Sean O'Grady: A choice between being run over by a lorry or a train

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The Independent Online

The economists who object to George Osborne's policy are right and wrong. One reason for the financial crisis was that we saved too little to sustain investment and consumption at the levels we enjoyed. So we borrowed too much as a result.

We have a choice if we are going to rebalance the economy: a fiscal squeeze or a monetary squeeze. The Government has chosen a fiscal squeeze and allowed the Bank of England to leave interest rates at historically low levels. If we now slowed the pace and allowed the deficit to continue, it would mean higher interest rates. The markets would not tolerate such loosening of will power and, while we would not have a crisis of Greek proportions, we would have higher interest rates and perhaps a weaker pound. It is a little like choosing between being run over by a lorry or a train.

When the Chancellor claims his policies are "restoring confidence" he is right so far as the financial markets are concerned. This is why the interest rates demanded by foreign investors to hold British government bonds are only a little higher than for Germany. But it is also true this confidence has been bought at the cost of much weaker confidence among British businesses and consumers.

This is why the economists are right to point out that the economy has stalled as a result.

So, as I say, it is a matter of choice. It may be no accident that the Coalition, whose political base is among the more prosperous middle classes in the South, has chosen this course. In 2015, if not sooner, the nation will be allowed to make its own choice on the priorities the Government has chosen.