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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Cabinet audit: what does the appointment of Andrea Leadsom as Environment Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for Environment, Food and Rural Affairs.

A little over a week into Andrea Leadsom’s new role as Secretary of State for Environment, Food and Rural Affairs (Defra), and senior industry figures are already questioning her credentials. A growing list of campaigners have called for her resignation, and even the Cabinet Office implied that her department's responsibilities will be downgraded.

So far, so bad.

The appointment would appear to be something of a consolation prize, coming just days after Leadsom pulled out of the Conservative leadership race and allowed Theresa May to enter No 10 unopposed.

Yet while Leadsom may have been able to twist the truth on her CV in the City, no amount of tampering will improve the agriculture-related side to her record: one barely exists. In fact, recent statements made on the subject have only added to her reputation for vacuous opinion: “It would make so much more sense if those with the big fields do the sheep, and those with the hill farms do the butterflies,” she told an audience assembled for a referendum debate. No matter the livelihoods of thousands of the UK’s hilltop sheep farmers, then? No need for butterflies outside of national parks?

Normally such a lack of experience is unsurprising. The department has gained a reputation as something of a ministerial backwater; a useful place to send problematic colleagues for some sobering time-out.

But these are not normal times.

As Brexit negotiations unfold, Defra will be central to establishing new, domestic policies for UK food and farming; sectors worth around £108bn to the economy and responsible for employing one in eight of the population.

In this context, Leadsom’s appointment seems, at best, a misguided attempt to make the architects of Brexit either live up to their promises or be seen to fail in the attempt.

At worst, May might actually think she is a good fit for the job. Leadsom’s one, water-tight credential – her commitment to opposing restraints on industry – certainly has its upsides for a Prime Minister in need of an alternative to the EU’s Common Agricultural Policy (CAP); a policy responsible for around 40 per cent the entire EU budget.

Why not leave such a daunting task in the hands of someone with an instinct for “abolishing” subsidies  thus freeing up money to spend elsewhere?

As with most things to do with the EU, CAP has some major cons and some equally compelling pros. Take the fact that 80 per cent of CAP aid is paid out to the richest 25 per cent of farmers (most of whom are either landed gentry or vast, industrialised, mega-farmers). But then offset this against the provision of vital lifelines for some of the UK’s most conscientious, local and insecure of food producers.

The NFU told the New Statesman that there are many issues in need of urgent attention; from an improved Basic Payment Scheme, to guarantees for agri-environment funding, and a commitment to the 25-year TB eradication strategy. But that they also hope, above all, “that Mrs Leadsom will champion British food and farming. Our industry has a great story to tell”.

The construction of a new domestic agricultural policy is a once-in-a-generation opportunity for Britain to truly decide where its priorities for food and environment lie, as well as to which kind of farmers (as well as which countries) it wants to delegate their delivery.

In the context of so much uncertainty and such great opportunity, Leadsom has a tough job ahead of her. And no amount of “speaking as a mother” will change that.

India Bourke is the New Statesman's editorial assistant.