The European Commission's recommendations for UK macroeconomic policy

The Commission today published its "country-specific" economic policy recommendations.  The UK ones are here. There are number of generally very sensible, if somewhat bland and unspecific, supply-side suggestions (liberalise planning to increase housing supply, introduce a "Youth Guarantee" to address youth unemployment:).  But it was the recommendation on fiscal and budgetary policy that caught my eye (it is Recommendation 1, after all). Here it is in full: 

HEREBY RECOMMENDS that the United Kingdom should take action within the period 2013-2014 to:
 
1. Implement a reinforced budgetary strategy, supported by sufficiently specified measures, for the year 2013-14 and beyond. Ensure the correction of the excessive deficit in a sustainable manner by 2014/15, and the achievement of the fiscal effort specified in the Council recommendations under the EDP and set the high public debt ratio on a sustained downward path. A durable correction of the fiscal imbalances requires the credible implementation of ambitious structural reforms which would increase the adjustment capacity and boost potential growth. Pursue a differentiated, growth-friendly approach to fiscal tightening, including through prioritising timely capital expenditure with high economic returns and through a balanced approach to the composition of consolidation measures and promoting medium and long-term fiscal sustainability. In order to raise revenue, make greater use of the standard rate of VAT.
What does that mean in English?  Well, an "excessive deficit" is defined as one in excess of 3 percent of GDP, and elsewhere the Commission forecasts that the deficit in 2014-15 will be 6.0% of GDP. So, again taken at face value, this implies that the Commission thinks that the government should cut the deficit by an extra 3 percent of GDP - about £45 billion or so - by 2014-15, i.e. next financial year.  It goes without saying that, taken at face value, this is absolutely absurd.   Essentially, what the Commission is saying is "Why be satisfied with the UK's notably mediocre economic performance? Look at Spain and Portugal - if you followed our advice the UK could do just as well!"
 
Now, I am informed that the official Commission line is that, in due course, the "deadline" for correcting the "excessive deficit" may be extended (as it has been for some other Member States today):
A Member State which has taken effective action to address its excessive deficit, but where the impact on the public finances has been affected by exceptional events outside its control, may see an extension of its deadline for correction and a revision of the recommendations to reflect the change in circumstances.
Well, if the Commission intends for the UK to ignore its Recommendation 1, and wait until they suggest something remotely sensible, it should really say so. Fortunately, whatever it says, the UK government can and will ignore it anyway, and it will be right to do so (unfortunately, it will sadly not ignore the advice of the equally discredited OECD, which today, again, supported the government's current strategy.  Of course, this is the same OECD that told us to raise interest rates in 2010. 
 
[Incidentally, I should note that "Commission" above refers primarily to DG-ECFIN, led by Vice-President Olli Rehn.  There are lots of sensible people in the Commission, and much to commend in this article by the Employment Commissioner, Laszlo Andor]. 
 

 

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