Posted at 03:00 11 September 2009 by Tom Barry | Comments[0]
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Tom Barry
First Secretary Economics Washington
Friday 11 September, 2009
Over the last two years fiscal policy has made a comeback. The depth and severity of the recession meant both fiscal and monetary policy had to work in tandem to stimulate demand. Fiscal measures in the US, the UK and around the world have helped to cushion the shock to the global economy, and may have prevented the worst recession since the Second World War from turning into another Great Depression.
But while large fiscal deficits can be necessary in the short-run, they cannot persist in the long-term.
On Tuesday, the British Chancellor Alistair Darling gave the Callaghan lecture, which reaffirmed the UK government’s commitment to fiscal discipline:
"That is why, at the G20 meeting last weekend, countries agreed that once recovery is firmly established, we must all rebuild our fiscal strength. Cutting support now, as some are demanding, would run the real risk of choking off the recovery even before it started, and prolonging the global downturn.
But in the medium-term we need to live within our means, not to do so would be equally irresponsible and damage our country’s future. The Prime Minister and I will never risk the fiscal sustainability of our economy. It is why in the Pre-Budget Report, and then in this year’s Budget, I set out plans to half the deficit over four years once the recession is over – and we will not shy away from these plans. "
Both Standard & Poor’s and Moody’s maintain AAA credit ratings for the UK. And today Moody’s reaffirmed that it did not anticipate downgrading the UK’s rating.
For the moment, the focus is on helping economic recovery – and that means not withdrawing stimulus prematurely. But, in the longer-term, delivering fiscal consolidation will be essential.
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