This week I have written a bit about the severe austerity policies followed in parts of the Eurozone, and pointed out the impact these have had directly and indirectly on UK policy. The results were obviously at their most damaging when we were in the Exchange Rate Mechanism and had to hike interest rates at a time when the economy clearly needed lower rates. Again the Euro crisis added to the dangers of the banking crash in 2008-11.In recent years there has been no comparable EU control mechanism directly acting, but the shadow of Masstricht hangs long and steady over the UK government’s fiscal stance. My critics pretend it is otherwise and say I should not associate the EU with austerity policies.
I would ask them to look in each Red Book the government produces. This document has to be sent to the EU to comply with the requirement as the UK is part of the EU economic semester, and has to file its fiscal plans with the Commission. They in turn analyse and comment on them, recommending remedial action where necessary. We are meant to be bound by their two clear controls. They want us to limit state debt to 60% of GDP, and to keep the budget deficit below 3%.The last 3 governments have been breaking these rules, but have clearly wanted to be able to say to Brussels that we are trying to get the deficits down and in due course the debts. Labour set out a course to bring the deficit down, then the Coalition and the pre Brexit Conservative government made complying with the Maastricht deficit rules and starting to get the debt down as central to its aims.
Each Red book has a table which shows where we are under the Stability and Growth Pact. They have to show the progress or lack of it being made in bringing down state debt to 60% of GDP. They have to show the “Treaty deficit”, the budget deficit under EU definitions. They have to show the cyclically adjusted Treaty deficit, as countries are allowed some leeway in a downturn.
The Treasury do not put these numbers in for show, and do have to report and defend them to Brussels. There can be no doubt that cutting the budget deficit and in due course cutting debt is an EU requirement which successive UK governments have taken seriously. Some clearly want to do this for domestic reasons as well, but it is simply wrong to deny the requirements and pressures that stem from the common EU policy. There is abundant evidence that in the Euro area where the pressures to conform are greater, the austerity policies have done damage to employment and output. I have every reason to associate austerity policies with the EU, as their scheme builds them in to all the deficit countries.