Opinionomics | 24 May 2012

Must-read comment and analysis. Featuring the fiscal cliff. Don't fall off!

1. Has the ‘greenest government ever’ given up on carbon budgets? (Left Foot Forward)

Reg Platt reveals that there is a 50gCO2/kWh gap in the government’s ambitions that must be explained if we are to believe it is committed to meeting the carbon budgets.

2. Papademos, Grexit, and catastrophe blackmail (Telegraph)

Papandreou was clueless. Papademos was complicit. Where does blame really lie, asks Ambrose Evans-Pritchard

3. Government becomes banker to the private sector (BBC News)

Robert Peston examines the phenomoenon of the private sector paying the government to look after their money.

4. Fiscal cliffs, multipliers, and the myth of central bank independence (Free Exchange | Economist)

Ryan Avent addresses the fiscal cliff.

5. What Bagehot said… (FT Alphaville)

Cardiff Garcia has lovely historical (if very wonkish) discussion of the history.

Pictured: A fiscal cliff. Maybe. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Brexit has forced the Tories to retreat from austerity

George Osborne's decision to abandon his budget surplus rule is an acknowledgment of economic reality.

Before Brexit, it was intensified austerity that was threatened by George Osborne. But after the event, the Chancellor has taken the reverse course. In his speech to the Manchester Chamber of Commerce, Osborne abandoned the ambition that has defined his Treasury tenure: a budget surplus.

He said: "The referendum is expected to produce a significant negative economic shock to our economy. How we respond will determine the impact on jobs and growth.

"We must provide fiscal credibility, continuing to be tough on the deficit while being realistic about achieving a surplus by the end of the decade. That's exactly what our fiscal rules are designed for."

Rather than a dramatic reversal, Osborne's decision is now merely an acknowledgment of economic reality. The rule is automatically suspended when growth falls below 1 per cent (as it almost certainy will) in order to avoid further depressing output. But even before Brexit, Osborne was regarded by the IFS as having only a 50 per cent chance of achieving his target.

Labour is highlighting its consistent opposition to the rule, which it again called for the abandonment of after Brexit. A senior source hailed a "huge victory" for the "centrepiece of our economic criticism of the government over the last nine months since Jeremy [Corbyn] took over the leadership." I'm told that Labour will not abandon its Fiscal Credibility Rule as it is "more robust and flexible". Unlike the government's surplus target, it allows borrowing for investment, mandating only that day-to-day spending be balanced (a condition suspended if the Bank of England believes monetary stimulus has become ineffective).

As well as reflecting the new economic reality, Osborne's announcement was also an acknowledgment of the new political one. It will most likely be a future Chancellor who determines the path of fiscal policy (starting with this year's Autumn Statement). At her leadership launch yesterday, Theresa May pre-empted Osborne by declaring that "we should no longer seek to reach a budget surplus by the end of the parliament". Among the Home Secretary's notable supporters is Cabinet Office minister and arch-Osborneite Matt Hancock. The Chancellor's decision to echo May's stance is being seen by some as the prelude to an endorsement. But Michael Gove, who reportedly wants Osborne to remain in post, also acknowledged the new fiscal reality at his launch this morning.

Far from more austerity, it is already clear that Brexit will mean considerably less. As Osborne knows, there is no alternative.

George Eaton is political editor of the New Statesman.