Mehdi Hasan: Borrowing is bad - unless Gideon's doing it

Not only has growth stalled and austerity failed but the Tories can't even win the economic argument.

As I watched the Chancellor deliver his Autumn Statement to MPs yesterday, I couldn't help but remember his 2010 conference speech in Birmingham and, in particular, this bit of the speech:

Imagine, if I were to stand up in the House of Commons in two weeks time and say: I'm cancelling the deficit plan.

I agree with Ed Miliband.

Let's delay the tough decisions.

Let's borrow more.

Let's go on adding to our debt.

Imagine if I said that.

Now imagine what would follow.

The market turmoil.

The flight of investors.

The dismay of business.

The loss of confidence.

The credit downgrade.

The sharp rise in real interest rates.

The extra debt interest.

The lost jobs. The cancelled investment. The businesses destroyed. The recovery halted.

The return of crippling economic instability.

Britain back on the brink.

Hmm. Yesterday, George Osborne stood up in the Commons to reluctantly reveal that he would indeed be borrowing more - an astonishing £158bn more than he had planned to in last October's Spending Review and an embarrassing £37bn more than the much-mocked Labour plan (or "Darling plan") to cut the deficit in half over the lifetime of this parliament (as outlined in the March 2010 budget).

The Opposition has put together these two tables below, based on yesterday's OBR figures:

OBR's forecasts for public sector net borrowing (£bn)
  2011/12 2012/13 2013/14 2014/15 2015/16
November 2010 117 91 60 35 18
November 2011 127 120 100 79 53
Change since Nov 2010 +10 +29 +40 +44 +35






OBR's forecasts for public sector net borrowing (£ bn)
  2011/12 2012/13 2013/14 2014/15 2015/16
June 2010 (pre-Emergency Budget) 127 106 85 71 n/a
November 2011 127 120 100 79 53
Change since before Emergency Budget 0 +14 +15 +8 n/a

 

Then there is the graph (number 2) put together by our friends at the Spectator which shows that public sector net debt, as a percentage of GPD, will be higher in 2014/2015 than it was forecast to have been under - yep, you guessed it! - the afore-mentioned Darling plan. ("We are sinking in a sea of debt," shrieked the Chancellor in his conference speech in 2009. Now we know that, despite his savage cuts, we'll still be "sinking" in an ever-greater "sea of debt" at the next election.)

So what I'm wondering is: why isn't "Britain back on the brink"? If the country was on the verge of defaulting on its debts and being downgraded by the credit rating agencies when borrowing was forecast to be lower and growth higher - under the Darling plan - back in 2009 and 2010, why don't the latest OBR figures - which also downgrade growth for the fourth (!) time since Osborne took over at the Treasury - presage financial and economic armageddon? Isn't this the best evidence for the claim by Joseph Stiglitz, the Nobel Prize-winning economist, that the then shadow chancellor was guilty of "scaremongering" about borrowing and debt in an interview in the New Statesman in February 2010?

Referring to Cameron and Osborne as modern-day "Hooverites", Stiglitz said:

I say you're crazy -- economically you clearly have the capacity to pay. The debt situation has been worse in other countries at other times. This is all scaremongering, perhaps linked to politics, perhaps rigged to an economic agenda, but it's out of touch with reality.

Before the Tory trolls arrive below the line to shout about bond markets, confidence and low interest rates, I don't deny Osborne's contention that "debt interest payments over the Parliament are forecast to be £22 billion less than predicted". But I do dispute his description of Britain as a "safe haven". And I ask the deficit fetishists: if low rates are a sign of economic success and market confidence, why then did Japan enjoy such low rates in the mid-90s, during its "lost decade"? Why have borrowing costs in the United States, in the aftermath of its fiscal stimulus, the failure to sign off on spending cuts and its credit-downgrade by Standard & Poors, plummeted to historic lows?

Sticking with the subject of "confidence, the eminent economist, former Tory frontbencher and biographer of Keynes, Robert Skidelsky, writes in today's Guardian:

We come to the question of confidence. The chancellor has repeatedly claimed the deficit reduction programme was, and is, necessary to maintain investor confidence in government finances. Confidence is very important, but also mysterious: the bond markets can believe a dozen contradictory things before breakfast. The main point is that confidence cannot be separated from the economy's performance. As it stalls, the creditworthiness of governments declines as their debt increases, raising the likelihood of default.

A year ago bond traders, having forgotten what little economic theory they knew, were inclined to believe that deficit reduction would in itself generate recovery. For several months the Osbornites fed them the fantasy of "expansionary fiscal contraction", the idea that as the deficit falls the economy would expand. This story is now exploded. It's the economy that determines the size of the deficit, not the deficit that determines the size of the economy.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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Ansbach puts Europe's bravest politician under pressure

Angela Merkel must respond to a series of tragedies and criticisms of her refugee policy. 

Angela Merkel, the Chancellor of Germany, is supposed to be on holiday. Two separate attacks have put an end to that. The first, a mass shooting in Munich, was at first widely believed to be a terrorist attack, but later turned out to be the actions of a loner obsessed with US high school shootings. The second, where a man blew himself up in the town of Ansbach, caused less physical damage - three were seriously injured, but none killed. Nevertheless, this event may prove to affect even more people's lives. Because that man had come to Germany claiming to be a Syrian refugee. 

The attack came hours after a Syrian refugee murdered a pregnant Polish woman, a co-woker in a snack bar, in Reutlingen. All eyes will now be on Merkel who, more than any other European politician, is held responsible for Syrian refugees in Europe.

In 2015, when other European states were erecting barriers to keep out the million migrants and refugees marching north, Merkel kept Germany's borders open. The country has resettled 41,899 Syrians since 2013, according to the UNHCR, of which 20,067 came on humanitarian grounds and 21,832 through private sponsorship. That is twice as much as the UK has pledged to resettle by 2020. The actual number of Syrians in Germany is far higher - 90 per cent of the 102,400 Syrians applying for EU asylum in the first quarter of 2016 were registered there. 

Merkel is the bravest of Europe's politicians. Contrary to some assertions on the right, she did not invent the refugee crisis. Five years of brutal war in Syria did that. Merkel was simply the first of the continent's most prominent leaders to stop ignoring it. If Germany had not absorbed so many refugees, they would still be in central Europe and the Balkans, and we would be seeing even more pictures of starved children in informal camps than we do today. 

Equally, the problems facing Merkel now are not hers alone. These are the problems facing all of Europe's major states, whether or not they recognise them. 

Take the failed Syrian asylum seeker of Ansbach (his application was rejected but he could not be deported back to a warzone). In Germany, his application could at least be considered, and rejected. Europe as a whole has not invested in the processing centres required to determine who is a Syrian civilian, who might be a Syrian combatant and who is simply taking advantage of the black market in Syrian passports to masquerade as a refugee. 

Secondly, there is the subject of trauma. The Munich shooter appears to have had no links to Islamic State or Syria, but his act underlines the fact you do not need a grand political narrative to inflict hurt on others. Syrians who have experienced unspeakable violence either in their homeland or en route to Europe are left psychologically damaged. That is not to suggest they will turn to violence. But it is still safer to offer such people therapy than leave them to drift around Europe, unmonitored and unsupported, as other countries seem willing to do. 

Third, there is the question of lawlessness. Syrians have been blamed for everything from the Cologne attacks in January to creeping Islamist radicalisation. But apart from the fact that these reports can turn out to be overblown (two of the 58 men arrested over Cologne were Syrians), it is unclear what the alternative would be. Policies that force Syrians underground have already greatly empowered Europe's network of human traffickers and thugs.

So far, Merkel seems to be standing her ground. Her home affairs spokesman, Stephan Mayer, told the BBC that Germany had room to improve on its asylum policy, but stressed each attack was different. 

He said: "Horrible things take place in Syria. And it is the biggest humanitarian catastrophe, so it is completely wrong to blame Angela Merkel, or her refugee policies, for these incidents." Many will do, all the same.