BBC News interview on the eurozone crisis and George Osborne’s speech

Matthew Amroliwala: Did you agree with most of George Osborne’s analysis there that time is really short on this now?

Ed Balls: I do agree that time is short and it is a great relief that finally George Osborne and the government here in Britain are waking up to the scale of this crisis and the urgency for action. We’ve been told for months that Britain is a safe haven, finally we are being told that this could have a big impact on Britain and that is completely right, this is a very grave crisis. It is partly about political resolve, as George Osborne said, but it is also about recognising that you can’t have a credible approach to deficit reduction unless it is balanced and sensible and deliverable and for the last year and a half we’ve had governments saying in Europe, we’ll just cut spending and raise taxes and that will make it better. It has not worked in Greece and Portugal and Ireland, it is not working in Italy either and I think the problem George has got is that the very policies in Britain which have led now to rising unemployment and our economy flat lining, are also part of the problem in Europe and in the Eurozone, the IMF is saying…

MA: I’ll come back to our part of this in a moment but I mean the real drivers on this, with dealing Greece, the French, the Germans, and the problem is that they have said the right sort of things in the past but actually then haven’t followed it up, it is time for concrete action but what exactly in your view should they be doing?

EB: Well look, I’m not sure if that is actually right because the fact is Greece has been in recession or close to recession for four years now. These countries have been raising taxes and cutting spending but if their economies are stagnating and they are stuck in the Euro, it is very hard for them to make progress. The real issue though is the crisis has now spread over to Italy and in this circumstance, as George Osborne was actually I think rightly saying, there must be fiscal solidarity in Europe. The European Central Bank needs to intervene with the backing of governments. The problem is the German government is so far unwilling to face up to what needs to be done and that is a massive political crisis which is potentially leading to the gravest economic crisis in Europe and in the world for very many decades so it is a political problem.

MA: It is grave because many analysts, economic analysts, believe that Greece ultimately eventually will default and actually the only thing that we are involved in now is almost making it a managed default, do you agree with that sort of gloomy assessment?

EB: If I’m honest with you I don’t really think now, for the Eurozone and the world, Greece is the biggest problem. It has been pretty clear for over a year Greece cannot access global financial markets. They are only propped up with support from the other governments, the other governments are saying we will only continue this support if you keep cutting spending and raising taxes, even though that is not working. But the real problem is, because people have talked about the Greek default, haven’t sorted it out, haven’t got Greece onto a good trajectory, the markets are now saying ‘well if they can’t sort out Greece, why is this not going to spread to Spain and to Italy?’ Italy is the 4th largest economy in the world, you cannot have a bankrupt Italian banking system and a default in Italy without it being an absolute catastrophe for France, for Germany, for Britain, for America, and that is what we are staring down the barrel of a gun of…

MA: Sure, exactly, on that point let me read you what the Chancellor said earlier today, he said: ‘the UK was not immune from the worldwide problems, but it was well set to weather this storm’ I was rather reminded of Alistair Darling, the first interview I did with him after the credit crisis, he used exactly the same phrase of being well set and of course we weren’t and we saw what happened, do you think we are well set now?

EB: Well look, what happened back then, two or three years ago, after that big financial crisis and the freezing up of wholesale markets is that Alistair Darling said, set out a medium term plan on the deficit but act now on the banks and also at that time he cut VAT and said we need to get our economy growing in order that we can actually get our deficit down. George Osborne is doing the opposite of that. We aren’t well placed, we’ve had the slowest growth of any big country in the last year, our unemployment is rising. Here in Britain we’ve got the same problems of demand being crushed, our banks not lending to business. Thankfully we are not in the Euro but if you have a Eurozone crisis, an American crisis, and a British crisis – as Vince Cable said, no demand – but governments who won’t act… what did George Osborne actually say in his speech today about Britain? He said however bad it gets in Europe, and however bad it gets in Britain he is not changing course. Until he faces up to the fact he must change course, if we are to save jobs and growth and get our deficit down in Britain, I’m afraid he is still going to look completely in denial about the scale of the financial problems, the economic problems and his culpability in getting Britain into a very dangerous situation now.

-ends-

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Posted September 16th, 2011 by Ed's team