http://www.guardian.co.uk/business/2010/may/05/uk-budget-deficit-worse-than-greece

 

Whoever wins the election must make sorting out the public finances the top priority, the European commission warned on the eve of the poll, as it predicted the British budget deficit would swell this year to become the biggest in the European Union, overtaking even Greece.

 

The commission's spring economic forecasts put the UK deficit for this calendar year at 12% of GDP, the highest of all 27 EU nations and worse than the Treasury's own forecasts.

 

The country's budget shortfall was the third largest in the EU last year but will overtake both Greece and Ireland this year, according to the forecasts. Greece's measures to tackle its public finances problems are projected to cut its deficit to 9.3% of GDP.

 

Worries about Britain's public finances – in their worst state since the end of the second world war – continue to unnerve financial markets and analysts are divided over whether a hung parliament will have the clout to rapidly reduce the deficit.

 

"The first thing for the new government to do is to agree on a convincing, ambitious programme of fiscal consolidation in order to start to reduce the very high deficit and stabilise the high debt level of the UK," said European economic and monetary affairs commissioner Olli Rehn.

 

"That's by far the first and foremost challenge of the new government. I trust whatever the colour of the government, I hope it will take this measure."

 

The deficit forecasts are an improvement on the commission's last outlook for Britain but they still paint a gloomier picture than the government itself.

 

In financial year terms, the commission's forecasts are for a worse deficit than predicted by Alistair Darling at his March budget. In 2010/11 the commission puts the deficit at 11.5% of GDP, compared with Darling's forecast for an 11.1% ratio of public sector net borrowing – the gap between tax and spending – to GDP.

 

The EU's executive did double its forecast for British growth this year to 1.2% from 0.6%, in line with a March budget forecast for 1-1.5%. But in 2011 it warns growth will only pick up to 2.1%, significantly below a Treasury forecast of 3-3.5%.

 

It described "a slow start to a protracted recovery", highlighting pressures on private consumption, a key growth driver, from employment worries and stagnant wages.

 

Darling pointed out that the commission expected the UK to grow more quickly than other major European countries next year – including Germany, France, Italy, and the Netherlands. "The European commission's report shows again that our judgment call to support the economy was right. Yet again George Osborne's flaky judgment is exposed. The Tories cannot be allowed to derail the recovery," he said.

 

But opposition politicians seized upon the outlook as evidence that a new government was needed to get the economy back on track. "The day before the election the European commission has issued a damning indictment of Gordon Brown's economic record," said shadow chancellor George Osborne, claiming only the Conservatives would start dealing with Britain's debts on Friday.

 

"He has left this country with the largest budget deficit in Europe – larger even than Greece – and projections for future growth well below his own forecasts."

 

Liberal Democrat Treasury spokesman Lord Oakeshott said the EU report laid bare government overconfidence. "This shows the government has been far too optimistic," he said.

 

"What matters now is a credible deficit reduction plan backed by the nation. If the Conservatives scrape home with barely a third of the vote and indulge in butchery behind closed doors, that just won't work. That's why the Liberal Democrats call for a council of fiscal stability with all three economic spokesmen, whoever they are, and the governor of the Bank of England to agree a credible deficit reduction plan."

 

Economists warn that if the next UK government drags its feet in reducing the deficit it could spark a downgrade from one or more of the ratings agencies that have been so swift to reassess Greece and Spain's creditworthiness. The commission's forecasts fanned those fears.

 

"From such a large deficit, we suspect that it will be hard for a hung parliament to establish a credible path back to fiscal sustainability," said Michael Saunders, an economist at Citigroup.

 

London-based economists at BNP Paribas, have warned that the City is grossly underestimating the chance of a downgrade from the UK's current top-notch AAA status. They warn that an undecided Britain is heading towards a coalition government that would create distractions from repairing the public finances - something that would raise the chance of a downgrade to almost 50%, compared with a consensus estimate of 10% risk .

 

That, they say, could cost the taxpayer at least £10bn because of higher interest costs on government borrowing.

 

Iceland, Greece, Portugal, Spain, UK, and France... and soon the US.

 

We're seeing the collapse of fiat currencies. When you have a system of credit creation (read: money-printing) that relies on exponential growth, eventually you run up against reality. This is what happens when you continually invest in unprofitable ventures (governments).

 

I should add that there's no way Greece will be able to pay off its debt interest. By refinancing their loan, the IMF only kicked the can further down the road. It's still coming.

 

The only long-term solution to this is to end the practice of allowing governments to borrow and print money. They'll still have the power to tax, of course, but at least then consumers of government services will be able to see the exact cost of their beneficence.

Well then it is time for a new government here in the UK. I have more trust in David Cameron who will take IMMEDIATE action rather than Labour who intend to start tackling it next year.

lol, I don't think you realize how dire this is. In order to begin paying the interest on the debt, something like half of government employees must be laid off and taxes must be drastically raised. Benefits would have to be slashed or eliminated altogether. We're talking Armageddon changes here, not little election "red/blue" changes. There will likely be riots.

lol, I don't think you realize how dire this is. In order to begin paying the interest on the debt, something like half of government employees must be laid off and taxes must be drastically raised. Benefits would have to be slashed or eliminated altogether. We're talking Armageddon changes here, not little election "red/blue" changes. There will likely be riots.

 

I think I do realise the severity but I don't think you realise that your article is coming from a newspaper that is currently very anti Conservative and would rather see Lib Dem or Labour in charge - an easy explanation for 'Don't let George Osborne get his mits on the country's money!'. Take it with a pinch of salt. It will not go the way of Greece. Tough decisions will be made which will upset people but it's decisions that will have to happen. You've merely fallen into the pathetic scaremongering by Labour and the left wing press against the Conservatives.

I don't even think Cameron would reduce spending enough. And I don't take the left wing seriously.

 

I'm just saying the riots are inevitable regardless of who's in office - default or austerity, pick your poison. Hopefully the people of the world will have enough sense to abolish central banking and credit-creation once and for all, but I'm not holding my breath. The uneducated masses will likely cry out for more regulation and higher taxes instead.

There won't be riots, just strikes by overpaid and underworked public sector workers trying to keep their hands in the pie.

I don't even think Cameron would reduce spending enough. And I don't take the left wing seriously.

 

I'm just saying the riots are inevitable regardless of who's in office - default or austerity, pick your poison. Hopefully the people of the world will have enough sense to abolish central banking and credit-creation once and for all, but I'm not holding my breath. The uneducated masses will likely cry out for more regulation and higher taxes instead.

 

I think if Cameron was told another Greece was on the way, then he'd have to do it no matter what he wished. I think Cameron will make more honest and much more direct cuts than Labour. People here are going oh he's goign to make devastating cuts in the public sector! I'm sorry but the public sector can't escape and some cuts have to be made their. People don't realise the severity of what will happen and are relying on the usual Tory scaremongering thinking that if we leave it, it will just go away. The Conservatives, to be fair on them, built a strong strong economy by time they exited power 13 years leaving Blair and Brown to pick up a very very good economy yet in all honesty Labour left the Tories in 1979, like 2010, an economy that was a right mess. They've rebuilt the economy in this country before and they can rebuild it again.

http://www.cnbc.com/id/36988229

 

"There is simply a growing recognition that Greece has got to default, said Rochdale banking analyst Dick Bove. "The riots in the streets showed the decision to repay the debt was not going to be made by the people in Germany, France and Switzerland, it's going to be made by people in Greece and they're not going to repay it," he said. "Anyone seeing the riots is going to recognize that this government is going to be thrown out and anything replacing this government is going to be far more leftist leaning and they're going to repudiate."

 

When government fails, people beg for more of it.

I love how America and the UK are in a lot of trouble, yet people are fleeing from PIIGS to us. The very same thing they're running from is what they'll eventually get with the dollar only bigger and a little bit later.

Nick, I totally agree. I fully expect the USD to get much stronger over the next few months, as people flee these other collapsing currencies and park their money there while they figure out what their next move will be. A stronger dollar will cause deflation (in the Keynesian sense of the word) and stocks will fall.

 

I exited my long positions back at DOW 11,200 or so. I'm pretty sure we're in for a long ride down from here... btw Nick, do you read ZeroHedge?

I used to read ZeroHedge a long time ago, but forgot about it. Great site, thanks for reminding me.

 

Lately I've been into Business Insider. Also I can't wait to find out if that massive move down was trader error today or not.