Christine Lagarde's attack on Osbornomics is damning

The new IMF boss's comments make awkward reading for George Osborne.

On 6 June 2011, George Osborne said that he had been "vindicated" in a debate over spending cuts after the International Monetary Fund backed his austerity measures. Launching the fund's annual assessment at the Treasury, the Chancellor positively swooned over the verdict and the acting managing director of the IMF John Lipsky's support for his failing policies.

"The IMF have publicly asked themselves the question of whether it is time to adjust macroeconomic policies -- in other words, 'Is it time to change course?'" he said. "They have concluded definitively that the answer is no.''

Today's developments suggest that if there ever was any vindication, which was never credible of course, it has now fled.

To be fair to the IMF, the original report did warn that:

If the economy experiences a prolonged period of weak growth and high unemployment . . . then some combination of the following would need to be considered: (i) expanded asset purchases by the Bank of England and (ii) temporary tax cuts. Such tax cuts are faster to implement and more credibly temporary than expenditure shifts and should be targeted to investment, low-income households or job creation to increase their multipliers.

This has now happened as growth disappoints.

Today's release of growth data for the second quarter of 2011 from Europe were scarily bad with the eurozone economy growing only 0.2 per cent and there may well be worse to follow. This is the smallest increase since the recovery began in the third quarter of 2009. This is bad for UK growth -- which was also 0.2 per cent for the second quarter of 2011 -- given our dependence on exports to the slowing euro area.

Growth has slowed sharply from the 0.8 per cent increase seen in the first quarter. Growth in France and Portugal was zero, while Germany grew by only 0.1 per cent, compared with market expectations of 0.5 per cent. The Netherlands (0.1 per cent), Italy (0.3 per cent) and Spain (0.2 per cent) also showed very little growth.

As can be seen below the UK has performed badly compared to our European counterparts for whom we have complete data. Based on data for the last three quarters, which is how the table is presented, the UK ranks next to last ahead only of Portugal and tied fourth from last with Italy using data for the last four quarters, ahead of Portugal, Romania and Spain. No vindication here George, I'm afraid.


According to a Treasury spokesman, Osborne chatted with Christine Lagarde, the new managing director of the IMF, while he was on his holidays in Hollywood. I suspect Slasher wasn't too happy about what she said, given his frequent claims that the IMF, Uncle Tom Cobley and all supported his misguided and disastrous macroeconomic policy.

Writing in today's Financial Times, Lagarde argues that deficit-reduction plans must not harm growth as the austerity programme clearly is doing in the UK. She writes:

For the advanced economies, there is an unmistakable need to restore fiscal sustainability through credible consolidation plans. At the same time, we know that slamming on the brakes too quickly will hurt the recovery and worsen job prospects. So fiscal adjustment must resolve the conundrum of being neither too fast nor too slow . . . What is needed is a dual focus on medium-term consolidation and short-term support for growth and jobs.

That may sound contradictory but the two are mutually reinforcing. Decisions on future consolidation, tackling the issues that will bring sustained fiscal improvement, create space in the near term for policies that support growth and jobs. By the same token, support for growth in the near term is vital to the credibility of any agreement on consolidation. After all, who will believe that commitments to cuts are going to survive a lengthy stagnation with prolonged high unemployment and social dissatisfaction?

I could have written this.

Recall that Osborne opposed Gordon Brown's candidacy and supported Lagarde's in the job, so this is highly embarrassing.

Commenting, Ed Balls, Labour's shadow chancellor, said:

The slowdown of a number of European economies is obviously a serious cause for concern. The Managing Director of the IMF, Christine Lagarde, is right to say that "slamming on the brakes too quickly will hurt the recovery and worsen job prospects". The evidence for George Osborne's claim that Britain is a safe haven has collapsed and his dangerous complacency is being exposed. That is why the Chancellor should take heed of the IMF's latest advice. The IMF were right to warn George Osborne a few months ago that he would need to change course if the UK continued to stagnate. His decision to continue to ignore wise advice is not just complacent it is deeply reckless -- a dangerous gamble with jobs, investment and living standards, too.

Osborne's claim that his policies have succeeded because of the fall in bond yields looks like a stretch, given -- as Peter Tasker noted in the FT last week -- that no OECD country that issues its own currency is suffering from rising borrowing costs. The IMF does not support the coalition's failing economic policies. Vindicated my foot. It's time to stimulate growth and jobs.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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The government needs more on airports than just Chris Grayling's hunch

This disastrous plan to expand Heathrow will fail, vows Tom Brake. 

I ought to stop being surprised by Theresa May’s decision making. After all, in her short time as Prime Minister she has made a series of terrible decisions. First, we had Chief Buffoon, Boris Johnson appointed as Foreign Secretary to represent the United Kingdom around the world. Then May, announced full steam ahead with the most extreme version of Brexit, causing mass economic uncertainty before we’ve even begun negotiations with the EU. And now we have the announcement that expansion of Heathrow Airport, in the form of a third runway, will go ahead: a colossally expensive, environmentally disastrous, and ill-advised decision.

In the House of Commons on Tuesday, I asked Transport Secretary Chris Grayling why the government is “disregarding widespread hostility and bulldozing through a third runway, which will inflict crippling noise, significant climate change effects, health-damaging air pollution and catastrophic congestion on a million Londoners.” His response was nothing more than “because we don’t believe it’s going to do those things.”

I find this astonishing. It appears that the government is proceeding with a multi-billion pound project with Grayling’s beliefs as evidence. Why does the government believe that a country of our size should focus on one major airport in an already overcrowded South East? Germany has multiple major airports, Spain three, the French, Italians, and Japanese have at least two. And I find it astonishing that the government is paying such little heed to our legal and moral environmental obligations.

One of my first acts as an MP nineteen years ago was to set out the Liberal Democrat opposition to the expansion of Heathrow or any airport in southeast England. The United Kingdom has a huge imbalance between the London and the South East, and the rest of the country. This imbalance is a serious issue which our government must get to work remedying. Unfortunately, the expansion of Heathrow does just the opposite - it further concentrates government spending and private investment on this overcrowded corner of the country.

Transport for London estimates that to make the necessary upgrades to transport links around Heathrow will be £10-£20 billion pounds. Heathrow airport is reportedly willing to pay only £1billion of those costs. Without upgrades to the Tube and rail links, the impact on London’s already clogged roads will be substantial. Any diversion of investment from improving TfL’s wider network to lines serving Heathrow would be catastrophic for the capital. And it will not be welcomed by Londoners who already face a daily ordeal of crowded tubes and traffic-delayed buses. In the unlikely event that the government agrees to fund this shortfall, this would be salt in the wound for the South-West, the North, and other parts of the country already deprived of funding for improved rail and road links.

Increased congestion in the capital will not only raise the collective blood pressure of Londoners, but will have severe detrimental effects on our already dire levels of air pollution. During each of the last ten years, air pollution levels have been breached at multiple sites around Heathrow. While a large proportion of this air pollution is caused by surface transport serving Heathrow, a third more planes arriving and departing adds yet more particulates to the air. Even without expansion, it is imperative that we work out how to clean this toxic air. Barrelling ahead without doing so is irresponsible, doing nothing but harm our planet and shorten the lives of those living in west London.

We need an innovative, forward-looking strategy. We need to make transferring to a train to Cardiff after a flight from Dubai as straightforward and simple as transferring to another flight is now. We need to invest in better rail links so travelling by train to the centre of Glasgow or Edinburgh is quicker than flying. Expanding Heathrow means missing our climate change targets is a certainty; it makes life a misery for those who live around the airport and it diverts precious Government spending from other more worthy projects.

The Prime Minister would be wise to heed her own advice to the 2008 government and “recognise widespread hostility to Heathrow expansion.” The decision to build a third runway at Heathrow is the wrong one and if she refuses to U-turn she will soon discover the true extent of the opposition to these plans.

Tom Brake is the Liberal Democrat MP for Carshalton & Wallington.