Cameron's prescriptions for Europe miss the point (again)

The Prime Minister wants to talk about growth, but recognising the impact of German plans for collec

David Cameron wants Britain to play an integral role in reforming the European Union. He really does. His speech in Davos today explained how he is committed to reviving the continent's flagging economies with an agenda for boosting growth - deregulation; liberalisation, competitive taxation.

This is a familiar tune. Britain's position under Labour wasn't so very different - accepting a degree of political integration as the necessary price for creating an open, free trading space of continental scale and hoping, over time, to make that space look more like the UK economy and less like the French one.

The problem now, as I wrote in my column this week, is that the kind of diplomacy that is required actually to drive that agenda in the European Council - involving compromise, long-term nurturing of relationships with EU leaders; demonstrations of commitment to the European project - is also the kind of behaviour that the Conservative party generally finds unacceptable in a leader. In other words, Cameron can say this stuff, but he is no closer to getting it done if he can't build the strategic majorities among fellow EU member states to make it happen.

But there is another problem. Cameron's analysis of the EU's growth problems necessarily has to exclude discussion of the effect on demand of choreographed mass austerity - to concede that point would be to admit that the same force is in play in Britain. But clearly this is an issue. In his speech, the Prime Minister praised efforts by eurozone countries to bring their public finances under control - the drive for a fiscal compact led by German Chancellor Angela Merkel - but warned that it was not enough. He encourages the single currency bloc to consider issuing euro-bonds and effecting transfers between states - a true fiscal union, in other words. He essentially told Merkel to dip into her budget to save the euro.

If Cameron understands the inadequacy of Merkel's plans at the level of budget imbalances inside the eurozone, why does he not understand the related problem of German-enforced austerity for the continent draining aggregate demand? Why does he insist on offering only long-term supply-side solutions to the problem of European growth? The answer, I suspect, is that the government does understand the issue but it is taboo because of the coalition's political commitment to make austerity a morally inviolate part of domestic economic policy.

There was a meeting last week of the Franco-British Colloque - a top-level club of politicians, academics, business leaders etc to discuss cross-channel issues. It meets annually and this time the gathering was held in the UK. George Osborne was there and, someone who was present tells me, in the discussions of the EU's growth problem, the Chancellor effectively acknowledged the macroeconomic case against collective European austerity. He simply couldn't accept that it was relevant to the policies he is deploying in Britain. Treasury economists will surely be telling him the same thing: Merkel's fetish for fiscal conservatism is going to drag Europe down.

If Cameron wants to take a lead in promoting growth in Europe he could start by making that point. He can't of course, at least not without repudiating the central tenet of his government's economic policy.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.