It’s not just the Germans. The IMF today has poured scorn on Gordon Brown’s useless VAT cut for reasons that any corner shop owner could have explained to the Prime Minister. Here is what Olivier Blanchard, the IMF chief economist, said today.
Blanchard joins a small but growing chorus of international officials criticising Brown. Last week, I gave a list of other countries that are trashing Gordon Brown’s attempt to borrow his way out of debt. Here is a list of words from international organisations gently pointing out that Britain’s self-styled emperor has no clothes…“Temporarily cutting VAT, a measure that was adopted in Great Britain, does not seem to me to be a good idea – 2 percent less is not perceived by consumers as a real incentive to spend.”
Dominique Strauss-Kahn, Managing Director, IMF
When asked which countries should have a fiscal stimulus package: “As I’ve just told you, I’m not going to make an announcement in place of the countries, but I want to answer your question candidly. Everywhere where it’s possible. Everywhere were you have some room concerning debt sustainability” (IMF Press Briefing, November 15, 2008)
Jörg Decressin, Chief of European Department, IMF
“The room that is available for stimulus, for discretionary stimulus, is circumscribed by the Stability and Growth Pact. There are a number of countries that have reached their medium-term fiscal objectives, including Germany among the larger ones, and therefore these countries have room for fiscal stimulus.” (IMF Press Conference, Jörg Decressin (Chief of European Department), 6 November 2008)
John Lipsky, First Deputy Managing Director, IMF
“fiscal action may not be advisable in countries with greater vulnerabilities, or those where debt sustainability is a major concern. Thus, countries with the strongest fiscal policy frameworks, those best able to finance new fiscal efforts, and those with clearly sustainable debt positions should take the lead.” (Speech, 17 November 2008)
Jean-Claude Trichet, President of the European Central Bank
“If you augment too much your own borrowing, you might be punished by markets. If you are at the limits of what you can do, you can lose more with absence of confidence and loss of confidence than you would gain from the simple channelling of additional spending.” (BBC, 8 December 2008)
“Some countries have fortunately exemplary fiscal policies and I would say that they have room for manoeuvring. But it is not the case for all. You have unfortunately countries that have already no room for manoeuvring. In those particular cases fiscal activism, instead of having a positive impact on the economy, could harm confidence, as economic agents would expect government authorities to address these imbalances, by increasing taxation a posteriori.” (Interview with Brazilian radio, 8 November 2008)
Angel Gurria, OECD Secretary General
“The United States and Japan have weak fiscal automatic stabilisers and interest rates that are already very low; therefore, they have stronger needs for discretionary stimulus. But an already large fiscal deficit in the US and high public debt in Japan put limits on how much they can do. European countries typically have stronger fiscal stabilisers and interest rates can still move further down. But this does not exclude discretionary action, especially in those European countries that used the previous upturn to consolidate their public finances. Whatever the exact situation, it is important that any fiscal stimulus is timely, temporary and targeted. China, which has just announced a sizeable fiscal stimulus package, is in a situation of its own, with considerable room for manoeuvre.” (Angel Gurria, OECD Secretary General, 12 November 2008, Remarks to European Policy Centre)
Jorgen Elmeskov, OECD
“Countries that used the good times to consolidate are obviously better placed to provide stimulus now.” (13 November 2008, Jorgen Elmeskov, Director of Policy Studies in the OECD’s Economics Department)
European Commission
Amelia Torres, a spokeswoman for the European Commission said: “Given the deterioration in the economic situation, there is going to be and we are seeing a deterioration in public finances. Our recommendation is for countries not to let go of public expenditure as the situation deteriorates.” (Bloomberg News, 14 October 2008)
Professor John Taylor, Stanford University, former member of the Council of Economic Advisers
“After years of study and debate, theories based on the permanent-income model led many economists to conclude that discretionary fiscal policy actions, such as temporary rebates, are not a good policy tool. Rather, fiscal policy should focus on the “automatic stabilizers” (the tendency for tax revenues to decline in a recession and transfer payments such as unemployment compensation to increase in a recession), which are built into the tax-and-transfer system, and on more permanent fiscal changes that will positively affect the long-term growth of the economy.” (Wall Street Journal, 25 November 2008)
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