Wednesday, 2 June 2010

On public spending cuts and credit rating...

Keir isn't sure about his credit rating, though admittedly he doesn't have Standard and Poor, Moody's or Fitch regularly reminding the global press about it...
If you recall, during the election campaign we were told by Gideon, by Cameron, by any Tory in sight of a television camera, was that unless we slashed public spending to slash the deficit, then the cost of borrowing would increase as our credit rating was downgraded. That, they told us, was the only reason they supported "swingeing" cuts to public spending, not the fact that they had the horn for ideological conservatism and small government.
Conservatives' confidence to talk honestly about cuts should stem from three other “c” words: context, character and credibility...Britain will have the biggest budget deficit of any G20 country...Britain faces losing its “triple A” international credit rating because of the prospect that our national debt could exceed our national income
This has been accepted by the right wing press, much of the right wing commentariat, and even, it seems, has become 'general knowledge' after Mervyn King's so called "ringing endorsement" of the Coalitions cuts policy. It has been accepted, put simply, that the credit rating organisations are not only in the right, but also have the right and the power to dictate fiscal policy to nation states. If, the theory goes, we slash public spending (I wonder why the private sector might want this to happen?) then the credit ratings and the international markets will be much more confident in our recovery and future economic growth and we can all sit around the fire singing 'Kum-ba-ya'. This is not only happening in the UK, in France, Budget Minister Francois Baroin says that maintaining France's credit rating is central in driving economic policy.

Last week, the government of Jose Zapatero in Spain passed an austerity package through the lower house of parliament by a single vote. The aim of this package was to slash the public deficit almost in half, from 11% to 6%, including public sector pay freezes, reductions to regional government spending (Keir's sure that will placate the Basques!) and cutting deeply into public sector pension schemes.

This package came as Spain became the last of the major European economies to move out of recession, with 0.1% growth in 2010 Q1.

So what do you think should happen then? Spain has slashed public spending, just as, Gideon tells us, we should do too! So, in this brave right wing supremacy of the market world what should happen? Yes, that's right, Spain should keep her credit rating because she is being 'credible' about the scale of cuts?

But look here:
Fitch Ratings cut Spain's credit rating Friday, saying its government's efforts to reduce debt would weigh down economic growth.
And here:
The ratings agency cut the country's rating one notch from AAA to AA plus, saying Zapatero's efforts to close the budget deficit "will materially reduce the rate of growth of the Spanish economy over the medium term".
So, you mean, the credit rating agencies aren't being completely open, honest, or reliable, and don't have our best interests at heart? Damn!

What was it that Gordon Brown used to repeat?
Mr Brown said the Conservatives' economic policies would do "enormous damage to the economy and make sure the recovery was put at risk by taking money out of the economy now.


  1. Interesting article, thanks.

    Mr Brown also said
    "no more boom and bust"
    "A weak currency is the sign of a weak economy,which is the sign of a weak government"

    just before he sold 1/2 Britains gold at the lowest price in 20 years, left the pound down 29% on the dollar, and seemingly forgot to pay off any deficit during the good years..

  2. Angus, Thank You for your comment.

    You do seem however to be avoiding the main thrust of the article: the reference to Gordon Brown was a pithy throw away line.

    The central proposition, which you fail to address (rather banging on the gong that is Gordon Brown) is that credit rating agencies have massive power to control fiscal policy and are not doing this out of the goodness of their heart: they are doing it to maximise their own profit.

    This would be fine, until public policy is driven, as both Osborne and Cameron have stated, on a need to retain our 'creditworthiness' with these Agencies, who, as the blogpost states, move the goalposts, and certainly do not act out of any concern over our economic survival.