Mon, Oct 25, 2010 - Page 10 News List

Nobel economist warns that UK risking economy

Reuters, LONDON

British Chancellor of the Exchequer George Osborne is unnecessarily risking the economic recovery with his deep spending cuts, the country’s new Nobel Prize winning economist was quoted as saying on Saturday.

British-Cypriot Christopher Pissarides said Osborne had exaggerated the risk of a Greek-style debt crisis ahead of introducing the most severe cuts in a generation comprehensive spending review, announced on Wednesday last week.

“Unemployment is high and job vacancies few,” he told the Sunday Mirror. “By taking the action that the chancellor outlined in his statement, this situation might well become worse.”

He said Osborne could have outlined a clear deficit-reduction plan over the next five years, postponing more of the cuts, until the recovery became less fragile.

“The ‘sovereign risk’ would have been minimal,” he said. “Overall, the chancellor is putting the economy through some unnecessary risks because of his fear of sovereign risk, which does not appear justified.”

Osborne said that the £81 billion (US$126.91 billion) of savings were needed to avoid a Greek-style crisis where investor confidence collapsed and the cost of government borrowing soared.

On Saturday, British Prime Minister David Cameron reiterated his party’s argument in a podcast on the No. 10 Web site that the country faced economic ruin unless it tackled a record peacetime budget approaching 11 percent of GDP.

However, the main opposition Labour party has said the cuts go too deep. The Conservative/Liberal Democrat coalition has attempted to stave off criticism by saying it is applying the cuts fairly, with the richest bearing the biggest load.

“We didn’t just do the right thing; I really believe we are doing it in the right way. We’ve gone about these spending cuts in a way that is fair and in a way that will help promote economic growth and new jobs,” Cameron said.

An ICM poll for yesterday’s News of the World showed 45 percent of those questioned thought the measures were unfair compared with 42 percent who considered them fair.

The number was even higher in a ComRes opinion poll in the Independent, where 59 percent thought the cuts were unfair.

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