It never looks good for a politician to gloat in the middle of the turmoil, and George Osborne isn’t doing that. But he is pointing out, unsurprisingly, that the swift cuts to eliminate the deficit have made bond traders less likely to turn their sights onto the UK.
In the Telegraph today, he writes:
In retrospect, the use of political capital to implement immediate efficiency savings, pass the emergency Budget, agree the most difficult Spending Review for generations and put in place long-term fiscal reforms to pensions was an excellent investment in our country’s economic stability. Thanks to these decisions, the credit rating agency Standard & Poors took the UK off negative outlook and reaffirmed our AAA rating.
Ministers have made much of Britain’s standing as a supposed “safe haven” from international market gyrations, secured by the coalition’s cuts agenda. And the more the fear about high indebtedness in countries like Greece, Portugal and even Spain and Italy, the more it looks like a sensible decision to cut early and cut deep.
It is an attractive argument, but it is far from certain. It is never possible of course, to prove the counter-factual, but it might be the case that had a more moderate deficit reduction scheme been put in place, the UK would have been just as secure (with its relatively long-term debt maturity and low interest rates low even before the election), but with more growth.
It is an economic argument destined to go nowhere – who knows what might have happened if a different deficit reduction plan had been put in place? But the political reality is that the greater the international turmoil (as long as the UK doesn’t get sucked in), the better it looks for Osborne and his economic gamble.