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Austerity: IMF 1, Osborne 0 Austerity: IMF 1, Osborne 0
(4 months later)
The IMF on Wednesday told George Osborne that the UK remains a "long way from … recovery"; that "persistent slow growth could permanently damage medium-term growth prospects"; that, six years on from the collapse of Northern Rock, British banks are still not back to "healthy functionality"; and that the centrepiece of the chancellor's last budget – the help-to-buy scheme aimed at boosting property sales – would inflate house prices and lock would-be first-time buyers out of the market.The IMF on Wednesday told George Osborne that the UK remains a "long way from … recovery"; that "persistent slow growth could permanently damage medium-term growth prospects"; that, six years on from the collapse of Northern Rock, British banks are still not back to "healthy functionality"; and that the centrepiece of the chancellor's last budget – the help-to-buy scheme aimed at boosting property sales – would inflate house prices and lock would-be first-time buyers out of the market.
And somehow, in the looking-glass world of Mr Osborne's Treasury, that litany of stinging criticisms counts as relatively good news.And somehow, in the looking-glass world of Mr Osborne's Treasury, that litany of stinging criticisms counts as relatively good news.
It was no such thing, of course. But neither did it mark an escalation of the hostilities in Washington last month, when IMF chief economist Olivier Blanchard warned the coalition that it was "playing with fire" by continuing with austerity.It was no such thing, of course. But neither did it mark an escalation of the hostilities in Washington last month, when IMF chief economist Olivier Blanchard warned the coalition that it was "playing with fire" by continuing with austerity.
The Fund rarely goes in for such standoffs, especially with a major shareholder (the UK is the fourth-biggest shareholder in the IMF). Particularly not after a delegation had spent weeks alongside Treasury officials conducting their annual health check, and would have shared in advance with senior mandarins the details of their report.The Fund rarely goes in for such standoffs, especially with a major shareholder (the UK is the fourth-biggest shareholder in the IMF). Particularly not after a delegation had spent weeks alongside Treasury officials conducting their annual health check, and would have shared in advance with senior mandarins the details of their report.
It is also germane to remember that the head of the IMF, Christine Lagarde, is a longtime ally and personal friend of Mr Osborne – and that he was the first major finance minister to support her in the bid for the Fund's top job.It is also germane to remember that the head of the IMF, Christine Lagarde, is a longtime ally and personal friend of Mr Osborne – and that he was the first major finance minister to support her in the bid for the Fund's top job.
The great surprise was that the IMF went as far as it did last month, openly criticising the austerity that it is enforcing across southern Europe. Given that the chancellor has made clear that he will not repudiate his signature policy, it was to be expected that the intervention this time would be easier on Treasury ears.The great surprise was that the IMF went as far as it did last month, openly criticising the austerity that it is enforcing across southern Europe. Given that the chancellor has made clear that he will not repudiate his signature policy, it was to be expected that the intervention this time would be easier on Treasury ears.
Even so, this was a difference largely of tone, not of substance. As the deputy managing director David Lipton made clear when fielding questions from journalists, the IMF still believes that the government is following the wrong fiscal policy.Even so, this was a difference largely of tone, not of substance. As the deputy managing director David Lipton made clear when fielding questions from journalists, the IMF still believes that the government is following the wrong fiscal policy.
It still thinks the coalition ought to be spending more now to support the economy during the almighty bust; and cutting more later, when the economy has recovered somewhat.It still thinks the coalition ought to be spending more now to support the economy during the almighty bust; and cutting more later, when the economy has recovered somewhat.
In particular, Fund economists believe the UK ought to borrow up to £10bn more this year, and plough that money into public works. Observers can argue the toss about whether such a policy is Ed Balls's plan B, but one thing is clear: it certainly isn't the Osborne strategy.In particular, Fund economists believe the UK ought to borrow up to £10bn more this year, and plough that money into public works. Observers can argue the toss about whether such a policy is Ed Balls's plan B, but one thing is clear: it certainly isn't the Osborne strategy.
The chancellor could have "back-loaded" the cuts, as the IMF now suggests, but refused – largely to fit a political timetable, with a general election due in 2015. He was backed at the outset by the Fund.The chancellor could have "back-loaded" the cuts, as the IMF now suggests, but refused – largely to fit a political timetable, with a general election due in 2015. He was backed at the outset by the Fund.
Back in September 2010, it chorused supportively: "The UK economy is on the mend. The [emergency budget] plan is essential to ensure debt sustainability. The plan … supports a balanced recovery." One of those two bodies has since awoken to harsh reality: sadly, it isn't the Treasury.Back in September 2010, it chorused supportively: "The UK economy is on the mend. The [emergency budget] plan is essential to ensure debt sustainability. The plan … supports a balanced recovery." One of those two bodies has since awoken to harsh reality: sadly, it isn't the Treasury.
David Cameron was the first major leader to volunteer for austerity, even while Barack Obama was still gunning for fiscal stimulus in America. The comparison between the UK and the US performance is not flattering to the prime minister: our economy has yet to make up the ground lost after the banking crisis; the US has more than made up the lost ground and enjoys a tepid recovery.David Cameron was the first major leader to volunteer for austerity, even while Barack Obama was still gunning for fiscal stimulus in America. The comparison between the UK and the US performance is not flattering to the prime minister: our economy has yet to make up the ground lost after the banking crisis; the US has more than made up the lost ground and enjoys a tepid recovery.
As Bill Clinton's former labour secretary Robert Reich remarked in London this week, up on Capitol Hill they now cite Britain's experience over the past three years as the epitome of why austerity is a disaster.As Bill Clinton's former labour secretary Robert Reich remarked in London this week, up on Capitol Hill they now cite Britain's experience over the past three years as the epitome of why austerity is a disaster.
One thing this week has shown again is the adeptness with which coalition spinners can play even bad news. There's a lesson in this for Labour: Ed Balls and co run the risk of critiquing Mr Osborne's plan A in 2015 even while the UK is making a technical recovery. By the election, the economy could be growing by 2% or more.One thing this week has shown again is the adeptness with which coalition spinners can play even bad news. There's a lesson in this for Labour: Ed Balls and co run the risk of critiquing Mr Osborne's plan A in 2015 even while the UK is making a technical recovery. By the election, the economy could be growing by 2% or more.
The opposition needs to set out the parameters of what a proper recovery would look like: in falling unemployment, rising wages and falling debt. Otherwise, it could look badly off the pace in less than two years.The opposition needs to set out the parameters of what a proper recovery would look like: in falling unemployment, rising wages and falling debt. Otherwise, it could look badly off the pace in less than two years.
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