Unforgiving Debt

Countries faced with uncomfortably high debt ratios have several options available to them. Monetisation, prolonged austerity and debt default clearly have lots of problems attached. Selling the family silver through privatisations is popular but its inherent unsustainability hardly commends it as a way of life. Cheating, by reclassifications of what is private rather than public debt, is also popular but you usually get found out – destroying any credibility benefits. Fiddling the books is more likely to raise risk premia than reduce them. Pleading for debt relief might work but Greece’s targeted, asset-windfall approach has to win plaudits for irony…
Greece Wants Germany to Pay War Reparations, Wall St Journal, 24 Apr 2013

Responsible Fiscal Policy

The OBR chief was right to correct the Prime Minister on his misleading interpretation of UK macro forecasts. That said, the impression has been left that “external” factors such as the global financial meltdown, high energy prices and the Eurozone crisis “explain” the bulk of the UK’s under-performance relative to forecast (which did recognise that, at the margin, fiscal austerity contributes to weaker short-term economic activity).

The problem is that we still need to address the more fundamental question as to why the UK should be so vulnerable to “external” shocks. Perhaps because the fiscal regime (in its broader sense that includes not just standard demand management but also structural reform, infrastructure, etc programmes) is failing to shoulder its counter-cyclical and supply-side responsibilities… Continue reading Responsible Fiscal Policy