Peter Hoskin

Merkel talks prudence

Merkel talks prudence
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For months now, Angela Merkel has stood as one of the biggest impediments to Brown's "global grand bargain".  Whilst our PM's been talking up an international stimulus, she's been lowering expectations ahead of the London Summit - prefering, instead, to talk about tax havens and regulatory change.  

Even though her rhetoric sounds a little softer than usual, there's still nothing in Merkel's interview with the FT today to suggest that she's changed tack.  Here, for instance, is her take on bigger public deficits:

"Markets, she added, 'expect to see a return to sustainable fiscal policies after the crisis'. Asked about the failure of a government bond auction in the UK this week, she stopped for a long pause, and chose her words with great care: 'It shows states cannot borrow forever,' she said."

Of course, Merkel's warning is something that an unrepentent debt-junkie like Brown would do well to heed.  But the Tories should bear it in mind too.  As Fraser revealed last week, their current spending plans would leave national debt 60 percent higher than it is today.  Unless they do more to show that they're going to tackle our country's severe debt problem, then investors could start running scared.  And that could have terrible consequences for us all.