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Conservative Party researchers have compiled the following selection of quotations from eminent economists and commentators to back up George Osborne’s remarks at the weekend

HM Treasury
“Loosening fiscal policy when the underlying structural fiscal position was poor could damage consumer and business confidence, thus having the opposite effect to that intended.” (HM Treasury, Analyzing Fiscal Policy, 1999)

Charlie Bean, Deputy Governor of the Bank of England
“If you have a Fiscal Policy action which is expected to be relatively long lasting, it’s not clear how fiscal plans are going to be brought into a sustainable pattern further down the road, that’s likely potentially to lead to concerns that eventually it might get monetised, that might put downward pressure on sterling – on the exchange rate. I mean this is something you’ve seen in emerging market countries in the past.” (Charlie Bean, Chief Economist at the Bank of England, Inflation Report Press Conference, 12 November 2008)

Michael Saunders, Chief Economist at Citibank
“In practice, in seeking to both stimulate the economy and raise its own popularity in the runup to the next election, the Government would prefer any fiscal stimulus to be large and appear to be permanent, and will aim to downplay the extent to which any fiscal loosening is temporary.” (Citi – BoE Inflation Report and Labour Market Data, 12 November 2008)

Daragh Maher, senior currency strategist at investment firm Calyon
"Like everywhere, the UK economy is slowing down. But the perception is that we have over-borrowed more than other countries, so the payback will be greater." (BBC News Online, 13 November 2008)

Willem Buiter, Professor at the London School of Economics, former member of the MPC
“If it becomes a rout, as it I think now it has a risk of becoming because people have lost confidence in the ability of the British government to finance its expenditure in a sensible coherent way over time, then it could lead to the destruction of asset values across the country and a financial crisis rather than an old-fashioned, nice Keynesian demand stimulus.” (Today Programme, 14 November 2008)

Tim Besley, member of the MPC
“One of the factors behind the fall in the pound is surely the fact that foreign investors are now demanding a higher risk premium to hold U.K. assets… Sterling weakness will also lead to a further squeeze in real living standards as UK consumers will, in the end, have to pay more for imported goods… At the present time, movements in Sterling appear likely to remain more influenced by an assessment of general economic prospects in the UK and the risk premium that investors are demanding to hold Sterling assets, rather than with the level of Bank Rate.” (Speech by Tim Besley, member of the MPC, 28 October 2008)

IMF
“Fiscal deficits have been associated with a depreciating exchange rate. This may be explained by expansionary fiscal policies raising perceived exchange rate and political risks and lowering the credibility of both monetary and fiscal policies. Over the long run, a sustained improvement in the fiscal balance that raises national saving and reduces the ratio of government debt to GDP will very likely lead to a real exchange rate appreciation. Thus, a country that saves more than its trading partners will ultimately find that its currency will strengthen relative to other currencies.” (IMF, Pamphlet Series No.49, Guidelines for Fiscal Adjustment)

Nigel Lawson, former Chancellor of the Exchequer
“I am not persuaded, however, that an attempted fiscal stimulus is desirable. Of course the budget deficit will rise as the recession erodes tax revenues and increases benefit payments, and that is no problem. But in the UK in particular, where, under this Government, the underlying fiscal position has deteriorated alarmingly, discretionary action to cause it to deteriorate still further would, in my judgment, be unwise.” (Lords Hansard, 3 November 2008)

Terry Burns, former Permanent Secretary to the Treasury
“I belong to the same group as many noble Lords who have spoken today who say that to go beyond that would be very dangerous at this point. We begin from a position of a structural budget deficit. Adding to that structural budget deficit can only increase the problems subsequently.” (Lords Hansard, 3 November 2008)

Trevor Williams, Corporate Market Chief Economist, Lloyds TSB
“it could mean higher long term interest rates and so weaker economic growth than otherwise and a weaker exchange rate, implying higher than otherwise inflation and higher short term interest rates… the rate at which the outstanding debt position deteriorates will depend on just how bad the budget deficit is from year to year. The challenge will be to prevent it from deteriorating too rapidly and potentially destabilise the UK economy” (Lloyds TSB, Corporate Markets analysis, 28 July 2008)

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