David Prosser: The lesson from Lisbon
Thursday 25 March 2010
Budget Outlook Much of the criticism of this Budget is that it does not spell out how spending cuts will be implemented across the various government departments. If that lack of detail undermines confidence in the Chancellor's ability to deliver borrowing reductions, our AAA rating might be imperilled.
Well, this month, Portugal's government unveiled its Budget, featuring clear detail of spending reductions that go much further than what the UK has proposed. Its reward was to see Fitch downgrade its rating of the country's sovereign debt yesterday.
Fitch's decision did not reflect a lack of faith in Portugal's austerity programme – which it described as "broadly credible". Instead, it questioned the country's overly optimistic growth forecasts.
For all the concern about Mr Darling's lack of candour on spending, the more pressing danger could be scepticism about his growth forecasts. He downgraded one of those forecasts yesterday – trimming the Treasury's expected growth in 2011-12 – but is sticking by the rest of what independents regard as heroic assumptions.
The lesson from Lisbon is that honesty on cuts will get you nowhere if the markets don't believe what you have to say about the economy's performance.
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