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Posts Tagged ‘austerity’

British Conservatives forget their own history

February 27 2013 Leave a comment

Andrew Lilico is a true believer in the logic of austerity and took to the Conservative Home blog recently to argue for bigger, faster cuts.

He was kind enough to respond to my comment and I’ve posted the exchange below.

oblivia: No, no, no. And no.

Lilico reckons Britain could face the same fate as Ireland and Spain. “It is not a “’purely theoretical’ concern,” he assures us.

Err, did I miss the UK joining the euro? If not, then Lilico is talking nonsense. It’s a “purely theoretical” concern that Britain will be forced by the Germans to take the same medicine as Ireland and Spain.

As long as we have our own currency, it’s impossible that we could run out of money and have to go begging to Europe for a bailout. Doesn’t Lilico know this? Is he deliberately cultivating groundless fears or just being ignorant?

It’s bizarre that people who railed against giving up the pound now behave as though we joined the euro anyway. What’s the point of currency sovereignty if you don’t take advantage of the huge power it gives us? We could have spent the past couple of years sprinting past the rest of Europe, but instead we’ve just joined them.

Hard to think of anything stupider.

Lilico: Yeah, yeah, cos countries that print their own currencies *never* have sovereign debt crises, do they? How could anyone have thought that the UK in 1976 had a gilts crisis, or that Angola is anything other than AAA today. And *obviously* the Irish recession and bank failures came *after* the ECB intervened, not before – how could I have been so silly as to think things had occurred in the opposite order.

I am no longer able to be polite about this utterly ridiculous meme that has spread that countries that print their own currencies can never have sovereign bond problems. It’s garbage.

oblivia: There are indeed parallels between Britain in 1976 and the PIIGS in 2009 — they were beholden to others. Britain was dependent on funding from the IMF, while Ireland and Spain had devolved monetary policy under the euro.

News flash: We are no longer indebted to the IMF and we didn’t join the euro. These aren’t accidents. They were the product of deliberate Conservative efforts to protect our independence.

Now you argue that this independence is an illusion. Forget all the arguments of the past, you say, we are in just as much peril today as we were in 1976. Be afraid.

I say this is nonsense.

ps Andrew Lilico is a director and principal at Europe Economics, a consultancy specialising in economic regulation, competition policy and the application of economics to public and business policy issues. You can find him on Twitter as @AndrewLilico, though you do so entirely at your own risk.

pps Martin Wolf also has a good piece in today’s FT that slays a few austerity dragons and makes the point that the problems in the PIIGS were caused by the ECB’s ill-advised austerity (which was forced on them after they gave up their independence to join the euro): “Eurozone countries’ debt crises resulted from European Central Bank policy failures. Because of its refusal to act as lender of last resort to governments, they suffered liquidity risk – borrowing costs rose because buyers of bonds lacked confidence they would be able to resell easily at all times. That, not insolvency, was the immediate peril.”

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