It’s a bit rich for Cameron, in his statement toriseday from Brisbane, blaming the world out there, particularly the eurozone, for the fading UK recovery when those countries are pursuing almost exactly the same economic policies as he is. That is relentless and unending austerity, which he conspicuously failed even to mention. Now that the blip in UK economic growth between Q2 2013 and Q4 2014 is manifestly deflating (was this part of the long-term economic plan that Cameron-Osborne continually talk about?), the prime minister needs an alibi. It’s easy to pick on the eurozone which has indeed only avoided falling back into recession because of a surge in the French government’s public spending (please note, Mr. Cameron), but the reason the eurozone is in such a bad way is that Merkel has enforced unrelenting fiscal austerity – exactly the Osborne programme. That euro-austerity has crippled the euro southern periphery and has now undermined the German economy itself which depended on that same euro periphery for its export-led growth.
Ironically Cameron is now making the same complaint, that the fast-fading euro market is damaging the UK economy by undermining UK exports. That is indeed beginning to happen, but he can hardly blame foreigners for pursuing identical policies to his own. The origins of the rise in UK growth in early 2013 lay in flooding the economy with £375bn of quantitative easing (printing money) plus 5.5 years of ultra-loose monetary policies (with interest rates at 0.5% since mid-2009), plus also partly the enormous £23bn+ windfall for household incomes from banks’ payback of massive PPI mis-selling and other scams. But once that had worked its way through, the recovery had no legs. It was always lop-sided, with manufacturing and construction still well below pre-crash levels. Moreover, the temporary rise produced in household borrowing has now dissipated, the private investment strike is still in force, net exports (i.e. exports minus imports) are a growing disaster area, and government expenditure is firmly pushing south ever deeper. There are no other sources of demand to keep the recovery going.
The problem therefore is not the gathering global economic storm that Cameron seeks to portray, it’s here in the UK Treasury. Austerity has now so far depressed UK incomes for the sixth year running that it’s squeezing the tax take (and therefore the government’s income) so that this year the budget deficit, still around £100bn instead of the £40bn that Osborne predicted in 2010, is set to rise this year and each future year as long as current policies are maintained. Merkel is now suffering the blowback from her own hideously mistaken policies, and so is Cameron. No amount of finger-pointing can deflect from the fact that the Western world, the eurozone and the UK will only escape stagnation when they abandon austerity.