So far the UK appears to have come off lightly compared to Greece. This is owing to the huge devaluation in the UK currency, which means a lot of the hit on living standards which Greece is now taking from wage cuts is happening in the UK from surging import prices and a rate of inflation well above wage increases. It has also owed a lot so far to £200 billion of money printing, something Greece cannot do for itself as a Euro memebr. This has kept UK official interest rates and government borrowing rates artificially low. It gets a lot tougher when rates rise further: then the taxpayer gets sandbagged by the increased costs of servicing the rising debts. The state borrows more to pay the interest!
I always thought it a nonsense that we could solve the bank bad debt problems by transferring them to the state. The state can no more afford them than the banks. We needed to manage the bad debts as well as possible at as little cost to both banks and taxpayers as possible – instead this government bailed them out too readily after condemning them and their weaknesses in public to worsen the trouble.
Meanwhile the UK went into the recession with too much borrowing, and increased the borrowing as a “fiscal stimulus” when that very stimulus has helped choke the private sector with the public sector pre-empting all the credit. There is a great deal to sort out rapidly if we want a happy ending to Mr Brown’s ruinously expensive experiment in expanding the state. Otherwise, just like Greece, the markets will force bigger cuts in our public spending, and threaten us through higher interest rates with little or no recovery to help us pay the bills.
Promoted by Christine Hill on behalf of John Redwood, both of 30 Rose Street Wokingham RG 40 1XU