On the eve of the election, Moody's helpfully opined:
"If [the next UK Govt] were to tighten fiscal conditions too quickly, this could potentially choke off economic recovery. Alternatively, if the UK did not tighten fiscal conditions soon and credibly enough, ... market opinion may move against the UK"
This morning, Moody's have downgraded Ireland's government bonds. That's Ireland, amongst the first countries to go for austerity, neatly illustrating the dilemma all western politicians face: damned if you do ... as we said at the time.
Osborne's decisions for the UK have been criticised for being too much, too quick - and not just by the massed ranks of the Labour leadership candidates. Here is a representative detailed critique, the key points of which are:
- there is little risk of a bond-investors' strike; and bond yields have disconnected from deficits & debts
- if the transition from public to private takes a while, default rates will increase in the interim
- the private demand to replace public spending has not been identified: for the past 10 years most private investment has been in real estate
- pro-cyclical fiscal policy (possibly inadvertent) was the problem, and can't be the solution.
It still ends up with the same tautology: too much and you'll get a double-dip, too little and the markets'll 'ave yer.
Which we all knew anyway. Helluva line to walk and it seems Ireland has missed its footing. Can Osborne do better ?