Britain is not like Portugal – evidence from the OECD

George Osborne's economically flawed argument today about Portugal has been quickly rebutted. The OECD's new report includes even more evidence that Britain is not Portugal.

George Osborne’s economically flawed argument today about Portugal has been quickly rebutted by the left’s best bloggers. The OECD’s new report published on Tuesday includes even more evidence that Britain is not Portugal.

Earlier today following Portugal’s request for an EU bailout, George Osborne said:

“Today, of all days, we can see the risks that would face Britain if we were not dealing with out debts and paying off our national credit card. These risks are not imaginary.”

In response, economics’ blogger Duncan Weldon points out that:

“Portugal’s average debt maturity is 6.8 years, the UK’s is 14. That’s one reason why Portugal could only borrow at around 10% per year, whilst markets will lend to the UK at only 3.75%.”

Meanwhile, using a wonderful picture The Staggers’ George Eaton writes:

“the Barclays Capital Fiscal Vulnerability Index (see Table 3.1 of the IFS Green Budget), ranks the UK as 1st on public debt duration and as joint 1st on the percentage of borrowing that is in domestic currency (leaving it less exposed to the foreign bond markets).”

For the case of Common Sense vs. George Osborne, I offer Exhibit C from the OECD (p.18).

The chart above shows that the spread between yields on Portugal’s 10-year government bonds and the rest of the euro area began at the end of 2008. This was precisely the point that Labour announced its stimulus plan, which successfully offset the worst impact of the recession and the Conservatives decided to abandon their commitment to Labour’s spending plans. Since that point, the UK’s 10-year gilt yields have bobbed from 3.1% to 4.1% – at or close to the euro average.

Britain doesn’t look much like Portugal to me.

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25 Responses to “Britain is not like Portugal – evidence from the OECD”

  1. Alex Belardinelli

    RT @leftfootfwd: Britain is not like Portugal – evidence from the OECD http://bit.ly/h5QggM

  2. Sian Balsom

    RT @leftfootfwd: Britain is not like Portugal – evidence from the OECD http://bit.ly/h5QggM

  3. Mark Stevo

    I don’t disagree that comparisons with Portugal are a little far fetched, but to blame the Tories for 10-yr gilt yields seems a little unfair given what’s been happening on US and German 10yrs as well.

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  7. Tommy Kech

    Average debt maturity means squat, last bond auction is where it’s at.

  8. Warren Lockhart

    So all you’ve basically proved is that our debt will take longer to come back and bite us on the bottom. But rest assured that without action it will. Even with the bond market providing interest rates of only 3%, if you understand anything about exponential growth, you will know that this only means that the interest payments become ugly at a later time.

    It is a simple fact that any country with a budget deficit of 10% of GDP will eventually become insolvent. You can bleat on and on about the differences with Greece, Portugal and Ireland. Of course there are big differences. We are one of the biggest economies in the world with long debt maturity and a good historical record – but we are not immune to the forces of compound interest. No person or country is. Do you think it is right that in the future we could be spending as much on interest payments as we do on education?

    Only a left-wing person can sit comfortably while we spend tens of billions of pounds each year on interest alone, billions which could be spent on schools, hospitals and other worthy public spending. The left-wing person likes to imagine that the deficit can be removed entirely through economic growth, but Labour were so deeply incompetent that they created a structural deficit – the kind that doesn’t vanish even when the economy grows again.

    The final thing, separate even from the economic argument, is the moral argument. It is a simple fact that we are in debt. Even the conservatives do not intend to completely close the deficit, just mostly close it. Even with a tiny deficit, the country’s total national debt is still growing! (as are the interest payments, creating a slow motion train wreck). Even with economics aside, this is morally repugnant. Whatever happened to self respect and personal responsibility, on a personal and national level? Are these traits absent from the left-wing of politics?

    You’ve attempted a clever argument, one which will please many on the left who fancy themselves as intellectuals, but in fact are nothing of the sort. Well, except for the other people who do not forge an argument at all, but paint conservatives as cartoon villain caricatures who want to harm poor people. Actually perhaps this is your stand too.

    You ought to be ashamed of yourself for trying to use graphs to defend indebtedness.

  9. Mr. Sensible

    I think it is worth remembering how the so called ‘PIGS’ got where they are now. They got where they are now because they cut too early and this hampered growth.

    And how Osborne can continue to peddle this rubbish when the ratings agencies are starting to get interested is beyond me. It’s hurting but it isn’t working.

  10. Mark Stevo

    I think that assessment just doesn’t stack up Mr. S, I can’t comment on Portugal in any great detail but both Ireland and Greece’s deficits and associated debt were manifestly unsustainable and no amount of government spending was going to hide that.

  11. Toby Young

    You could look at this another way which is that if George Osborne is wrong and there’s very little risk of Britain ever having to ask the EU for a bail-out then the risks associated with trying to eliminate the deficit within four years aren’t that great. If, as you believe, reducing public spending on the current scale will suppress growth and that, in turn, will mean we’ll have to borrow more … well, that wouldn’t be such a calamity.

    I’m not sure what alternative you’re proposing – Darling proposed cutting spending on public services by 10.9% between 2009-10 and 20014-15, according to the IFS, compared to Osborne’s proposed cut of 12% – but a programme of shallower, slower cuts would also only succeed if it didn’t suppress growth. Now I know you believe that it would be less likely to suppress growth than the Osborne plan, but what if we didn’t get significant growth with that alternative strategy in place, either? In that scenario, we’d be less likely to persuade the market to allow us to borrow at 3.5% than if public spending is lower. Perhaps not impossible, but less likely. So even if we accepted your argument that the risk of failure is greater under the Osborne plan – which I don’t, obviously – the consequences of failure with a less austere alternative could be more calamitous.

  12. Notayesmanseconomics

    Whilst we have maintained our debt well under governments of both parties and it is something we can reflect on with credit your conclusion based on it is breathtaking!
    I write on long-term interest-rates often and am something of a specialist.It is however rather a dry subject so thanks for the laugh you gave me…

  13. martin lawton

    RT @leftfootfwd: Britain is not like Portugal – evidence from the OECD http://bit.ly/h5QggM. Been saying this for ages ta for confirming

  14. astateofdenmark

    Yes in 2008 the BoE began a process of unleashing 200 billion of QE.

    The PIGS – hobbled to the Euro and could not use monetary levers.

    Welcome to the anti-Euro camp leftfootforward.

  15. scandalousbill

    Warren Lockhart,

    You say:

    Only a left-wing person can sit comfortably while we spend tens of billions of pounds each year on interest alone, billions which could be spent on schools, hospitals and other worthy public spending. The left-wing person likes to imagine that the deficit can be removed entirely through economic growth, but Labour were so deeply incompetent that they created a structural deficit – the kind that doesn’t vanish even when the economy grows again.”

    With regard to sovereign debt, it should be recalled that increases in this area have not been the sole responsibility of the “left-wing” person. The Reagan, Bush, Bush administration and Thatcher, Major Administrations all significantly increase their nation’s debt.

    I will concede, however, that you may also consider these administrations to be left wing. But that is not the conventional viewpoint. I might also add that during the first two terms of Labour, the national debt was shrinking. The ballooning of the debt relates more to the cash injections to offset the impacts of the global economic decline. There are very few economists who would attribute the global recession to country specific triggers. But perhaps they are to considered immoral left wingers as well.

    Secondly, to attribute the structural deficit to the sole cause of “Labour were so deeply incompetent” while ignoring the impact of a 6% decline of GDP is simply putting your head in the sand, or another place where the sun does not shine.

    Moving on to your morality statements, you say:

    “The final thing, separate even from the economic argument, is the moral argument. It is a simple fact that we are in debt. Even the conservatives do not intend to completely close the deficit, just mostly close it. Even with a tiny deficit, the country’s total national debt is still growing! (as are the interest payments, creating a slow motion train wreck). Even with economics aside, this is morally repugnant. Whatever happened to self respect and personal responsibility, on a personal and national level? Are these traits absent from the left-wing of politics?”

    So, on the personal level, if a family takes out a mortgage to buy a home, the parents are foisting some kind of immoral sin upon their children? The morally correct, self respecting approach would be to save the entire amount and make the purchase cash on the barrelhead. Under this scenario, I suppose that banks are simply large storage areas where people bring their bags of cash for safe keeping. The feared run on the banks, presumably was based on the fear of a great many fires that would destroy any funds that were not removed? Self respect is based upon hoarding.

    I won’t even bother to comment on this absurd approach. Suffice to say that the Barter system has been obsolete for a great many years. Commodity markets are not simply farmers coming into town to sell their wares, international banking are not cash based.

    Rather than chastising Will Straw, perhaps it is your persistent ignorance which is shameful.

  16. Bill

    It is important to note that will know little to nothing about Economics, but his job is to show the Labour party as doing the right thing, sadly thats skin to defending Peter Sutcliffe. Guilty as charged Will. The TPA showed that whilst Balls is bleating on about its all the bankers fault, Labour actually added 2380Bn to the national debt in real terms, now to me that says Balls is telling porkies.

    Will suggest to step on the spin peddle as we cant have the truth out there can we??

  17. scandalousbill

    Oh Bill,

    On the topic of telling pokies,

    “The TPA showed that whilst Balls is bleating on about its all the bankers fault, Labour actually added 2380Bn to the national debt in real terms, now to me that says Balls is telling porkies.”

    Glad to see the TPA’s usual accuracy is unchanged.

  18. scandalousbill

    Bill,

    In case you missed the sarcasm, you are full of shite.

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  20. Humanitas

    RT @leftfootfwd: Britain is not like Portugal – evidence from the OECD http://bit.ly/gLqRVm

  21. Rob Marchant

    RT @leftfootfwd: Britain is not like Portugal – evidence from the OECD http://bit.ly/h5QggM >>more evidence from @wdjstraw #UKisnotPortugal

  22. salardeen

    RT @rob_marchant: RT @leftfootfwd: Britain is not like Portugal – evidence from the OECD http://bit.ly/h5QggM >>more evidence from @wdjstraw #UKisnotPortugal

  23. salardeen

    RT @rob_marchant: RT @leftfootfwd: Britain is not like Portugal – evidence from the OECD http://bit.ly/h5QggM >>more evidence from @wdjstraw #UKisnotPortugal

  24. Rob Marchant

    Entirely accurate – one of the more opportunistic Tory attack lines, with precious little connection with economics. Said much the same in my Progress piece of 2 Apr here.

  25. Spir.Sotiropoulou

    RT @rob_marchant: RT @leftfootfwd: Britain is not like Portugal – evidence from the OECD http://bit.ly/h5QggM >>more evidence from @wdjstraw #UKisnotPortugal

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