Chancellor George Osborne has told Parliament he will not soften his fiscal consolidation plans because to do so would lead to a sovereign debt crisis.
Speaking this afternoon, he told MPs that the fact other countries are implementing “emergency budget measures” to “catch up” with fiscal consolidation in the UK is a vindication of the Government’s deficit reduction programme.
He said: “Ours is an unwaivering commitment to deficit reduction. Abandoning it would lead to a debt crisis and so we are not going to do it.”
He also said that if the Monetary Policy Committee was to make a “serious request” for quantitative easing, the Treasury will “seriously consider it”.
He said it was “easy to see” what had caused the recent stock market volatility, pinning it on slow US growth, Standard and Poor’s downgrading of America’s credit rating and the European crisis. He added: “But these have not come out of the blue, they all have the same root cause: debt.”
He told a packed House of Commons excessive global debt means the recovery will “take longer and be harder” than previously thought. He said now was the most dangerous time for the global economy since 2008.
On Sunday, the European Central Bank announced it was to start buying EU member state bonds from the market and today Osborne reiterated his position on the “remorseless logic” that monetary union requires fiscal union.
Osborne said Government action had made Britain a “safe haven” in the current storm.
Shadow Chancellor Ed Balls said Osborne was either complacent or in denial. He suggested that shrinking yields on UK Government debt are not a sign that UK is a safe harbour but a sign of stagnating growth.
Balls said: “He has been to Hollywood…but he cannot simply write a script and see it become a reality. That is not how the real world works.”
Osborne responded: “I did meet Mickey Mouse, and he seems to be writing Labour’s economic policies.”