Monthly Archives: February 2009

Further misery for the Prime Minister today, following President Sarkozy’s latest interview, carried simultaneously on three French TV channels last night.

Challenged on his policy to increase capital spending on infrastructure projects, rather than follow the British lead of tax cuts, M. Sarkozy dismissively retorted that the VAT rate reduction in Britain had “absolutely  not worked” and added:

“Britain is cutting taxes. That will bring them nothing. Consumption continues to decrease in Britain.”

This rubbishing of Gordon’s grand plan has not gone down too well in Downing Street;  there have apparently been urgent conversations today with the Elysée, as a consequence of which the Prime Minister’s spokesman has assured the press, in manner reminiscent of the Fast Show, that the President’s remarks “were not meant as a critique of UK economic policy – which is nice.” 

Let us hope he managed to keep a straight face as he delivered that line.

M. Sarkozy is not, of course,  the first senior foreign politician to express doubt over the wisdom of Mr Brown’s approach to the crisis.  In an interview with Newsweek in December, Peer Steinbrueck, the German finance minister, was even more outspoken in his criticism:

“Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain’s debt to a level that will take a whole generation to work off.  The same people who would never touch deficit spending are now tossing around billions.”

All this flak from foreign parts will certainly cause the Prime Minister damage domestically.  For months he has been attempting to paint the Tories as the “do nothing” party, a charge which hasn’t stuck and which advisers are now  urging him to drop.  At the same time, he has been loudly asserting that his brand of fiscal stimulus is the model that is being adopted across the globe:

The Prime Minister: I think that people are beginning to understand around the world that we are dealing with a new situation of lower inflation next year, a downturn and a credit crunch. That requires very special measures to deal with unprecedented circumstances. I believe that around the world there is now increasing support for the policy that we have put forward, in addition to the recapitalisation of the banks, and that is a fiscal stimulus to back up interest rate cuts. While the Conservatives say that that is unacceptable to them, it is now happening in Germany, France, Spain, Australia, China and America.  It is about time the Conservatives entered the real world. [Hansard, 12 November, 2008.]

The problem for Gordon is that it manifestly  isn’t  happening in Germany or in France.  Germany and France appear to take the view that Gordon is barking up the wrong tree. 

The consequence is that it is the Prime Minister himself, and not the Conservatives, who is now looking increasingly isolated.   This means, at the very least, that he will have to rethink his line of attack on the Tories and will probably  also have to carry out an urgent review of his economic strategy before Alistair Darling’s Budget statement next month.

A clue, during PMQs, as to how bad the Prime Minister thinks the downturn really is:

The Prime Minister: I have made it clear throughout the past few months that the biggest danger that the world faces is a retreat into protectionism. I have also made it clear that, as a result of the withdrawal of foreign banking capacity in large numbers of countries, we face a downward spiral whereby these countries cannot borrow from anybody because foreign banks have left. That is all the more reason why, first, we should sign the Doha agreement-that will feature on the G20 agenda-and secondly, we should ensure that every country is analysed by the World Trade Organisation on what it is doing to prevent protectionism. It is also absolutely clear that we should agree, as a world, on a monetary and fiscal stimulus that will take the world out of depression.

It was months after it became abundantly clear that the economy had taken a turn for the worse before the PM would utter the word “recession”.  The fact that he now uses the word “depression” means that he must think things are very bad indeed.

A recession, of course, means two consecutive quarters of negative growth.  This was officially confirmed last month, but commentators seem to agree that, in reality, we entered recession last April, at the latest. 

Recessions come and go and most middle-aged adults have experienced at least three during their lives.  Depressions, however, are economic reverses of a wholly different magnitude, usually a decline in GDP of at least 10 per cent. 

The last real depression to affect the western world was in the 1930s.  The very word conjures up the spectres of dole queues, soup kitchens and Jarrow marchers.  Not happy images, and one can only hope that this was nothing more than  a slip of the Prime Ministerial tongue.