwood,
    it fill me with hope in these dark times that you are an MP.

  9. CHRISTOPHER HOUSTON
    Posted October 25, 2015 at 9:38 am | Permalink

    Thimblerig or the Shell Game is so commonplace in things political and financial that few even bother to listen to honks of GDP , Deficit and Debt.
    No brouhaha about Portuguese democratic illegitimacy. Not from the Labour Party. Not even from Corbynistas. A Silence has oozed from the darkness beneath European politics. But not a quietude of contentment.
    There at the surface the Portuguese Eurosceptic Left Bloc; Greek Syriza party; Swiss SVP and today possibly the Polish Law and Justice Party. With defiance against the EU from the Slovak Republic, Czech Republic, Bulgaria, Romania and of course Mr Orban of Hungary not to mention a growing unease in Germany at Mrs Merkel. Germans portrayed as welcoming to migrants sleeping in gyms, sports-halls meant for their children with tens of thousands of German army tents miraculously produced like from a Star Trek food replicator. Hey presto! Or , if my German is up to scratch, hokuspokus.
    None of this will end well.

  10. Bert Young
    Posted October 25, 2015 at 9:58 am | Permalink

    EU unity is purely a dream . The vast differences that exist of one sort or another make it impossible for there to be anything like one suit fits all . Imposing a standard of performance from the centre would require a system of supervised controls throughout all the EU members that would be impossible to maintain and to afford .

    Of course we should not bother to report any of our debt and deficit figures to the EU . We are not aligned to the euro and what we do is none of its concern . If we were in real trouble would the EU respond with financial support ?. The answer is “No”. We were foolish to respond to their demand to cough up more when we reported an increase in GDP ; the electorate were led astray by Cameron and Osborne when they both declared we would not pay a penny more . When our leadership fails we all suffer the consequences .

  11. Nick
    Posted October 25, 2015 at 10:38 am | Permalink

    Debt?

    Does that include the debts to the plebs or just the debts to the bankers?

    Ah yes. Money owed to the plebs doesn’t count.

    The state has given up on protecting the public. It’s just the elite that matters.

    For exmaple,, 20 police standing round Downing street protecting Cameron.

    Meanwhile, on Westminster Bridge (an overseas ed)maffia are out in force stealing from people.

    Ask the police to send one over the Bridge and its bugger off, not my job.

    There are resources, its just the elite protecting themselves and two fingers to the public.

    That’s from crime all the way through to the big fraud, state pensions.

  12. Denis Cooper
    Posted October 25, 2015 at 11:57 am | Permalink

    I don’t object in principle to setting statutory limits to the budget deficit and the total debt, but they should be limits laid down in our national law as made by our national Parliament, not limits laid down in any international treaty which cannot then be unilaterally amended by our Parliament without breaking the treaty. This is what the enemies of our democracy love to do, get something set in stone in an international treaty so that our Parliament cannot later amend it in the light of changed circumstances.

    • petermartin2001
      Posted October 25, 2015 at 6:39 pm | Permalink

      Denis,

      The budget deficit of the UK Government is equal, to the penny, of the savings of all those who use ££.

      Are you saying that, by law, the Government should restrict the right of users to save and instead should be compelled to spend?

      • Denis Cooper
        Posted October 26, 2015 at 11:12 am | Permalink

        As many of those who hold sterling are outside the UK and the jurisdiction of the UK government clearly it could not do that.

  13. petermartin2001
    Posted October 25, 2015 at 6:09 pm | Permalink

    JR,

    It’s all very well having a discussion of public sector debts but does everyone know what they really are? For example, Singapore, for many, is a model of fiscal rectitude but the debt to GDP ratio there is 101 .8% of GDP. Can anyone explain why that should be the case?

    Germany, which is supposedly a stickler for the enforcement of EU rules has a debt ratio of almost 70%. 10% over the EU limit and yet, Germany runs a 7.5% surplus in its trade and has very close to balanced budgets. Why should that be? Holland with a similar economy has a debt to GDP ratio of 75%. Any theories about that? If these countries can’t meet EU targets then who can?

    On the other hand we have Luxembourg and Australia with debt levels of 25% of GDP which might be more in line with what might be expected. Switzerland and Norway have even less with 20% of GDP. But, these countries have more money than they know what to do with, so why do they have any “National Debt” at all?

    If we look at “Nationaldebtclocks.org” (from where the previous quoted figures originated) we can see that World public debt is $61.2 trillion dollars and is rising at an alarming speed. Some $1 million dollars every minute. To whom do we owe all this money? The Martians?

    If anyone is concerned the UK debt is too high, and I know many readers of this blog are, what should they do? Is it better that they should be prudent and save some of their income as National Savings to help out, or is it better that they smoke 40 cigarettes per day and drink themselves legless every night? Surprisingly, it’s actually the latter.

    So should they withdraw any money they have in National Savings and blow the lot on bottles of whisky? Maybe! Every £ spent will help reduce that National Debt!

  14. dumpling
    Posted October 25, 2015 at 8:20 pm | Permalink

    The reason left wing parties “thunder against austerity” is because they believe (mistakenly) that more spending will reduce the deficit. They look on it as an investment. Crazy, isn’t it?

    • petermartin2001
      Posted October 27, 2015 at 5:41 am | Permalink

      “….they believe (mistakenly) that more spending will reduce the deficit. ”

      They believe that stimulating and growing the economy will reduce the deficit. If debts and deficits remain the same in cash terms they will be lower when expressed as a % of GDP.

      Depending on other factors, this may or may not be true. In the post-war period up until about 1980 the National Debt/GDP Ratio did fall largely as a result of growing GDP, but since then even though the GDP has risen the ratio has risen too.

      What nearly everyone overlooks is the relationship between the governments deficit , the internal deficit, and the external deficit in trade. If any stimulus spending sucks in lots of imports then the deficit will worsen even though GDP may well grow.

  15. petermartin2001
    Posted October 30, 2015 at 12:47 am | Permalink

    The most recent figures show the UK deficit gradually reducing, with tax revenues growing more quickly than the growth in public spending, as planned.

    The problem is that you think the UK’s deficit is the same as the Govt’s budget deficit which it isn’t. A better decription of the UK’s deficit is the net loss of ££ to pay for the net import bill and which currently some 5% of GDP.

    So, it must follow that if Government reduces its own deficit to below 5%, as it has recently done, that you are simply pushing the economy into recession. Everyone will run increasingly short of money. Gross aggregate demand can then only be maintained by increased private sector borrowing which of course just inflates the bubble economy.

    London property is rated as the most overvalued in the world with a bubble index of 1.88 and the rest of SE England can’t be far behind.

    http://www.theguardian.com/money/2015/oct/29/london-house-prices-most-overvalued-world-ubs

    So if the Government wants to run a a 5% deficit in trade it has to run something like 7-8% deficit in its budget to allow those in the economy who wish to save (rather than borrow) some capacity to do so.

    Pushing it down to only 4% is a recipe for disaster. The economy is now hanging by a thread. The bubble will burst sooner rather than later and we all know what happens to real economies when bubble economies burst.

  • 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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