Fitch have calculated a league table of international fiscal pain using historic growth rates and interest rates.
The bad news for Britain is that we’re second only to Ireland, requiring an adjustment of 9.6 per cent of national income to address the deficit in 2009. On this measure, Greece, Portugal and Spain are all in a better position.
This is admittedly a rough calculation that is based on questionable assumptions, as it attempts to work out the “snowball effect” of interest payments exceeding proceeds from economic growth. But it is yet another reminder of the scale of the challenge ahead.
Fitch have also pulled together a comparison of the deficit reduction plans across Europe, showing that Britain is falling behind. I expect the emergency Budget will address this.
In order to fend off the market gremlins, the ratings agency argues that Osborne should start paying off the national debt, rather than just reducing the deficit, within five years. (This is only pencilled in to begin in 2017 onwards.)
Jim Pickard
Kiran Stacey
