THE global economy has entered a dangerous new phase. It's now more vital than ever that countries have credible economic plans to ensure economic growth and get deficits down.
I believe there are three tests for a credible economic plan. First, there has to be a transparent plan with clear medium-term goals - whether that's to halve the deficit over four years as the last Labour government legislated for, or to go further and eliminate the structural deficit in this parliament, as George Osborne announced a year ago.
Second, that plan must command sufficient political support for it to be implemented. In America, the lack of agreement in Congress and political brinkmanship over the debt ceiling was disastrous for confidence and ultimately led to the credit rating downgrade. And in the Eurozone there has been a complete failure of political leadership to grasp the nettle of what needs to be done, as we saw again in Poland this weekend.
But political disagreement is not an issue in Britain. Despite the party conference rhetoric this weekend from Vince Cable - who called for "a Keynesian approach to a demand crisis" - the policy of rapid deficit reduction remains and is the cornerstone of the coalition.
There is, however, a third and vital credibility test - the plan has to deliver what it promises. This is where Britain and some of those Eurozone countries have something in common. Austerity is not working for countries like Greece, which now looks set to enter a fourth year of recession, and it is not working in Britain either.
A year ago, Osborne said spending cuts and tax rises that go further and faster than any other major economy would boost confidence and economic growth. At the time I warned that the recovery was too fragile and this risked tearing up the foundations of the house just as a global hurricane was brewing.
And what has happened? Consumer and business confidence has collapsed. Unemployment is rising again. Far from being a safe haven, our recovery was choked off last autumn with only Japan growing more slowly in the G7 over the last year. As the IMF's Christine Lagarde has rightly said "growth is necessary for fiscal credibility" - and to get deficits down too.
It's not just Labour making the case for a more balanced approach - a tough mediumterm plan to get deficits down, but which puts jobs and growth first. The founder of Pimco is now calling for a change of course and Lagarde says there is scope for reducing deficits more steadily to support growth and that, if slow growth continues, ministers must act, for instance through temporary tax cuts - like the temporary VAT cut Labour has called for.
The reckless thing for Osborne to do now is to continue with his absurd claim that Britain is some kind of safe haven and plough on regardless with a plan that is not working. The credible
and cautious thing to do is to listen to wise advice and change course before it is too late.
Ed Balls is the shadow chancellor.