Friday, May 11, 2012

Economic Growth and Vision

In recent weeks, there has been greater lip service paid to the importance of increasing economic growth. In the UK, this is partly in response to the double dip recession. In Europe it is also in response to the continued economic stagnation and popular rejection of austerity.

However, economic growth requires more good intentions.

The Queen's speech was remarkable for its lack of vision and unwillingness to change direction. There were one or two minor suggestions:
  • Making it easier to hire and fire workers - could help reduce labour market inflexibility
  • Green investment bank
  • Splitting banks into retail and investment branches.
There is nothing wrong with these suggestions, but it is like a drop in the ocean. There is no change from mantra of cutting spending now. There is no real commitment to growth.

It is the same in Europe, there has been talk of a 'growth pact' but to the ECB that means a few free market supply side policies - these are actually needed, but is only small part of the equation.

But, Will Socialist France help the Eurozone?

A big issue is whether austerity is self-defeating i.e. can it be that cutting government spending actually increases level of debt to GDP? In the UK austerity has not been self-defeating in that regard. Spending cuts and tax increases have contributed to a gradual reduction in the deficit. However, I believe the long term deficit could be reduced to manegable levels with much less immediate pain. There was no need to push the economy back into a double dip recession.

However, in some European countries, there is evidence that the depth of the recession means that spending cuts are actually self-defeating. Is austerity self-defeating?

What could the government have done to tackle Youth unemployment?

Why does France have a worse Credit Rating than the UK?

When France has a smaller budget deficit...

UK french government borrowing
Source: OECD (2013 forecast)

What Determines Credit rating for a country?

See also: France National debt

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