Yesterday David Cameron made a speech in Manchester on the Eurozone crisis. He argued that it’s time to “make up, or break up”. Like something out of a cheap soap opera, the UK Prime Minister is speculating and his party is briefing furiously that there’s simply no getting away from the course we’re on. Austerity is the way forwards, and Greece in particular has to get on with it; as is, no questions asked – as that famous Fleetwood Mac song goes.
And isn’t this whole debate taking on a rather dated, 1980s feel to it. There’s no alternative for Greece, even though its exit from the Eurozone would spread a contagion that could quite easily break the Euro and seriously damage Britain’s already tepid, stalled recovery. So what’s the plan Dave? Where do we go next? Any clue? What of Francois Hollande’s ‘Changement’? And what are the odds on an 11th government falling in the Eurozone since 2008?
It’s increasingly clear that DC believes ‘Austerity’ and ‘Growth’ are inextricably linked, with the former leading consequentially to the latter. In simple terms, he’s dead wrong. Basic economic theory, Keynesian economics, and the economic data coming out of the UK economy over the past 12 months tells us this. Fundamentally bringing the debt down will not create jobs, it won’t grow the private sector, it won’t stimulate demand, it won’t reform our financial sector and it won’t magic an industrial policy out of thin air.
It’s increasingly clear that there is no ‘Plan B’. No ‘going for growth’. Ed Miliband is right to point out, amid opinion poll ratings that put Labour consistently between 10 and 14% ahead of the Conservatives (who themselves currently languish around the 30% mark – there lowest poll rating in a decade), that all that Cameron has delivered is a double-dip recession. But he has also delivered a witheringly incoherent and incompetent message on the economy (NB. one car plant does not a recovery make, however good news it is for the hard-working people of the North West) – the latest example being his former director of strategy’s parting shot, promoting a further £25 bn worth of cuts to the welfare budget.
But what of Hollande’s alternative just across La Manche, on mainland Europe? Well the plan here is to increase public spending by £20 bn, creating an additional 150,000 jobs straight off and raising the top rate of tax for millionaires, whilst cutting corporation tax for SMEs. Let’s remind ourselves here that 96% of growth in the UK economy comes from SMEs. That sounds like a plan for growth to me. The deficit will still come down, but it will come down a great deal quicker if the economy grows at the same time as applying a deficit reduction plan.
Only yesterday Msr Moscovici, the French Finance Minister, stated clearly that France will not ratify the EU’s fiscal pact, unless it includes provisions for growth. And France is not alone, as 10 governments have toppled (so far) since 2008, public opinion has shifted increasingly towards where the economics always has been: austerity without a genuine, sophisticated plan for growth leads to economic stagnation.
Cameron would do well to note that, if he hopes that figure ’10′ does not become 11.