14 Sep 2011

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.

10 reader comments

  1. Anthony Martin says:

    Faisal, the economic situation in the UK is catastrophic. But, this was so predictable decades ago. It really beggars belief that people had no foresight and continue on the very same path.
    The causes of these problems is unregulated, predatory capitalism. This system has been the Trojan Horse that has been used to shift resources and control to fewer and fewer people. The inevitable outcome of such a system is a slow decline in social equality, justified crimes and corrupt manipulation by the colluding wealthy.
    Britain & the West have spent too long smearing Communism while spouting that a capitalism/free market ethos was right. Well, now people are slowly waking up to reality.
    The problem we have now is, the unemployment statistics are so politically manipulated and, deliberate spin spouted by western governments to please the wealthy that, we are in danger of civil collapse.
    Repressive laws have been introduced more and more in the UK yet, this will only fuel hate.
    With inflation running high, wages cut, costs increasing, poverty and joblessness increasing, we can only expect and, understand ‘crimes’ will be the only way for people to survive.

  2. Steven Boxall says:

    Pity the money is going on energy infrastructure seeing that KPMG Report says Government’s energy strategy is unaffordable and will not work anyway.


  3. Swanny says:

    Be careful — look at the failure of infrastructure spending in the US

  4. e says:

    Oh my goodness this is all such a surprise? Not a bit of it. That our politicians and media get away with reporting it as ‘news’ is the crux of the problem, where we were headed was clear in 2008. The choice of different ideologically based roads and their different consequences, being well worn, could have been put coherently to the electorate at the last election along with any new thinking. But was there any serious attempt to do this? Not on your life, or more pertinently, the lives of another lost generation of working class kids around the globe. Why? Because a population of largely economically illiterate voters with little or no appreciation of where their collective interests lie is useful – fodder for a ruling elite of largely bankers and global conglomerate supporters. Yes we are dependent on the well being of our banks because of the weight of their tax returns – we are given no choice but to be so. Osborn is all but laughing at the notion unions will get public support, clearly the current administration is confident they can once again contain the social unrest and poverty their dogma will produce. So that’s okay then, now for the weather, as they say…

    1. Steven Boxall says:

      ‘e’ is absolutely right. Why did not one person in the media bring up this highly predictable outcome during the General Election Campaign? (it was at the very least a possibility which needed to be raised and discussed).

      It is a pity that journalists do not owe the public a duty of care, as then we could sue them for their poor ‘advice’.

  5. sue_m says:

    Why was any of this a surprise to politicians? It takes a really stupid person not to be able to work out that a policies which create unemployment by massively cutting the public sector whilst the basic cost of living is rising fast and private companies are keeping wages down if not laying people off themselves, is not conducive to a recovery either through consumer spending or business output. Too many Tim Nice But Dims in the coalition?

  6. Andrew Dundas says:

    This is the coalition’s ‘Growth Strategy’ hard at work!
    There’s growth in unemployment, growth in personal & business bankruptcies, growth in prison population, growth in inflation and growth in hospital waiting lists. And growth in VAT and petrol duty too.
    That’s not all. There’s shrinking living standards, shrinking Corporation Taxes and shrinking house building and retail sales.
    That’s what the coalition’s policy choices were meant to do. And they’re succeeding!

  7. no name says:

    Should strikes be banned? It certainly seems irresponsible to strike in the current economic climate.

    Should the Eurozone be held to ransome by those who cannot meet their financial commitment?

    Should the rest of the world be held to ransome financially because of the Euro crisis?

    Which nations are going to be least affected by the Eurozone crisis?

    Is it true that the north of England is less inclined to expand the private sector than the south.? If, so is this a political strategy?If so it is quite appalling in the current economic climate especially after the legacy that got us into this mess.

    Are food prices rising above the board? I shop in smaller outlets and stores and the markets , I find that value is very good. MandS food is prepared and of a high quality but it is very expensive. Selective shopping and menu planning can be financially advantageous.

  8. Gary says:

    So, basically, the government have now admitted that the forecast they gave was based on “Pie in the sky” information, which was supposed to enable the public to “Keep the faith” that the government actually knew what it was doing.

    They are incapable of telling straight. Why do we even listen to them anymore?

    The word ‘Politician’ s now becoming synonymous with ‘Trickster’.

  9. Andrew Dundas says:

    April 2009 G20 meeting agreed its communique:(http://www.g20.org/Documents/final-communique.pdf) that all major States would take actions to stimulate their economies to overcome
    “…the greatest challenge to the world economy in modern times; a crisis which has deepened since we last met,…”
    That was the Gordon Brown summit that he’d called to warn of the great danger of a global recession. The very measures the current coalition jeered at.
    We’re now entering that forecast Worldwide Recession, and once again there are calls for all G20 Members to stimulate their economies for the collective benefit of all of them.
    It is to be hoped that this time will indeed be different. That G20 governments – including our coalition – will take the steps they each know is necessary. But which they were too scared to take back in 2009 when it would need to have been less expensive.

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