It’s heartening to be able to reflect on the good news for the UK economy as we approach the new year. The recovery seems to be taking hold; unemployment is falling; employment itself is at a record high; business confidence is up; private sector recruitment is hugely outstripping public sector redundancies.
Not very long ago, Labour was confidently predicting economic disaster as a result of the chancellor’s actions: we needed, thought Ed Balls, a Keynesian stimulus to keep the economy moving; Osborne was cutting ‘too far and too fast’: it was bound to end in disaster.
An alternative approach to austerity (an alternative which Ed Milliband eagerly embraced in 2012) has been tried over the last couple of years in France. The contrast is stark. Unemployment in France is now well over 10%, despite having tax rates of up to 75% for high earners; the public sector is largely unreformed; there are regular demonstrations against the government; M. Hollande is the least popular French president in history. All the indications are that France’s socialist government will be presenting the country with an eye wateringly conservative budget in order to balance the books next year.
The lesson seems clear: austerity works. That’s the inference drawn by Mark Wallace in a piece in this week’s Guardian.
But is it so simple? Has there even been any austerity in the UK? In a fascinating article in Wednesday’s Telegraph, Ambrose Evans-Pritchard makes the case that the UK has avoided the kind of economic disaster seen across the EU because of the stimulus provided by aggressive Quantitative Easing – not because of any ‘austerity’. On the contrary: Osborne has actually cut relatively little. Real austerity has only been tried in the EU – because of the moral fervor of the Bundesbank and the resentment of the rich North against the ‘spendthrift’ South. Result: the disaster predicted by Ed Balls for the UK has actually taken place in Greece and Spain.
Confusing, isn’t it? I’m beginning to wonder if the application of economic policy is extremely case sensitive. The Irish, for instance, seem to have come through austerity with relative ease, coping with policies that are causing social breakdown in other EU member states.
What difference does culture make to economic life? Should we try to make one size fit all? What would it be like if we stopped trying to find a single formula – especially in the EU?
In the new year, I’ll be blogging on the VAT harmonization controversy in France, continuing debate in Europe about a potential membership referendum in the UK, and exclusively revealing Conservative MEP Daniel Hannan’s thoughts on the Commission’s proposed 2017 EU VAT reform.
Until then –