BBC interview on Portugal bailout

Julian Worricker: We don’t know exactly what’s going to emerge from Budapest but if, as looks quite possible, the UK has to underwrite £4 billion of any loan giving, under existing arrangements and the Chancellor decides that’s the right thing to do, would you support him in that?

Ed Balls: Well we’ll have to wait to see the details of the deal but as a member of the IMF first of all the UK will be part of this discussion, also as a member of the EU. There was a facility agreed last year by Alistair Darling when he was Chancellor, and by George Osborne, on the weekend of the election – there could be a contribution from that. But I have to say, I think this is a crisis of the eurozone and the clear bulk of the financing should come from the eurozone countries as well. And I think what we need as Britain to be doing is pressing the eurozone to actually face up to the nature of the crisis they are going through because simply having austerity package after austerity package, bailout after bailout, it’s not working. The problem in Portugal is that the economy has not grown for years. The markets are now saying it’s not going to grow for the next few years. If you’re not growing then it’s very hard to get your deficits down and in the same week we’ve got the German economy clearly also stuck into a tough approach to fiscal policy. We’ve also got interest rates going up in the eurozone. If you’ve got a whole continent not growing and certain southern countries stuck into the euro, having a really hard time as well then it’s very very hard to deal with this. And simply piling austerity on austerity is not going to work. Europe needs a strategy for growth and jobs. Until it gets one I fear we’re going to have a continuation of these problems.

JW: Well let me come back to that but I mean we are where we are, and Portugal is now asking for a bailout – surely you’re not saying that they should be turned down at this point?

EB: Well we are where we are but I think it is essential that Portugal gets the right kind of help and of course the problem in the eurozone is for months now we’ve had the ‘last’ package’ , the ‘last’ stepping in. But in Greece, in Ireland, in Portugal we have economies which aren’t growing, which have still got continuing problems, have got debts which need to be looked at but also economies which are not growing. Portugal is forecast to grow by less than 1% for the next four years and at some point the eurozone is going to have to stand back and say, are we actually going to solve the fundamental problem or are we just going to carry on with sticking plaster, with austerity, with tough speeches from the poor countries which don’t solve the underlying problem. That’s my concern.

JW: Well let me just clarify what you said a moment ago, ‘debts that need to be looked at’. Because as you know your point of view is not the only point of view and you’ll know what George Osborne had to say yesterday, that the UK could now be in a similar plight to Portugal if the coalition government had not pushed through its emergency cuts plan.

EB: Well let’s stay on the serious subject for a second…

JW: Well I think the Chancellor was being fairly serious about that wasn’t he?

EB: Well look we can come to the Chancellor’s views in a minute because I think the Chancellor would be better off spending more time making sensible arguments in Europe rather than playing politics on the European stage. On the serious question, look, in Portugal now, in Greece already there is a commitment to a restructuring of debt but in the end you can’t restructure that debt unless you have economies which are growing and there’s not a plan for growth in the eurozone. Interest rates are going up, there’s no prospect it seems of Portugal, Greece growing any times soon. They’re locked into this very difficult exchange rate situation because they’re members of the single currency. As for the parallel between Britain – as I was saying yesterday, this is scaremongering from George Osborne. It really is economically deeply illiterate. The fact is you’ve got southern economies stuck in the single currency, they can’t devalue. They’ve also got economies which have not been growing for years and aren’t growing now. The difference with Britain is our debt structure is short, our interest rates were low, we already had, spring a year ago, a sensible plan, with growth and falling unemployment, to get our deficit down. George Osborne then came in after the election, played a political game of scaring people by saying we could be Portugal, we could be Greece. They’ve put in place a VAT rise and spending cuts which are actually in Britain now delivering stagnant growth, rising unemployment…

JW: Well let’s deal with your charge of economic illiteracy because it’s not what the IMF says about the way George Osborne is running the economy. It’s not what the OECD is saying about the way George Osborne is running the economy. So it’s not, your voice is not being backed up by some significant international organisations.

EB: Well look the IMF does have a tendency to think spending cuts will solve every problem and I’ve experienced that myself in government. But even the IMF would agree that countries in the eurozone, small countries like Greece or Ireland that can’t devalue and are stuck into this debt trap where they can’t get their economies moving – that is entirely different from Britain. Last year our economy was growing, the southern countries weren’t growing. But by the fourth quarter of the year who were the economies in Europe which didn’t grow? Greece, Ireland, Portugal and Britain and the reason is because suddenly we’ve decided to go for this deep and drastic and fast cuts in public spending. It’s the austerity in the southern economies which is causing them their difficulties. The markets are worried because their economies aren’t growing. They’re worried that the eurozone has these deep problems about a lack of growth and ability to regenerate and a year ago Britain was taking a different course. We didn’t join the single currency, that was a very important decision we made. Now increasingly Britain under George Osborne is making the same mistakes and it is true some international organisations support George Osborne. There are very many economic commentators and Nobel prize winners in economics who look at Britain and say, why is Britain doing such drastic… the deepest spending cuts of any major economy, crushing the economy, unemployment going up, borrowing now to be £46 billion higher than George Osborne thought a year ago.

JW: I suspect we all think our experts back us up.

EB: And you know, I reckon we should have two separate debates Julian. There’s the debate about the eurozone, there’s a debate about Britain, they’re completely separate issues. Let’s do this in a rational way not just a political point-scoring way.

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Posted April 8th, 2011 by Ed's team

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