John Cranage: Squaring economic circles looks impossible
Oct 6 2009 by John Cranage, Birmingham Post
The Conservatives will soon discover that converting their lead in the opinion polls into electoral victory is likely to hinge on their ability to square the economic circle of cutting unemployment while curbing spending.
Only a recent arrival from another, more paradisal planet would fail to grasp the fact that the ballooning deficit has to be hacked back.
Even Labour, despite the ingrained tendency of its backwoodsmen to paint the Tories as the party of “cuts” aimed at taking bread from widows and orphans, understands that.
In fact, Chancellor of the Exchequer Alistair Darling was in Istanbul at the weekend telling the annual meetings of the International Monetary Fund and the World Bank that ministers have been told that borrowing will have to be reined in at some point.
Recession, falling tax revenues and a bail-out of the banks is expected to push public borrowing to a record £175 billion this year. Mr Darling spoke of being “robust” with his Cabinet colleagues on the matter.
His shadow, George Osborne, is expected to put some flesh on the bones of the Conservatives’ own ideas at the party’s conference today. Don’t expect to go home overly enlightened.
Penny to a pound, he’ll revert to the old Harold Wilson bromide, “we’ll have to look at the books”. But his party has already committed to a “massive” programme to cut unemployment. Mr Darling, in contrast, at least has the benefit of the pre-Budget report next month to lay his cards in front of the British public.
On a more positive note, it seems as though the Financial Services Authority is alive to the dangers of rushing to force banks across the world to strengthen liquidity ratios.
It’s something the authorities are calling for in an attempt to ensure the banks can withstand the next financial storm. The FSA said yesterday that the banks have been given years, rather than months, to strengthen their defences so as to nip off the prospect of a second credit squeeze.
Paul Sharma, who rejoices in the title of director of prudential (a word guaranteed to generate cynical laughter when spoken in conjunction with the proper nouns Gordon and Brown) policy at the City regulator, was quoted as saying: “The FSA will not tighten quantitative standards before economic recovery is assured.”
It was in response to a warning by the banks that they cannot square the circle (that phrase again) of lending to aid recovery in tight markets while building up their reserves.
The question is: does the Basel Committee on Banking Supervision understand that?
