[FT]The government takes a huge gamble on investor confidence

The government takes a huge gamble on investor confidence
By Martin Wolf

Published: November 24 2008 17:47 | Last updated: November 24 2008 17:47

Stuff happens. Stuff has certainly happened to both the UK economy and the government’s fiscal position. What Alistair Darling delivered on Monday was a crisis budget. He scrapped the hallowed rules of his predecessor and boss, Gordon Brown. Profligacy has replaced prudence as the chancellor’s watchword.
어리석은 일이다. 영국경제와 정부의 재정정책에서 정말 대책없는 일이 일어났다. 알리스테어 달링이 월요일 발표한 내용은 충격적인 예산안이다. 그는 전임자이자 현재 그의 상사인 고든 브라운의 좋은 규칙들을 폐기해 버렸다. 장관의 말때문에 낭비가 성실의 자리를 차지하게 되었다.

The government is taking a huge gamble on its ability to sustain the confidence of investors in the UK. I believe it is right to do so. But nobody knows. The risk that these monstrous fiscal deficits – with public sector net borrowing of 8 per cent in 2008-09, forecast to fall to 2.9 per cent in 2013-14 – will trigger a sterling crisis and a massive sell-off of UK government debt is not a small one. The decision to raise the top rate of tax to 45 per cent, after more than two decades, however popular with the backbenches, is symbolic. If 45 per cent today, why not 50 or 60 per cent tomorrow? Expectations are no longer firmly anchored.
정부는 영국의 투자자들의 확신을 유지할 수 있는가에 대한 거대한 도박을 시작했다. 나는 그렇게 하는게 맞다고 믿는다. 그러나 아무도 모른다. 영국화폐의 위험과 영국국채 매도사태가 발생할 끔찍한 재정적자-공공부문의 순부채는 2008-9년 사이 8%였다. 2013-14년에는 2.9%로 떨어질 것이다.-의 위험은 작지 않다. 20년 뒤 까지 최고세율을 45%로 높이겠다는 정부의 결정은 초선의원들의 환영에도 불구하고 상징적이다. 만약 오늘날 45%를 허용한다면 50%,60%까지 오르지 말란 법은 없지 않나? 예상은 더이상 고정되어 있지 않는다.

What is certain is that this statement failed to admit either that the crisis has domestic roots or how far the past policies of this government explain the enormity of the current fiscal position: the UK did not have to have a huge housing boom financed, in large part, by the wholesale financial markets; and the UK did not have to go into the downturn with sizeable fiscal deficits.


Also serious, I believe, is the failure to admit that a fundamental structural change must now be under way – from soaring household borrowing, a booming housing market, a bloated financial sector and rapidly growing public spending, towards higher savings and current account surpluses. The economy has to become far better balanced in the years ahead. The UK has enjoyed the fat years. Now come the lean ones. It is unclear from the chancellor’s speech that the government recognises the scale of the structural challenge.

It is evident that its forecasts are not worth the paper they are written on. Nobody’s now are. The Treasury forecasts recovery from the third quarter of next year, as lower commodity prices, lower interest rates and the fiscal boost start to work. The economy is expected to contract at between -¾ per cent and -1¼ next year and then to grow at 1½ -2 per cent in 2010.

If so, this would be a mild recession. Anything is possible. But I do not believe it, given the scale of the shocks. The frightening possibility is that the chancellor is still understating the fiscal deficits ahead. Net borrowing for 2009-10 is already supposed to be 5.5 percentage points higher than was forecast in the Budget. It could well end up higher still.