When George Osborne delivered his first budget, Greece made the perfect backdrop. The television news channels had split screens: on the left side, the new Chancellor making the case for austerity. On the right side: riots in Athens as a government confronted the consequences of its profligacy. Now, as then, British eyes are on Greece — but for different reasons. The prospect of a Eurozone banking crisis has now overtaken rampant inflation as the greatest single threat to the British economy.
The risk is not Greece itself, which, for all its great difficulties, remains a small and marginal economy. British holidaymakers may quietly pray for the return of the drachma and, with it, the cheap European holiday. But this is where the opportunity ends. If Greece’s collapse spreads to other countries on the Eurozone’s periphery then Portugal will be next: another profligate, corporatist economy in desperate need of radical reform. It remains to be seen whether Spain and Italy, the next two dominoes in line, will also tumble over. If they do, anything could happen.
It is often said that Osborne has made an ‘audacious gamble’ with his cuts programme — but, if anything, the reverse is true. For all the talk of austerity, the spending figures show the government to be every bit as fiscally incontinent as its predecessor. Every month, spending has been, on average, 5 per cent higher than the same month in the last year of Gordon Brown. The national debt is rising fast and will have increased by £4,700 by the time you have finished reading this sentence. Still, the UK national debt is rising at a slower rate than it would have under Brown’s plans, and the markets consider Osborne’s aim — to balance the budget by 2017 — to be credible.
It is precisely Osborne’s lack of a radical cuts agenda that gives him plausibility.