In December 2009, ratings agency Fitch downgraded Greek sovereign debt from A- to BBB+ following a dramatic few weeks in which the state of the country’s public finances were laid bare. By February, riot police in Athens were firing stun grenades and tear gas as they struggled to maintain public order. What followed was years of political upheaval, brinkmanship, bailouts, savage spending cuts, violence, protests and pain. Could it happen here? The short answer is: yes.
The longer answer recognises that the UK today is not Greece in 2009 and the two economies are not comparable. At the end of 2009 Greece was running a deficit of over 12 per cent whereas ours is currently a little over 4 per cent. Unfortunately, we can’t take too much comfort from this as the stark reality is that we do have one thing in common with pre-crisis Greece: we’re living far beyond our means.
A new book, unambiguously titled Britain is Bust, by journalist Ross Clark, paints a chilling picture of the state of our public finances – and our politics. Part one of the book is called Debt: The Problem That No One Likes To Acknowledge, and it’s a critical observation. Clark takes us through Gordon Brown’s time as Chancellor, through the financial crisis and the Tory-Liberal coalition government’s attempt at austerity, through the pandemic and the energy price shocks and yes, through Liz Truss.
If we look back over 25 years it becomes clear that “Britain is a country that has been living beyond its means for years.”
It will take a crisis to make us wake up
The explosion of public spending and the expansion of the state has been a steady theme for decades, only briefly dented by David Cameron and George Osborne’s austerity programme. We have become conditioned to the belief that every problem can – and must – be solved by government, just as we have become inured to the relentlessly growing debt pile (£3,000,000,000,000) that has financed this utterly unsustainable trajectory.
I asked Clark which scenario he considers more likely: that a political party will put comprehensive deficit reduction at the heart of its manifesto, with all the spending cuts that necessitates, or a financial crisis forces us to confront reality. He suspects the latter, which puts his book firmly in a niche category of its own: economic horror – non fiction.