Blimey. Talk about slamming on the brakes.

Not sure a 1% fiscal consolidation should be anything but positive when we have a 11% budget deficit…

…but the point you make is demonstrably false; all the other countries in the chart are also undergoing a fiscal consolidation. They are in fact agreeing with Osbourne’s policy.

None of those countries bar the US have a budget defict anywhere near as large as the UK’s, so the pace of their fiscal consolidation needn’t be as large, and the US in in the enviable position of having US treasuries as the store of value for foreign holders of USDs, meaning they have default buyers of bonds which the UK does not.

So basically the chart above means exactly the opposite of the headline.

International opinion IS with Osbourne on fiscal consolidation.

Estimated 2011 budget balances % of GDP

US -8.8 (they really do have a problem they’re not even beginning to address)
UK -9.1 (even after that “huge” tightening)
Euro area -4.5
France -6.4
Germany -1.7
Japan -6.9
China -1.7

http://www.economist.com/node/18285668?story_id=18285668

That chart has holes so large in it that I am surprised you showed it.

At a mere headline, three countries raise debt, three lower it and one is flat.

So basically, a score draw.

However, one of the “countries” is actually the Eurozone of (presumably) 27 countries – and it is showing debt being cut.

As they have stripped out Germany/France from the Eurozone – and based on that chart, you have, theoretically…

3 countries raising debt, 26 countries cutting debt and one achieving a balance.

Which supports George’s statement.

Obviously, the chart is so meaningless though as to offer no actual support or criticism of any policy.

On the chart for 2009, Germany and the UK fiscal stimulus look a different size. According to the IMF they both had a 1.6 per cent discretionary stimulus. What was the minor UK discretionary stimulus in 2010? I thought the UK had zero discretionary stimulus last year.

If a fiscal stimulus was still in place this year in the UK would Mr King not be offsetting it anyway through tighter monetary policy? So for the macro economy it would be all rather pointless. Most of that consolidation on the chart for 2011 is actually tax rises. However, the chart is a graphic illustration of how foolish it would be to tighten monetary policy. Adam Posen is correct we need more QE.

yep, I’m afraid countries in different positions (with their public finances in different shape) do different things. Although you’re right this doesn’t fit terribly well with his “everybody agrees with me” story – the truth is closer to the opposite.

have you seen the stories today about sweden and it’s monetary policy? negative interest rates paid on reserves … fastest growth recorded

Some of these comments really are clutching at straws. Just because some other countries are cautiously beginning a process of fiscal consolidation after gradually withdrawing stimulus, doesn’t mean they agree with Osborne’s policy of withdrawing stimulus virtually overnight and replacing it with an accelerated process of consolidation.

‘Agrees consolidation is required, ergo supports Osborne’s policy on consolidation’ makes about as much sense as ‘agrees tax rises are required, ergo supports the Greens’ policies on tax rises’.

As for us ‘needing’ to consolidate faster than other countries because our deficit is larger: yes, we need to bring down a larger deficit, but it just doesn’t follow that we therefore need to consolidate more rapidly. What we need to do is consolidate at the fastest pace that is consistent with maintaining acceptable levels of growth, taxation and public spending; that pace may or may not be consistent with eradicating the deficit in four years. If other countries genuinely agreed with Osborne about what that pace is, surely they’d be aiming to eradicate their own deficits more quickly?

Sweden has been cutting taxes too, is that right?

Of course it helps that their budget deficit is…-0.9%

Osborne claims international opinion is with him – is that like Citizen Dave, the people’s toff’s belief that the people are with him? Well except for Barnsley maybe.

@ 7 G.O.

Most countries are already commmited to cutting their deficits to acceptable (under 3%) levels as fast or faster than Osbourne, bar the US.

We do need to consolidate more rapidly than other countries as our deficit is larger, the costs of debt servicing drag heavily on growth and given the global crisis markets react aggressively to countries seen to be too fiscally profligate. The cost to insure UK debt for 5y years has gone up 60bp since the crisis – signifying an extra 5bn a year in interest costs as people simply don’t trust UK debt as safe the way they did pre crisis.

Finally, this question is phrased as “consolidating faster”. Faster than what? Than other countries who don’t need to cut spending as much because their budget deficit is much lower? Or, as a hunch tells me, than the Dalring plan which aimed to reduce the deficit over 2 whole parliaments!!

@ G.O.

I agree with you that we should be going slower with consolidation. It is growth that matters to how big the deficit is. Not much point in consolidating if we crash the economy while doing it. The government will save nothing and the deficit will end up if anything larger than before the consolidation. However, fiscal stimulus is pointless in my opinion with an inflation targeting central bank (yeah I know). The only way I could see it doing anything on a macro basis is if it was permanent tax cuts.

Luis–re Sweden, you are suggesting that fast growth is a function of this particular policy. I can’t my head round how it could work. Can you explain?

vimothy,

well, I think IOR is an interesting idea, but even the most ardent monetarist wouldn’t attribute Sweden’s performance solely to that.

http://www.themoneyillusion.com/?p=9162

(that has some links)

The reason other countries and institutions are pretending to support him is because they are using the UK as an experiment. Shame for those of us that live here, but what can you do…

“I’d love to know how he explains that chart.”

as at @cjcjc points out, the UK fiscal tightening is because we have the worst deficit of all those listed. The projected deficit is still going to be such that it is providing a massive, artificial stimulus which is simply

Basically a simplistic article in the extreme picking just one metric and plotting that. Try a few others – like deficits, personal indebtedness, national debt and the like and different countries will be at the top or bottom of these charts. Just another person cherry-picking a chart they happen to think makes their point without context, understanding or any sense of analysis.

Also, as @cjcc points out, the US has a massive problem which it’s yet to deal with. However, we have no idea what is really going to happen there as the Republicans and Democrates have yet to sort out their budgetary differences.

Let’s recap:

Britain at risk of another financial crisis, Bank of England chief warns

Britain risks suffering another financial crisis without reform of the country’s banks, the Governor of the Bank of England warns today.
http://www.telegraph.co.uk/finance/economics/8362951/Britain-at-risk-of-another-financial-crisis-Bank-of-England-chief-warns.html

Bank of England governor blames spending cuts on bank bailouts

Mervyn King tells MPs: ‘The price of this financial crisis is being borne by people who absolutely did not cause it’
http://www.guardian.co.uk/business/2011/mar/01/mervyn-king-blames-banks-cuts

Of course the current fiscal deficit is unsustainable but how quickly it is reined in will affect the downstream health of Britain’s economy. At present, the state of the economy isn’t looking good.

Public spending cuts have hardly started and what will matter is whether total private sector spending by consumers and by businesses on investment plus net exports will increase sufficiently to make up for the gap left in total demand by public spending cuts.

The important issue is what will happen to total demand in Britain’s economy for goods and services? That will determine whether there will be enough additional private sector jobs to make up for those jobs being lost in the public sector.

Looks like good Keynesian policies to me. Spend increases in crisis – spend comes down after it.

17.

We’re still in THAT crisis.