Monday, 22 August 2011

A busy August

August is usually a quiet month for politics, but this year has certainly turned out to be an exception. Not only have we seen the shocking spectacle to looting and criminality on the streets of our major cities, but the world economy has also been teetering on the brink and the financial markets have been spooked by problems in both the US and the Eurozone.

It was against this backdrop that parliament was recalled to debate the current troubles. The House of Commons was packed last Thursday and, as dozens of MPs rose to their feet to address incidences of violence and looting that had erupted in their constituencies, you got a sense of how many people had been affected.

Parliament also addressed the perilous state of the world economy. As Eurozone countries continue to limp from one crisis to another, the recent deadlock between the Senate and the Congress in the United States over how to deal with their own debt crisis sent the money markets into a tailspin.

The one thing that recent events do prove is that the early action taken by George Osborne to get Britain’s finances back in order was right. A year ago, some commentators were pointing to the laid back approach being taken by President Obama to America’s debt mountain and suggesting that we should do the same. But a year on, the credit rating of the world’s biggest economy has been downgraded in an unprecedented move and growth has stalled. The truth is that you can’t keep living on borrowed money forever. You can only borrow if people are willing to lend to you. In recent years, both the United States and Europe have borrowed and spent more and more money from countries like China who actually make things and so have a surplus. They will want to be paid back at some point and will stop lending if they think you are not serious about repaying them. That is what has been happening to both America and those countries trapped inside the euro in recent weeks.

As a result of Britain acting early to cut its deficit, the world financial markets are starting to see the UK as a safe haven and, as a result, the yields on UK Gilts (put simply the interest rate the government needs to pay to attract people to lend it money) has fallen to the lowest level for over 100 years. While growth is slowing around the world, it is still 1.5 percent in Britain compared to zero in France. These things are more than just statistics. Sound management of the economy means lower mortgage rates for families and a boost to economic confidence which means more jobs and new businesses starting up. That is why we must hold our nerve and continue to live within our means.

George Eustice can be contacted on george.eustice.mp@parliament.uk or at 1 Trevenson Street, Camborne, Cornwall, TR14 8JD or by telephone on 020 72197032.