Hamish McRae: Chancellors are supposed to be hated – it's part of their job

The general squeeze will not relent. Finance ministers will be unpopular

Share

Some good news: the Chancellor was booed at the Paralympics. It is good news not because I feel any particular antipathy towards George Osborne, but rather because we will have to get used to politicians who are unpopular. Indeed, we need them. And that goes not just for Britain but for just about every developed country in the world.

The reason is not masochism but mathematics, which have flipped without most of us realising it. The maths of public finance have, for most of the post-Second World War period, been favourable for a number of reasons. One is demography: each generation of people of working age has been larger than the previous one. Another is growth: for two generations there has been solid economic growth in most Western democracies. A third is the borrowing capacity of the modern state: most countries have institutional arrangements enabling them to borrow at very low rates of interest, sometimes even negative ones in real terms.

As a result, we have had a generation of politicians which can say "yes" because, sooner or later, the money has been available to do things. And we have a generation of voters which expects as much.

Those favourable forces have, to a large extent, now gone into reverse. Most European countries (though not the UK) face a shrinking workforce, so a smaller number of workers have to fund a larger number of retirees. Raising the retirement age helps a bit but, in many countries, to get the balance between working and retired back to the level of 20 years ago people would have to work until 70 or more.

Growth cannot be assumed. Half of Europe is now in recession and even those of us who believe that, contrary to the official statistics, the UK economy is still growing a bit would acknowledge that the expansion is disappointingly slow.

As for borrowing capacity, several large and successful countries, such as Italy and Spain, can barely borrow at all – certainly not at an acceptable interest rate. (People in Britain can borrow for a mortgage at about two-thirds the rate the Italian state has to pay.)

The situation varies from country to country. Even relatively strong states have problems. Germany has some growth and can borrow very cheaply, but has particularly unfavourable demographics. We have a particularly large deficit but can also borrow very cheaply – though it is not clear to what extent that is simply the result of the Bank of England being able to print the money. The US is in much the same position, although perhaps has somewhat stronger growth.

The big point here, though, is that these pressures will continue for another 30 years or more. It may not be the "slash spending on just about everything" evident now in Spain and Italy, but the general squeeze will not relent. Finance ministers will inevitably be unpopular, which is why we should be almost relieved that Osborne gets booed. To pretend that there is some sort of alternative, as the Opposition seems to do, is a cruel misapprehension. My guess is that if Labour were to get into power at the next election, they would have to cut the country's deficit faster than the present lot because their borrowing capacity would be more constrained.

It is important, though, not to think of this pressure on public finances in national terms. We are all, throughout the developed world, in this together. We have all in some measure lived beyond our means and, accordingly, we all have to seek ways of running our societies more efficiently. If that means unpopular politicians, so be it.

Is the ECB about to swing into action?

The European Central Bank council meeting tomorrow takes on a special significance in that it is widely expected to commit the ECB to supporting weaker eurozone countries by buying their sovereign debt. It might, despite statutes prohibiting the buying of countries' bonds, still be able to purchase short-term debt. Whatever the legal position, were it to do so that would be within accepted central bank practice, which is that the bank has a duty to maintain orderly markets.

The run-up to the meeting has been characterised by a string of leaks, hints and statements from various players. The statement I found most interesting was that from Jörg Asmussen, one of the two German members of the ECB board, saying it was unacceptable that the markets should be pricing in not just sovereign risk but the possibility of eurozone break-up. "For a currency union, such systemic doubts are not acceptable," he added.

Mr Asmussen thus provides an intellectual defence for the ECB to buy sovereign debt. It would not just be supporting a weak government. It would be countering systemic risk. But there is a problem with that line of argument. If Greece were indeed to leave the union, it would be utterly rational to have "systemic doubts" about the other Club Med members.

h.mcrae@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Austen Lloyd: Corporate Solicitor NQ+ Oxford

Excellent Salary: Austen Lloyd: CORPORATE - Corporate Solicitor NQ+ An excelle...

Reach Volunteering: Financial Trustee and Company Secretary

Voluntary Only - Expenses Reimbursed: Reach Volunteering: A trustee (company d...

Recruitment Genius: Senior Project Manager

£45000 - £65000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Shopfitter

Negotiable: Recruitment Genius: This is an opportunity to join a successful an...

Day In a Page

The Liberal Left should stop feeling guilty about flying the flag of St George and have no qualms about celebrating Englishness, one of Ed Miliband’s closest advisers said  

Don't sneer at the white van driving flag waving man

Stefano Hatfield
Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible
Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

Look what's mushrooming now!

Meat-free recipes and food scandals help one growing sector
Neil Findlay is more a pink shrimp than a red firebrand

More a pink shrimp than a red firebrand

The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

Oeuf quake

Bill Granger's cracking egg recipes
Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

Terry Venables column

Wayne Rooney is roaring again and the world knows that England are back
Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

Abject leadership is allowing football’s age-old sores to fester

Those at the top are allowing the same issues to go unchallenged, says Michael Calvin