By Tim Montgomerie
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Osborne on the up escalator… from some time ago
The news media is understandably transfixed by the latest revelations about the links between the Murdoch empire and politicians but a bigger story of the last few days is the revolt of European electorates against conventional politics. We are, of course, seeing it in Britain with the Bradford West by-election and the rise of UKIP. A fascinating YouGov poll earlier this week found that voters are much less likely to vote for rich candidates, than poorer candidates. The biggest news, of course, is from across the English Channel. Three-quarters of French voters endorsed candidates that emphasised greater social protection rather than the one candidate, Nicolas Sarkozy, who emphasised budget balance. The Dutch government collapsed after the extremist Geert Wilders withdrew his support from the Prime Minister's minority administration after he looked at opinion surveys and concluded that voters had had enough of EU-directed spending cuts. Spain is in turmoil over austerity. The Greek electorate will soon give its verdict on the economic medicine that it is having to swallow in the name of the Eurozone.
The key thing that Europe needs is growth and as long as the €urozone isn't allowing the likes of Greece, Portugal and other high debt/unemployment nations to competitively devalue there's little chance of growth resuming. Reacting to the news that the UK economy contracted by 0.2% in the first quarter of this year, a senior aide to George Osborne issued this statement:
"GDP is -0.2%, so 2 quarters of negative growth is technical recession. Clearly the UK faces a tough situation having built up huge debts, even given falling unemployment last week. George said in the autumn statement that if Europe went into recession it would be hard for the UK to avoid one. Eurozone now forecast to be in recession as well as non euro countries like Holland, Denmark, Czech republic. One thing that would make it worse is yet more borrowing."
Putting aside the fact that Holland (ie the Netherlands) is a €uro member economy, it is not unreasonable for Osborne to largely blame the €urozone for Britain's under-performance. It is not, of course the full story. As I argued after Osborne's very first Budget, the Chancellor has never given enough priority to competitiveness. The most recent Budget suggested that he now had begun to understand that although (as I wrote for Monday's Daily Mail) it was a bit too little, too late.
My hope is that George Osborne approved extra money for the IMF because he knows that more firepower will be needed to help the European economies adjust when the €urozone breaks up. My fear is that Christine Lagarde will use the money to keep the €urozone together, or at least try to. That would be a terrible mistake. As Sajid Javid MP said – before he became the Chancellor's PPS – the €urozone is one huge bankruptcy machine and it's bankrupting us as well as its member states.
Break-up will hurt but essential surgery always does.
> On MPsETC today – Martin Callanan MEP: Europe has put an expensive sticking plaster on the €urozone but its fundamental weaknesses remain
11am: Andrew Lilico offers some quick reactions to the growth data