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Tories best to tackle our fiscal crisis

Allister Heath
AT first sight, there are few similarities between Greece, a tiny and desperately mismanaged economy on the fringes of Europe, and Britain, one of the world’s largest economies – and for all the Labour party’s blunders and mismanagement, still an astonishingly prosperous country. Thanks to what turned out to be virtually the only good decision Gordon Brown ever took about the economy, we retain our own currency while Greece is stuck in the euro; we can easily still meet our national gilt and interest payments without having to debase our currency, while Greece is now wholly dependent on cheap loans from the IMF and the EU.

But there the differences end. The dreadful rioting against austerity measures in Greece yesterday, which left three dead, combined with authoritative predictions that the UK’s budget deficit will be much larger than Greece’s this year, make for a deeply uncomfortable backdrop to today’s general election. We are not currently facing a Greece-style crisis – but on present trends, our turn will come far sooner than most people realise. Our on balance-sheet national debt, while growing very fast, is still smaller than Greece’s; but a more realistic estimate of our national liabilities, including everything from the private finance initiative, the cost of nuclear decommissioning and public sector pensions, is probably around 130 per cent of GDP and rising by almost one percentage point a month. At this rate catastrophe is inevitable, which was also the implicit message of yesterday’s European Commission spring economic forecasts. It is predicting that Britain’s budget deficit for 2010 will hit a whopping 12 per cent of GDP; shamefully, this would put Britain bottom of the class among the European Union’s 27 member states. Greece’s deficit, by contrast, is expected to drop to 9.3 per cent of GDP this year.

The crucial task facing the next government is not to prop up short-term economic growth. This is increasingly taking care of itself: all the surveys and what hard data we have confirm that the UK has been out of recession for at least 7-8 months. Rather, the next government’s central mission must be to start cutting back our increasingly bloated government and to start stabilising the national debt as a share of GDP. There is no time to lose; substantial cuts are urgently required. Old-fashioned Keynesian arguments about the need for governments to maintain aggregate demand don’t even begin to apply at such elevated levels of public borrowing. In fact, such thinking has become the reverse of the truth: cutting the deficit and public spending would now be expansionary, while allowing the deficit to remain out of control would eventually choke off the recovery by pushing up bond yields and squeezing out the private sector.

The fact that reversing years of fiscal excess will be the essential task of the next few years is yet another reason to hope for a Tory victory this evening. The Conservative party is psychologically and practically better equipped than either of its two main rivals to take the necessary action. But it needs to be given the tools to do the right thing, which means a working majority. A hung parliament, which is what all of last night’s final polls suggest, would be a recipe for confusion, delay and ultimately a bitter crisis. I can only repeat what I wrote yesterday and urge everybody who has yet to vote to support the Conservatives.

allister.heath@cityam.com