George Osborne might be on holiday in California (you can see some amusing photos of him on rollercoasters here and add your own economy-related pun) but he has still found time to pen an article for the Telegraph. The key line, as the paper’s own Benedict Brogan suggests, is the Chancellor’s call for greater fiscal union in the EU to ensure greater economic stability. The Eurozone, Osborne writes, “needs to accept the remorseless logic of monetary union that leads from a single currency to greater fiscal integration.”
In the short-term this means the use of Eurobonds (allowing Germany and France, for instance, to underwrite the debt of poorer eurozone countries in return for gaining a stake in their economies) and in the long-term it means the pooling of revenues and greater tax harmonisation. It’s the beginning of a process that could, as Osborne well knows, lead to the creation of a United States of Europe. But, he hastens to add, while the government will “allow greater integration” to happen, it will ensure that “we are not part of it” and that “our national interests are protected”.
It wouldn’t be an Osborne article, of course, without also including a few boasts calculated to enrage his political rivals. He repeats his claim that Britain is a “safe haven”, again hailing the fact that “interest rates on our government debt have fallen”. But as I explained last week, this is a reflection of the UK’s economic weakness, not its strength.The fall in rates is almost entirely due to the fact that the economy is so fragile that no one expects the Bank of England to raise the base rate until at least 2012 . US 10-year bond yields (which fell to a new record low of 2.526 per cent this morning) have plummeted in recent weeks for the same reason.
Then there’s the subject of economic growth. Since Osborne took over, Britain has fallen from the top of the European growth league to the bottom. But the Chancellor thinks he has found a more favourable comparison. “The US economy,” he writes, “has grown more slowly than the UK economy so far this year, despite fiscal stimulus in the former and fiscal consolidation in the latter”.
Yes, over the last six months the UK economy has grown by 0.7 per cent (0.5 per cent in Q1 and 0.2 per cent in Q2), while the US economy has grown by 0.4 per cent (0.1 per cent in Q1 and 0.3 per cent in Q2). But that is, to put it mildly, a rather misleading comparison. As everyone knows, the growth of 0.5 per cent in Q1 was merely a bounce back from the previous quarter when the economy shrank by 0.5 per cent. Thus, while the US has grown by one per cent over the last three quarters (growth in Q4 was 0.6 per cent), the UK has actually grown by just 0.2 per cent.
It’s comforting, in some ways, to know that even as the markets fluctuate, Osborne’s economic delusions remain as predictable as ever.