The Danes' counter-example

Additional stimulus hasn't caused bond yields to rise in Denmark. They're in the EU and have their o

Denmark's new three-party coalition government has announced that the primary aim of its economic policy is to secure a balance between revenues and spending and create growth by bringing forward public investment. The new Danish prime minister, Helle Thorning-Schmidt, who is Neil Kinnock's daughter-in-law, unveiled her coalition cabinet on Monday and indicated that her government would take a radically different approach from the austerity measures being adopted by other European countries. The new Danish government apparently intends to spend ten billion Danish kroner to upgrade roads, railways and bicycle paths. The stimulus agenda also includes plans to provide temporary tax credits for companies that invest in R&D and machineries along with new technologies. It said it also aimed to carry out a tax reform that would significantly reduce taxes on wage incomes.

This is a very interesting counter-example to George Osborne's and David Cameron's claims that austerity is crucial to keep bond yields low. This is what Cameron said in the rapidly revised part of his party conference speech yesterday, that in a draft version that was circulated told people to save -- when he really meant he wanted them to spend.

When you're in a debt crisis, some of the normal things that government can do, to deal with a normal recession, like borrowing to cut taxes or increase spending -- these things won't work because they lead to more debt, which would make the crisis worse. Why? Because it risks higher interest rates, less confidence and the threat of even higher taxes in future. The only way out of a debt crisis is to deal with your debts. That's why households are paying down their credit card and store card bills. It means banks getting their books in order. And it means governments -- all over the world -- cutting spending and living within their means.

Cameron's speech -- even the corrected final version -- gets it precisely the wrong way round. The only way out of a debt crisis -- if by debt crisis we mean, as he says, a situation where households are desperately trying to pay down debt because on an individual level this is rational -- is for the government to step in and spend more, at least temporarily. For the government to join in and try to save more too, which he argues is logical, is disastrous. A first-year undergraduate course in macro-economics should have taught him that!

What has happened in Denmark -- which, just like the UK, is not in the euro but is a member of the European Union? It is a nice test case, because if Dave is right -- which he isn't -- then bond yields should have soared in Denmark, even on talk of injecting stimulus. They haven't. Here is a selection of yields on ten-year government bonds for Denmark and the UK over the past couple of months or so.

 
  Denmark UK
05/10/2011 2.005 2.354
30/09/2011 2.069 2.427
23/09/2011 1.932 2.363
09/09/2011 1.975 2.456
02/09/2011 2.204 2.641
19/08/2011 2.362 2.606
12/08/2011 2.573 2.753

 

One argument the coalition has made is that the US has lower yields because the dollar is a reserve currency, so their data isn't relevant: currently their yield is 1.888 per cent. But that does present the government with a further problem, because bond yields in Sweden, which is also in the EU but not in the euro, are 1.695 per cent. They are 2.135 per cent in Canada, which is also not a reserve currency, and a paltry 0.879 in Switzerland, which really does look like a place of safety.

Based on the evidence from Denmark, putting additional stimulus into the economy has not caused bond yields to rise and they remain below those in the UK. The Danes are a much better comparison country than the Greeks, the Portuguese, the Italians or the Spanish that don't have their own central bank and currency as the Danes do; just as we do.

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

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10 times Nicola Sturgeon nailed what it's like to be a Remain voter post-Brexit

Scotland's First Minister didn't mince her words.

While Westminster flounders, up in Holyrood, First Minister Nicola Sturgeon has busied herself trying to find a way for Scotland to stay in the European Union

And in a speech on Monday, she laid out the options.

The Scottish Nationalist acknowledged the option of independence would not be straightforward, but she added: “It may well be that the option that offers us the greatest certainty, stability and the maximum control over our own destiny, is that of independence.”

She also hinted at a more measured stance, where Scotland could “retain ties and keep open channels” with the EU while other countries within the UK “pursue different outcomes”. 

And she praised the new PM Theresa May’s commitment to wait for a UK-wide agreement before triggering Article 50.

But Sturgeon’s wide-ranging speech also revisited her memories of Brexit, and the days of chaos that followed. Here are some of the best bits.

1. On the referendum

I am the last person you will hear criticising the principle of referenda. But proposing a referendum when you believe in the constitutional change it offers is one thing. Proposing - as David Cameron did - a referendum even though he opposed the change on offer is quite another. 

2. On the result

I told the Scottish Parliament a few days later that I was “disappointed and concerned” by the result. I have to admit that was parliamentary language for a much stronger feeling.

3. On the Leave campaign

I felt, and still feel, contempt for a Leave campaign that had lied and given succour to the racism and intolerance of the far right.

4. On leadership

It seemed abundantly clear to me that people - even many of those who had voted to Leave - were going to wake up feeling very anxious and uncertain. It was therefore the job of politicians, not to pretend that we instantly had all the answers, but to give a sense of direction. To try to create some order out of the chaos. That’s what I was determined to try to do for Scotland. I assumed that UK politicians would do likewise. I was wrong. 

5. On EU nationals

I felt then – and still feel very strongly today - that we must give them as much reassurance as possible. It is wrong that the UK government has not yet given a guarantee of continued residence to those who have built lives, careers and families here in the UK.

6. On karma

You tend to reap what you have sown over many years. It shouldn’t have come as a surprise to politicians who have spent years denigrating the EU and pandering to the myths about free movement, that some voters simply did not believe them when they suddenly started extolling the virtues of both.

7. On teenage voters

I think it was wrong in principle to deny EU nationals and 16 & 17 year olds the right to vote. But, as well as being wrong in principle, it was also tactically foolish. 

8. On slogans

While “Brexit means Brexit” is intended to sound like a strong statement of intent it is, in truth, just a soundbite that masks a lack of any clear sense of direction.

9. On Scotland

Some will say that we also voted to stay in the UK, so we must accept the UK wide verdict. But in 2014, we voted to stay part of a UK that was a member of the EU - indeed, we were told then that protecting our EU membership was one of the main reasons to vote against independence.

10. On taking back control

To end up in a position, which is highly possible, where we have to abide by all the rules of the single market and pay to be part of it, but have no say whatsoever in what the rules are, would not be taking back control, to coin a phrase we’ve heard more than once recently- it would be giving up control.