When the UK's AAA credit rating was last placed on negative outlook in May 2009, George Osborne declared that the country's "economic reputation" was on the line. Now, our rating is again on negative outlook and it is the Chancellor's reputation that is at stake. In most of his public statements since the general election, Mr Osborne has presented the UK's credit rating as the ultimate metric of economic stability. Wiser heads warned him not to set so much store by the bodies that certified sub-prime mortgages as "safe" but the Chancellor, a relentless tactician, ignored their concerns.
In October 2010, when the UK was taken off negative watch by Standard & Poor's, he boasted of "a big vote of confidence in the UK and a vote
of confidence in the coalition government's economic policies". On 29 November 2011, in his autumn statement, while announcing an extra £158bn of borrowing, Mr Osborne claimed that, because of the coalition's "credible deficit plan", the UK was "the only major western country which has had its credit rating improve". By his own logic, therefore, his deficit reduction plan is no longer credible.
The loss of the UK's AAA credit rating is far from inevitable - Moody's puts the risk at 30 per cent in the next 18 months - and in any case a downgrade would not be economically calamitous. France and the United States have experienced little or no rise in their borrowing costs since losing their AAA ratings. Yet the possibility that the UK could lose its top rating is politically disastrous for Mr Osborne. Never again will he be able to boast that the UK is a "safe haven".
In its response to Moody's, the Treasury dwelt at length on the damage wreaked by the eurozone crisis. This convenient explanation does not account for why the UK is on negative watch while other EU nations, including Germany and Sweden, have had their top ratings affirmed. The reality is that the near disappearance of growth has left the UK in a worse position than most of its direct competitors. Last year, Britain grew at a slower rate than every EU country except Greece, Cyprus, Portugal, Slovenia and Denmark.
Long before Mr Osborne took office, the New Statesman warned that a programme rooted in dogmatic austerity would reduce growth, increase unemployment and slow the pace of deficit reduction. The refusal to learn from the 1930s and act as a spender of last resort has led to a collapse in demand. As a result, the economy is shrinking again, unemployment is heading towards three million and Mr Osborne is likely to borrow more than Alistair Darling ever intended.
Contrary to the Chancellor's protestations, there was an alternative. In the US, where the Obama administration engaged in sustained fiscal stimulus, unemployment has fallen significantly and the economy has grown at its fastest rate since the spring of 2010. Jacob Lew, President Obama's new chief of staff, has said that the US government recognises that "the time for austerity is not now". True to this pledge, President Obama's 2013 budget included a $476bn transportation package and tax cuts to stimulate demand.
The credit rating agencies, undemocratic and unaccountable as they are, do not merit the attention they receive. The Cambridge economist Ha-Joon Chang has imaginatively called for the creation of an independent, UN-funded rating agency to break the monopolistic power of the "Big Three". None of this, however, should detract from how Mr Osborne is failing even on his own terms. Having ruled out a change of course in advance, he and the rest of the country must suffer the consequences.