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Thread: U.K.’s Osborne Faces ‘Plan B’ Deficit Call From 52 Economists

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    U.K.’s Osborne Faces ‘Plan B’ Deficit Call From 52 Economists

    From Bloomberg.com:

    U.K. Chancellor of the Exchequer George Osborne was warned to adopt a “Plan B,” easing the pace of deficit reduction, by 52 economists in a letter to the Observer newspaper.

    “The breakneck deficit-reduction plan, based largely on spending cuts, is self-defeating in its own terms,” the letter, whose signatories include Richard Grayson of Goldsmiths University, said. “It will probably not manage to close the deficit in the planned time frame and the government’s strategy is likely to result in a lot more pain and a lot less gain.”
    U.K.

    I disagree. The UK acted preemptively and firmly to begin to tackle its fiscal challenges. Moreover, it took a front-loaded approach, which bolstered the credibility of the program. I believe that it should sustain its fiscal consolidation program.

    Even more importantly, the International Monetary Fund (IMF) concluded its Article IV consultation with the UK and concluded that the UK's fiscal policy approach is "essential." Excerpts from the IMF's concluding statement follow:

    Strong fiscal consolidation is underway and remains essential to achieve a more sustainable budgetary position, thus reducing fiscal risks...

    On the fiscal side, the government has already made significant progress in implementing its consolidation plan, though challenges remain. Structural fiscal adjustment in FY10/11 is estimated at roughly 2½ percent of GDP, largely reflecting higher taxes and the reversal of fiscal stimulus. Though the pace of adjustment will ease somewhat going forward, it will also become increasingly reliant on expenditure cuts, as specified in the Spending Review. Evidence suggests that spending-led consolidations lead to longer-lasting budgetary improvements...

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    Re: U.K.’s Osborne Faces ‘Plan B’ Deficit Call From 52 Economists

    1200 miles to the southeast, the same argument plays out, if a little less hi brow:

    Greek Prime Minister George Papandreou started a campaign on Monday to secure a new international bailout by imposing years of austerity on a nation already seething over corruption and economic mismanagement.

    Unease is growing within Papandreou's ranks about the consequences of waves of budget cuts demanded under successive deals with the European Union and IMF -- and this could turn into alarm after at least 80,000 Greeks crammed a central Athens square to vent their anger over the nation's dire state.

    As the government struggles to prevent Greece from defaulting on its debt, the Socialist cabinet began discussing the medium-term economic plan which will impose 6.4 billion euros of extra savings this year alone.

    This is the first stage of a drive to turn the plan, agreed on Friday with the EU and IMF as the price of a new financial rescue, into law despite signs of dissent in the ruling party.

    German and French banks held over two thirds of Greek government bonds in international lenders' hands at the end of last year, bank lending data showed on Monday.

    Under Greece's austerity policies, unemployment has already hit 15.9 percent of the workforce and the medium-term plan aims for a further 22 billion euros in budget steps in 2012-15.

    Greece's first, 110 billion-euro, bailout assumed that it could resume borrowing commercially early next year. This now appears inconceivable, meaning a new package is vital.
    Greece starts austerity push as nation seethes - Yahoo! News

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    Re: U.K.’s Osborne Faces ‘Plan B’ Deficit Call From 52 Economists

    below the bay of biscay, today:

    Portugal's governing Socialist Party has admitted defeat in the general election.

    Socialist leader Jose Socrates said he accepted responsibility for the defeat and resigned as head of his party.

    The victorious centre-right Social Democrats (PSD) led by Pedro Passos Coelho are expected to form a majority with the conservative CDS.

    The new government must implement a demanding austerity programme as a condition for an EU bail-out.

    Exit polls gave the PSD between 37% and 42.5% of the vote, ahead of the Socialists who scored between 24.4% and 30%.
    BBC News - Portugal election: Socialists admit defeat

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    Re: U.K.’s Osborne Faces ‘Plan B’ Deficit Call From 52 Economists

    The IMF yesterday gave broad support for the Chancellor's plans to reduce the government deficit by cutting public spending and insisted that there was no need to change course at the moment.

    The global economic watchdog said the economy remained on track for a “moderate” recovery where interest rates remain low and inflation finally starts to ease next year.

    But after its experts visited Britain for their annual survey, the IMF also warned of “significant” risks that growth will remain feeble and unemployment “unacceptably high”.

    Some economists have said that, if the economy does stall, Mr Osborne should be prepared to relax his programme of cuts to borrow more and spend more.

    By contrast, the IMF said that in such a scenario, the economy should be stimulated with a combination of more “quantitative easing” from the Bank of England and “temporary tax cuts” for businesses and low-income households.

    Tax cuts would be “faster to implement and more credibly temporary” than any move to increase public spending, it said. Its economists even hinted that if the recovery did not materialise, larger cuts to welfare and other programmes might be needed to balance the budget and reassure financial markets.
    Cut taxes to boost economy, IMF tells George Osborne - Telegraph

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