Monday, May 7, 2012

David Cameron: there is no going back on austerity


David Cameron is to declare that there is “no going back” on harsh spending cuts after seeing the leaders of France and Greece swept from power by public anger at austerity.

Two years on from their sun-dappled press conference in the Downing Street rose garden, David Cameron and Nick Clegg will restate the case for the Coalition to 'rescue the economy from the mess left by Labour'

The eurozone is in “extreme trouble” and headwinds from the turmoil threaten Britain’s recovery, he will warn.

In a rare joint appearance with Nick Clegg, the Prime Minister and his Deputy will rededicate themselves and their parties to protecting the country from “the financial storm”.

Two years on from their sun-dappled press conference in the Downing Street rose garden, the Liberal Democrat and Conservative leaders will restate the case for the Coalition to “rescue the economy from the mess left by Labour”.

Their pledge will come against a backdrop of turbulence in the markets and the election results in France and Greece, which saw two pro-austerity administrations ousted.

At one point yesterday, the euro fell to a three-year low against the pound, while analysts predicted that Greece would be forced to leave the eurozone, greatly increasing the risk of economic “contagion” to other European countries.

The elections showed that large numbers of voters believed there was an alternative to the austerity measures imposed by governments and international funds since the global financial crisis.

The biggest protests came in Greece, where the electorate took revenge on the two parties that had been trying to push through unprecedented budget cuts in return for bail-out funds.

The conservative New Democracy party and Socialist Pasok, which between them received 77 per cent of the vote in the 2009 election, took just 32 per cent in yesterday’s parliamentary poll.

Instead, the public flocked to a group of Left-wing parties called Syriza, which wants to cancel the current bail-out conditions. Syriza took 16 per cent of the vote to become the second-biggest party in the Greek parliament. Alexis Tsipras, its young leader, then refused to join a proposed government of “national salvation” with the two parties that have dominated Greek politics for decades.

“Austerity policies were rejected by the Greek people and European people last night,” he said.

If a coalition deal is not reached, Greece may have to hold new elections next month, when the country would face running out of money if there was no government.

An extreme nationalist party called Golden Dawn, which wants to plant landmines on Greece’s borders to keep out immigrants, won 7 per cent of the vote.

It had promised to fight the “slavery” of the rescue package agreed with the “Troika” of the eurozone, the International Monetary Fund and the European Central Bank in February.

In Britain, Labour has attacked the Coalition for cutting public spending “too far, too fast” and blamed the double dip recession on George Osborne’s austerity plans.

Ed Miliband, the Labour leader, warmly welcomed the French Socialist victory in the presidential election, which he said would help Europe “escape from austerity”.

Economists at Citigroup said the Greek election results significantly raised the risk of Greece leaving the euro within a year. Tristan Cooper, a sovereign debt analyst at Fidelity Worldwide Investment, added: “Although it should be no surprise that Greeks are spurning the Troika’s bitter medicine, the violence of the rejection is a shock. A Greek eurozone exit is now firmly on the cards.”

Nouriel Roubini, the economist known as Dr Doom for his negative predictions before the 2008 crisis, said there were “serious contagion risks” should Greece be forced out of the eurozone.

France’s new Socialist president, Francois Hollande, was warned by Angela Merkel, the German chancellor, against trying to rewrite austerity measures agreed with Nicolas Sarkozy, the centre-Right president ejected by French voters. Referring to rules requiring EU countries to balance their budgets, she said: “I personally believe the fiscal pact is not up for negotiation.”

Christine Lagarde, the head of the IMF, acknowledged that fiscal austerity “holds back growth” and called on countries to push through “gradual” cuts.

“Austerity versus growth is very much the debate of the hour,” she said. “I would argue it is not 'either/or’. We can design a strategy that is good for today and good for tomorrow.”

The Greek stock market closed 6.7 per cent down, although the CAC-40 in Paris and DAX in Frankfurt finished slightly higher. The London Stock Exchange was closed for the Bank Holiday. Earlier, the Nikkei index in Tokyo fell with stock markets in Hong Kong and Australia, while the euro dropped to a three-and-a-half-year low against the pound, at 1.24.

Mr Cameron and Mr Clegg already faced disquiet among their MPs after the economy slipped back into recession and the Coalition parties received a hammering in last week’s local elections.

During a joint visit to a factory in Essex, Mr Cameron will insist that he is listening to public anger at spending cuts, but securing the economic recovery “remains our guiding task”. “In these perilous times it’s more important than ever for Britain that we stick to it,” he will say. “I don’t hide from the scale of that challenge, or from the message sent by voters in many places in last week’s elections.”

He will say that the double-dip recession shows the scale of damage done by the banking crisis. “The damage done by the crisis was greater than anyone thought. The first quarter growth figures have shown a tough task getting even tougher. Abroad, the eurozone remains in extreme trouble and is in recession. Oil prices are making life difficult for families around the world.”

However, he will insist that “getting our deficit under control”, through public spending cuts, is crucial to the recovery.

“There can be no going back on our carefully judged strategy for restoring the public finances,” he will say.

“I know that the task of driving our economy forward when faced with the headwinds that are blowing in from the eurozone is a formidable one. But this Government is determined to do whatever needs doing to succeed.”

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