Politicians flounder amid gathering economic storm
Euro crisis, poor jobs figures, massive national strikes, on top of high inflation squeezing living standards. Amid the tumult the first admission from Government; Nick Clegg saying that “the facts have changed” and that some sort of response might be required.
In Europe a giant game of chicken between Germany and Greece seems to have caused considerable collateral damage to Europe’s banks. One of the main stresses is concern from Wall Street that is heavily restricting dollar funding to many eurozone banks.
So the US Treasury Secretary Tim Geithner turned up at a CNBC conference to tell Europe, basically Germany, “to use overwhelming force” to deal with this problem. For that read, Eurobonds or a multi-trillion dollar bailout facility. The European Commission will release the Eurobond report soon. The PM let slip in the Commons that “France and Germany are meeting to stop Greece going bankrupt”.
All round the world, fingers are being pointed at Berlin’s slow response.
Euro woes do provide some sort of alibi for the wretched economic growth in Britain. But not an alibi for all of it.
Today’s bad jobs figures robbed the Chancellor of one of his favourite boasts: that “over the past year 500,000 private sector jobs have been created”. This is now not true (and was a little questionable even before). In the year to June it was just 264,000, barely more than the 240,000 jobs lost in the public sector. In the past quarter private sector job creation of 41,000 was hugely outweighed by 111,000 public sector job losses. This is not going to improve in the coming months.
The Coalition could stomach even those statistics if sunnier economic uplands creating more private sector jobs were around the corner. Sadly they are not.
I calculated last week that if the OECD is right, since the month of the Spending Review to the end of this year the economy will have grown by 0.4%. Not per quarter, that’s a total of 0.4% over a period of 15 months. The deficit reduction plan was predicated on growth in that period of 3%, 8 times as much.
The state of the world has changed utterly from that assumed when the Coalition put its macreconomic plans together.
And so, today, for the first time, we got acknowledgement from the Deputy Prime minister that “the facts have changed… the economic context is much worse than before, and that the Government is not blind to the deterioration in the economic environment”.
And a concession that something was being done on infrastructure. Motorways, energy public capital spending have large “multiplier effects” on jobs. By the government’s own admission Britain has £200 billion of infrastructure opportunities available. However as he was pushing this infrastructure plan, he was also sticking to fiscal plans that imply a cut to Public Sector Net Investment of 58% in real terms during this Parliament. This was eerily similar to Gordon Brown claiming “investment not cuts” as he was halving investment spending in 2009.
During the election campaign one of Nick Clegg’s pithiest phrases was that he “would not indulge in the economic masochism of merrily cutting now”. He now appears to believe that the economic masochism lies in actually spending any more.
All in all, partly because of the renewed financial crisis, caution of banks and caution of small businesses terrified of borrowing to invest in employment, the private sector recovery has disappeared. And on top of that we face the social strife of mass public sector strikes.