One of the most disingenuous refrains coming from the coalition is the attempt to compare the UK with Greece, and suggest that unless brutal action is taken we will see interest rates soar as ‘the markets’ lose confidence in the British government’s ability to pay its debts.
We will leave aside that this talking down of British stability is, to put it mildly, unusual for a Chancellor of the Exchequer. To paraphrase the war-time slogan, careless talk costs jobs. Until Osborne became chancellor the unwritten rule was that they never, ever, talk down our economic prospects for fear that to do so would quickly become a self-fulfilling prophecy.
There are numerous reasons we are not Greece. Here are the most important ones.
First, the debts of the Greek government were hidden from the public, the markets, the EU and everyone else. The British government’s deficit and debt have been firmly in the public domain and, despite government spin, have turned out to be a little less than first forecast. Everyone knows where Britain is at with its debt and deficit problem, and no-one seriously thinks that anything has been, or even could be, hidden away. Clearly that was not true in Greece, something that fundamentally undermined confidence in its system of government.
Second, whilst Britain’s short-term annual deficit position did reach record highs very quickly during the financial crisis, our cumulative public sector debt is much lower than Greece’s.
Third, most of the Greek government’s much higher debt was in short-term bonds that required frequent renewal. That opens them up to market volatility and higher interest rates in a way that simply doesn’t apply to Britain. Most British government borrowing is in much longer-term bonds. In fact, we have one the longest-term bonds of any developed country. This makes us much less vulnerable.
Fourth, most British government debt is owned domestically by people, including pension funds, who have a vested interest in not destabilising the whole show. Most Greek government debt is owned by foreign banks that have no such self-interest to protect.
Fifth, and last of the mainly economic reasons, is that we are not in the Euro. We can pursue independent economic and exchange rate policies – Greece cannot.
There is a sixth reason why Britain isn’t Greece, which relates back to the first. Britain has a stable, effective and relatively transparent system of public administration that actually works. When government changes tax rates, by and large, most people and organisations comply. When government decides to cutback spending, we have the mechanisms to make sure it happens. When we say our debt is ‘x’, it is indeed ‘x’ and not ‘x’ plus ‘y’.
None of these things is obviously the case in Greece. Its whole public administration system is far less stable, far less legitimate in the eyes of the public, and far less effective. Taxes go uncollected and the shadow economy is far larger in Greece than in Britain. The fact that the government could successfully hide its real debt position illustrates the fundamental problems of Greek public administration compared to the UK, where such an event is unimaginable.
So, Britain is not Greece – it is not even close to the sort of problems the Greek state has. Every serious analyst, including the market analysts, know this. Osborne and his coalition confreres know this. But the fear of a Britain ‘going the way of Greece’ is a useful political weapon. It carries unconscious echoes of the ‘winter of discontent’, riots in the streets, strikes, high inflation, and the lights going out. So despite the evidence, don’t expect the coalition to stop using the ‘Greek gift’ anytime soon.
Colin Talbot is professor of public policy and management at Manchester Business School. This post first appeared on Whitehall Watch
