The disappointing performance of UK GDP in the past couple of years has become a matter of international interest. Many economists, unsurprisingly, have concluded that the UK government has pursued totally the wrong economic strategy, especially with regard to the speed of fiscal consolidation. The adverse comparison of UK performance with the US, a country with similar exposure to housing, financial services and the bursting of the credit bubble, but with less fiscal tightening since 2010, has been widely emphasised. A consensus has developed that the fiscal multiplier has proven to be much higher than was expected in 2010, and many economists have concluded that fiscal consolidation in the developed economies should be reversed or slowed down. Read more

A few weeks ago, I wrote that the twists and turns in the eurozone crisis had, in the early months of 2012, lost the power to shock global asset prices. The reason given was that the prophylactic provided by the use of the ECB’s balance sheet essentially trumped the deteriorating economic fundamentals in several countries, notably in Spain. This view has since been severely challenged, but it has just about remained intact; after all, American and Asian equities are still 6-7 per cent up so far this year.

However, the crisis which surrounds political events in Greece threatens to change all that. This is the first major revolt by any electorate against the eurozone’s austerity policies, and it is those policies which have underpinned the willingness of the ECB to use its balance sheet to rescue the banking system. Furthermore, Greece is just the tip of the iceberg. The swing against austerity by voters in the eurozone is manifesting itself in many different places. I have been wondering whether this is good or bad news for the resolution of the crisis. Read more