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