We laughed when the Americans lost their AAA credit rating.
We laughed when the Spanish, Italians and Portugese had their credit downgraded.
And now it might be our turn.
Put on a ‘negative outlook’ by credit rating agency Moody’s Tuesday (implying a 30% chance of a downgrade within the next 18 months), serious questions must be asked about the British government’s austerity drive. Labour’s Shadow Chancellor Ed Balls points to this as evidence that George Osborne must wake up and smell the coffee if he’s to get the economy on track. With current borrowing levels higher than those projected by the last Labour government as ammo, Balls has gone on a rampage against the incumbent Chancellor since Christmas. And it looks like he was just getting started.
Mr. Osborne, however, points to Moody’s’ report as vindicating his action, claiming “we can’t waiver in the path of dealing with our debts” following the announcement.
Is this guy blind?
I can’t help but take everything the Chancellor says as well rehearsed spin. Yes, Britain needs to deal with its debt. But how he has yet to realise that reducing debt with no growth is harming the economy is anyone’s guess. You can’t be stingy, especially on Valentines. Moody’s underpin this by stating “economic or fiscal deterioration would put into question the government’s ability to place the debt burden on a downward trajectory by fiscal year 2015-16.” Essentially, cutting debt isn’t enough to escape a credit rating downgrade. Reduce the speed of austerity, and create growth. Growth creates confidence, which attracts investment, which creates more growth. Positive multiplier effect. Basic economics – even with WJEC as your A Level exam board.
I fear Mr. Osborne is too stubborn. He may have caved into his wife’s demands this one day of the year, but he’s too hardline a neoliberal to adopt any manipulation of Keynesian economics to promote growth. It moved away from sound economics to political pride a while ago. Plan A-plus doesn’t exist. It’s not as if his job is insecure unlike some (must I even mention his name?), so the risk is only to the economy. He’s appeasing the right wing of his party, and able to dominate the moderates already. His narrow focus on the economy may be reflective of his grit and determination – assets needed to be the party’s next leader. Perhaps that’s a part of his real motive.
To be fair, 30% risk of a downgrade is a small(ish) percentage. If the Eurozone situation improves, we may just escape the chop of an A. May. But we must remember that France and Austria have also been put on a negative watch, alongside Britain. So seeing as the likelihood of a Eurozone recovery is minuscule, we must expect higher borrowing levels within the next two years. And a very miserable UK economy.
Britain just got dumped on Valentines Day.
See also article How credit rating agencies rule the world
Adnan is a former Woodhouse students current studying Politics at university.
He blogs at http://adnanchowdhury.wordpress.com/