The Blog

Greek Gods, Debt Repayment, and Other Myths

Like the Greeks, we need to sweep such false political exigences aside and have a properly informed, national conversation about where the strategy of deficit reduction leads. Especially if the main tool being used is a blind and sweeping worship of the concept of austerity.

As we watch the ECB and the EU forcibly impoverish an entire nation to create a third world country from scratch, The Chancellor - or to give him his full title : Gorgeous George The Demon Axe-man of Downing Street - has been standing on his hind hooves in Westminster telling us how lucky we are to have him at the helm of UK PLC, rescuing us from the deadly clutches of a fate worse than Greece.

The Conservative's frequent referrals to Greece's economic meltdown during the election campaign would seem to suggest Osborne was firmly convinced that all it would take for us to meet the same fate would be for him to look into his bathroom mirror, whilst uttering the dark incantation "structural deficit" three times over.

But of course, as we're all no doubt aware, the situation in the Mediterranean is rather different to ours. The debt to GDP ratio is about twice that of the UK right now, and of course Greece is tied to the Euro, which we thankfully avoided, due more to panic than judgement by a previous Conservative Chancellor.

Perhaps it's fitting though that a land full of ancient myths should be the inspiration for a Chancellor who so heavily relies on half truths flim-flam in most, if not all, of his claims to economic competency.

We already know that he fell far short of his previous goal of wiping out the deficit by the end of the last parliament. Even his claims that he'd halved it relied on a swift repositioning of the goal posts in the hope that the ref wouldn't notice. And that was after some of the most swinging cuts to public spending in living memory.

The new promise of a golden tomorrow, made in the budget statement, comes in the form of a predicted surplus of around £10bn at the end of this government. That's a shift in fortunes of about £90bn in 5 years. Way to go George!

Whilst the government's tame economic think-tank, the OBR, has concurred that this is a viable outcome, the IMF and the OECD both think we'll probably still be in deficit come the glorious morning of the next election. Although I'm sure, by then, Gorgeous George will have figured out a way of turning that into a surplus, by closing one eye and looking at the graph from underneath his desk.

But even discussions about the deficit and the debt are full of misdirection. It's clear from conversations I had during the election campaign and from comments made by politicians and commentators, that when some people say 'deficit' they often think they're talking about the national debt.

Just to clarify - for those who are still confused - and leaving aside the technicalities between the various versions of both terms - the deficit represents a roughly annual figure of how much more we spend than we earn. The debt is the cumulative amount we have borrowed to close that gap over a number of years.

The debt currently stands at about £1.56 trillion and the deficit at about £80bn per annum. That's a little more than half the £150bn it was when the coalition took power. Interest on our debt is approximately £46bn, and rising, as the government continues to borrow year on year to balance the books. In fact Osborne added £600bn to the debt over the last parliament.

Those figures ignore consumer debt, the cost of PFI and future pension liabilities which take our collective indebtedness to stratospheric levels, but as that's rarely mentioned by governments, I'll also ignore them here.

Osborne has been quoted many times as saying that he and the Conservatives want to "finish the job". But the 'job' he refers to is a reduction in the deficit. A worthy aim by anyone's standards, but that's by no means any kind of finish line.

Even if we do achieve a surplus in 2020, the debt will still be there. Probably in the region of £1.6 trillion by then, with annual interest payments standing at over £50bn. That's assuming we haven't had an interest rate rise by then, which is highly likely.

So as the Greeks have found to their cost, even with a bit of cash in hand, be that from an ECB hand-out or from a surplus, clearing the debt is an almost Herculean task. Or in more accurate mythical terms : Heraclean. Just as much of the bail-out money Greece receives go straight back to the banks, we will also still be spending up to 5 times as much as any predicted surplus just to service the interest on our debt.

To put any surplus into context, we haven't had one since the early days of the last Labour government in in the late 90's, into 2001, when it peaked at just over £22bn for one year in four years of surplus. Prior to that we had a period of 3 years in the black in the late 80s at which point we managed a high of £10bn or so in 3 years. We have to go back to the early 70s to find any sustained period when had a few spare quid tucked behind the national mantelpiece clock. And it was only a few quid, in national economic terms, even allowing for inflation.

Now I'm not an economist, but my maths O Level tells me that a £10bn surplus per annum would take 160 years to clear a debt of £1.6 trillion. Even at twice that rate (a surplus we've only achieved once in over 50 years) it would take most of someone's lifetime.

That's assuming we run a surplus at at least that level EVERY year for those periods, which historically is about as likely as David Cameron becoming the King of Troy. It also assumes that interest rates don't climb and that we don't spend our hard won surplus on anything other than re-payments having already allocated a large chunk of income to cover interest.

That's also 16-160 years of no further economic crises, no wars and moreover, no enhanced investment into our own infrastructure. It also assumes no more bank bailouts, which considering we've hardly shifted from the economic model that necessitated the last one, is a big assumption.

So very much like the situation the Greek people recently rejected, we'll remain a slave to the debt for generations after which many long gone Chancellors could finally claim they'd "finished the job".

In that context the Greeks decision to say NO in the referendum last week seems positively pragmatic. Perhaps we should all consider a position where, when debts get to these sorts of incomprehensible levels, any strategy that focuses on clearing them is at best futile and at worst, barefaced political tokenism.

Our tacit acceptance of the imperative of repaying a debt, owed to the very global financial institutions who's own disregard for fiscal fortitude were the root cause of us having to borrow the money from them in the first place, seems to me a mystery worthy of Homer himself.

The conflation of the terms 'deficit' and 'debt' is persistently being used to hoodwink the public into believing that nothing is more important than reducing both, even though economists know that the pursuit of one goal does not guarantee the other will be achieved for generations to come.

In the same way that religious leaders use emotive mythology to drive our beliefs, both Labour and The Conservatives have allowed us focus on the means rather than the end.

Like the Greeks, we need to sweep such false political exigences aside and have a properly informed, national conversation about where the strategy of deficit reduction leads. Especially if the main tool being used is a blind and sweeping worship of the concept of austerity.

Otherwise, like the ancient and the modern Greeks, we'll continue to feed unseen deities, whose only power over us is our belief that their appetites must be assuaged for us to continue to survive.