Hocked nations blind to reality that gdp growth won’t be enough to slash deficits

Debtor denial is the big issue in the West

European debtor nations are banding together to insist that the answer to debt problems is economic stimulation. The Slog explains why this is a disastrous folly.

“Take a long, hard look at them” intoned the Prime Minister today, shining his miner’s lamp on the Tory Bogeyman. His line – as we’ve all been expecting – is that Conservatives only want to cut, whereas Labour wants to grow.

In this version of reality, Gordon Brown at least allows the Tories a break from being the do-nothing Party. The Opposition, he now declares, are the Cut Everything Party. But those with a calm brain need to provide a context for such blatant electioneering.

The latest inline version of the Economist has an excellent piece on Sovereign debt. Given the nature of credit-rating agency nerves, rising rates for borrowing anyway and Chinese selling of Sovereign bonds, the brainboxes here at Slogger’s Roost agree wholeheartedly with Big Red when it says that the crisis

‘….demands a credible medium-term plan to cut deficits. Otherwise Greece’s problems could be the start of something much bigger.’

What all the spendthrift countries have in common is the assumption that GDP growth will increase tax revenues. But this assumed growth is very unlikely to be realised in Greece, Spain, Ireland or the UK, where manufacturing (modernised or otherwise) has been neglected in favour of service industries. And even if it was, the upped tax income streams would be swallowed up by a deadly combination of aged care, unemployment benefit and local government support.

If your Spanish is up to it, read La Verdad’s piece earlier this week on social service and local government meltdown. Sooner or later, the same reality must be faced by all of us here in the UK.

The fundamental flaw in debtor-denial thinking is the timeline involved. They don’t seem to realise that nervous creditors will up interest rates and increase the pressure for repayment long before ill-balanced economies can reconfigure. Voter pain (whether politicians like it or not) is secondary to sovereign bankruptcy.

Gordon Brown’s delusion and Lord Mandelson’s deceit are the actions of the gambler trying to put off the demanding bookie with one last desperate throw of the dice. What they’ve forgotten is that the choice to allow the bet lies with the bookies,not them.