Monday, September 27, 2010

IMF Approval

One further thought on the difficult choices facing Ed Miliband.  In the absence of a permanent leader this summer, Labour has defaulted to an oppositionist ‘all cuts are bad’ stance.  Where this has been impossible to maintain, they have reverted, as Ed did on Andrew Marr’s show yesterday, to ‘of course we need to make cuts – just none of the ones the Tories are doing’.
In doing so, they are dangerously close to nailing their colour’s to Ed Ball’s mast (and there’s a mental image I apologise for), that the Government’s cuts are unnecessary and counter-productive and will tip the economy into a double-dip recession.  What’s needed instead is more expansionary fiscal policy, paid for by more borrowing, to return the country to economic growth, at which point there’ll be no need for cuts, because we’re growing again.
Attractive as this ‘no nasty medicine today’ policy looks – not least because it allows Labour free reign to oppose all cuts, a position they’re much happier with – it carries with it a significant hostage to fortune: what if George Osborne is right, and what if there is no double-dip recession?  Bearing that in mind, have a look at the IMF’s latest statement on the UK economy:
The UK economy is on the mend. Economic recovery is underway, unemployment has stabilized, and financial sector health has improved. The government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability. The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery. Fiscal tightening will dampen short-term growth but not stop it as other sectors of the economy emerge as drivers of recovery, supported by continued monetary stimulus. Upside and downside risks around this central scenario of moderate growth and gradually falling inflation are balanced. Monetary policy will need to be nimble if risks materialize, and fiscal automatic stabilizers should operate freely. Meanwhile, the UK authorities should continue to provide leadership and build support for ambitious global reform of financial regulation. Ensuring a smooth transition to a new supervisory architecture at home will also be important to secure a safer post-crisis environment.
That could have been drafted by George Osborne himself – it provides authoritative backing for the Coalition’s economic policy, and handily rebuts a lot of Labour attack lines.  Whoever the Shadow Chancellor is, he’d better be ready.


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