Playing the eurozone blame game shows the extent of Osborne's failure

The longer the coalition remains in denial, the longer it will take for Britain to recover from its economic depression.

One of the first lessons a new government learns is how to blame their predecessors. Labour spent years blaming the ills of the country on "18 years of Conservative misrule". Two years after taking office the coalition has not missed a trick in turning the blame game into an art form. The promised deep public spending cuts were all Gordon Brown's fault and lower than expected economic growth was blamed on everything from the weather to the Royal Wedding.

The current chief culprit for the coalition's failings is the eurozone. I'm sure I'm not the only one who felt a distinct feeling of déja vu when the government responded to this week's dreadful Q2 figures by blaming the euro.

Of course, given that the eurozone is our main trading partner its problems, to put it mildly, do not help British exports. More than two years into the crisis it is still unclear whether Europe's leaders have the political will and nous to break the link between heavily indebted banks and sovereigns and restore calm to the markets.

But the reality is that even while the eurozone faces an existential crisis, with a handful of its 17 countries needing emergency support because they can't access the bond market, Britain is still faring worse. A chart by ABD Investment shows that, since the financial crisis began at the end of 2007, Britain has been comfortably outperformed by the US, Japan, Germany and France.

This year Britain's output is estimated to be 93.5 compared to the baseline figure of 100 in 2008. To put this in context, Germany is one of the few countries where output has now overtaken pre-crisis levels at 104.2 compared to a eurozone average at 97.5. The Spanish economy, which is serious danger of needing a €300 billion bail-out as it struggles to cope with crippling borrowing rates of over 7 per cent and scarily high unemployment, is only fractionally lower than Britain's at 91.9, with Italy at 90.9. France, which lost its triple-A credit rating at the start of the year, is at 97.7.

After three quarters in a row reporting a decline in output, the bald truth is that economic output is now lower than it was when the Coalition took office. There can certainly be little doubt that were Britain a member of the eurozone, we would have needed a massive bail-out, possibly larger than Spain, Greece, Ireland, Portugal and Cyprus put together. Our triple-A credit rating would have gone months ago, perhaps even last year.

By any yardstick, George Osborne and Danny Alexander have failed on an impressive scale and should be waiting for their P45s.

But, whisper it, Britain should actually be profiting from the eurozone crisis. As investors in the European bond market panic, sending borrowing rates sky-high for Spain, Italy and others, the UK is one of the main beneficiaries from the flight of capital. Despite the weaknesses in the British economy, like the US, traders are so desperate to buy our bonds that they will pay for the privilege. Earlier this week interest rates on 10 year gilts fell to 1.4 per cent, well below the 2.4 per cent inflation level, and fully 6 per cent lower than Spain. It is frightening to imagine the extra debt we would have had without the eurozone crisis.

The Coalition should be using the massive advantage of such historically low borrowing costs to fund targeted stimulus measures. The best place to start would be to bring forward badly needed public infrastructure projects. The National Infrastructure plan states that Britain needs to invest £400 billion in infrastructure between now and 2020 if we are to remain competitive, and there is no better time to start. While penal borrowing costs, particularly for the southern Mediterranean nations, are effectively forcing eurozone countries to drastically scale back public spending, Britain is in an almost unique position to launch a series of supply-side measures to boost demand and generate growth.

At some point, people will tire of the coalition's protestations that the double dip recession is all the fault of Gordon Brown and those incompetent foreigners in the eurozone. Labour, too, have to be honest enough to admit that Britain's comatose economy is of our own making and, regardless of what does or doesn't happen in the eurozone, requires resolution at home.

The longer Cameron and Osborne et al remain in denial, absolving themselves of responsibility while persisting with the idea that Britain can operate like a north European version of the Cayman Islands, the longer it will take for Britain to recover from its economic depression. The stark reality is that even with a solid Olympics-driven bump, 2012 will be a year of recession. Of more concern to ministers is that barring a heroic recovery over the next three years, the Tories and Lib Dems will go to the country on the basis of economic output that is comfortably lower than it was in 2007. Barring an implosion by the Labour Party, that would probably cost them their jobs.

 

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In your 30s? You missed out on £26,000 and you're not even protesting

The 1980s kids seem resigned to their fate - for now. 

Imagine you’re in your thirties, and you’re renting in a shared house, on roughly the same pay you earned five years ago. Now imagine you have a friend, also in their thirties. This friend owns their own home, gets pay rises every year and has a more generous pension to beat. In fact, they are twice as rich as you. 

When you try to talk about how worried you are about your financial situation, the friend shrugs and says: “I was in that situation too.”

Un-friend, right? But this is, in fact, reality. A study from the Institute for Fiscal Studies found that Brits in their early thirties have a median wealth of £27,000. But ten years ago, a thirty something had £53,000. In other words, that unbearable friend is just someone exactly the same as you, who is now in their forties. 

Not only do Brits born in the early 1980s have half the wealth they would have had if they were born in the 1970s, but they are the first generation to be in this position since World War II.  According to the IFS study, each cohort has got progressively richer. But then, just as the 1980s kids were reaching adulthood, a couple of things happened at once.

House prices raced ahead of wages. Employers made pensions less generous. And, at the crucial point that the 1980s kids were finding their feet in the jobs market, the recession struck. The 1980s kids didn’t manage to buy homes in time to take advantage of low mortgage rates. Instead, they are stuck paying increasing amounts of rent. 

If the wealth distribution between someone in their 30s and someone in their 40s is stark, this is only the starting point in intergenerational inequality. The IFS expects pensioners’ incomes to race ahead of workers in the coming decade. 

So why, given this unprecedented reversal in fortunes, are Brits in their early thirties not marching in the streets? Why are they not burning tyres outside the Treasury while shouting: “Give us out £26k back?” 

The obvious fact that no one is going to be protesting their granny’s good fortune aside, it seems one reason for the 1980s kids’ resignation is they are still in denial. One thirty something wrote to The Staggers that the idea of being able to buy a house had become too abstract to worry about. Instead:

“You just try and get through this month and then worry about next month, which is probably self-defeating, but I think it's quite tough to get in the mindset that you're going to put something by so maybe in 10 years you can buy a shoebox a two-hour train ride from where you actually want to be.”

Another reflected that “people keep saying ‘something will turn up’”.

The Staggers turned to our resident thirty something, Yo Zushi, for his thoughts. He agreed with the IFS analysis that the recession mattered:

"We were spoiled by an artificially inflated balloon of cheap credit and growing up was something you did… later. Then the crash came in 2007-2008, and it became something we couldn’t afford to do. 

I would have got round to becoming comfortably off, I tell myself, had I been given another ten years of amoral capitalist boom to do so. Many of those who were born in the early 1970s drifted along, took a nap and woke up in possession of a house, all mod cons and a decent-paying job. But we slightly younger Gen X-ers followed in their slipstream and somehow fell off the edge. Oh well. "

Will the inertia of the1980s kids last? Perhaps – but Zushi sees in the support for Jeremy Corbyn, a swell of feeling at last. “Our lack of access to the life we were promised in our teens has woken many of us up to why things suck. That’s a good thing. 

“And now we have Corbyn to help sort it all out. That’s not meant sarcastically – I really think he’ll do it.”