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

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.”

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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.

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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%.

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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.

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