Eurozone recession is Britain’s biggest threat

“David Cameron is a worried man,” says Larry Elliott on He has a general election next year and wants the UK economy to be his “trump card come polling day”. Yet he sees threats to Britain’s economy everywhere.

So the purpose of his warning this week that “red lights are flashing on the dashboard of the global economy”, is to deflect any accusations of “having been asleep at the wheel” if things start to go badly wrong.

Cameron highlighted the risk of a third eurozone recession, a slowdown in emerging markets, and a “bundle of geo-political risks”, including Ebola, and events in Syria, Iraq and Ukraine.

The state of the eurozone poses a threat, agrees Philip Aldrick in The Times. Weak eurozone growth on its own is “not necessarily catastrophic” for the UK. When Germany was in recession in 2003, eurozone growth was 0.7% and Britain expanded by 4.3%.

Instead, the real worry is the debt sustainability of countries such as Italy, where national debt will be 114% of GDP this year. “If investors decide that Italy’s finances are out of control, all bets on the durability of the eurozone are off… Greece was the biggest bailout in history, Italy would be much larger.”

But the “more immediate” risk to the government is our own public finances, with “the deficit reduction plan this year more than £5bn over target”.

Quite, says Jeremy Warner in The Daily Telegraph. In fact, the only things keeping us out of the mire afflicting the rest of the eurozone are “continued very high levels of deficit spending and the parallel stimulus of ultra accommodative monetary policy”.

This willingness to “mortgage our futures in pursuit of short-term growth, in the hope that this eventually provides the wherewithal to meet the payments on our growing debt obligation” may not be the wrong approach, given the absence of alternatives.

If everyone acted in concert, a virtuous circle of growth and declining indebtedness might follow. But to do it alone is “completely unsustainable”. For all Britain’s supposed austerity, relative to the Continent we are still trying to borrow and spend our way out of trouble.

Britain’s budget deficit this year is the largest in the EU, alongside Spain’s. Our current account deficit is the biggest too. We may have avoided the “depression-like conditions gripping much of the eurozone” for now, by failing to practice what we preach.

However, this is small comfort. If the eurozone’s slide continues, its problems will eventually “become ours as well”.

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