Demonstrating once again that he is much better at politics than he is at economics, George Osborne has cited Portugal’s request for an EU bailout as further evidence that those opposed to his excessive spending cuts are playing “Russian roulette” with Britain’s national sovereignty.
“Today, of all days, we can see the risks that would face Britain if we were not dealing with our debts and paying off our national credit card. These risks are not imaginary,” he said.
What the Chancellor refuses to acknowledge is that Britain, unlike Portugal, Greece and Ireland, can afford to meet its debts over a sustained period of time (even under his plans, debt will be 68.8 per cent of GDP in 2014-2015). As Duncan Weldon points out, the average maturity of UK government debt is currently around 14 years, while Portugal’s is 6.8.
Indeed, the Barclays Capital Fiscal Vulnerability Index (see Table 3.1 of the IFS Green Budget), ranks the UK first for public debt duration and as joint first on the percentage of borrowing that is in domestic currency (leaving it less exposed to the foreign bond markets).
Britain’s large structural deficit means that its overall rating is worse, but even then we’re ranked 32nd, next to Japan (31st) and the United States (30th), and above India (35), France (39), Poland (40), Spain (42) and Italy (51). What’s more, Osborne’s premature cuts and the resultant collapse in economic growth have prompted the Office for Budget Responsibility to revise its borrowing forecasts up by £44.5bn. The Chancellor may claim that Labour lacks a “credible deficit reduction plan” but, without growth, so does he.
There is, however, one big similarity between Portugal and the UK. They were both among just five EU countries to suffer negative growth in the final quarter of 2010 (the others were Greece, Ireland and Denmark).
This week’s economic survey by the British Chambers of Commerce suggests that the situation may be even worse than thought. According to the BCC, the economy may have grown by just 0.1-0.2 per cent in the six months to March.
Osborne’s fixation on deficit reduction, rather than growth, means that he deserves neither and will lose both.
UPDATE: The excellent Will Straw points out that the OECD’s new report includes even more evidence that Britain is not Portugal.