Leading article: Europe is not to blame for all our economic woe


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The Chancellor is not altogether disingenuous in his claim that the convulsions in the eurozone are "killing off" Britain's recovery.

It would, after all, be unlikely that our economy would escape unscathed from so fundamental a crisis in our single largest trading partner, not to mention the recession into which many of its members have fallen. But George Osborne is in danger of turning a reason for him to act more swiftly and more radically into an excuse for more of the lackadaisical same.

It is true that there is no quick fix for Britain's underlying structural issues. Our manufacturing industries have suffered from decades of spirited global competition and domestic neglect; they would not spring back into life on a word even if Europe were booming. Neither can the perennial concerns about start-up financing, research and development funding and skills gaps be quickly solved. There are more acute problems, however, crying out for action.

The Government's e fforts to boost exports, particularly to fast-growing developing economies, are welcome. As are the moves to cut corporation tax, to streamline the planning system and to take a fresh look at employment rules. Contrary to the claims of Mr Osborne's increasingly vocal Tory critics, the Treasury is, in fact, pursuing a reasonable slate of supply-side reforms, even if they do not go quite so far as the more fanatical would like. But, thus far, the Government has relied too heavily on monetary policy. Although there is, of course, a place for quantitative easing and ultra-low interest rates, they alone cannot provide the jolt the flatlining economy desperately needs. Mr Osborne must make better use of the more immediate tools to hand.

Within the constraints of the deficit-reduction programme, room to manoeuvre is necessarily limited. But there is still scope for a more judicious apportionment of what spending there is, prioritising areas with a long-term economic return, most importantly infrastructure investment. There are also more creative options available.

The much-vaunted credit-easing scheme, for example – under which the Government aims to use its own low borrowing costs to cut lending rates for business – has, so far, made little impact. It should be expanded and also opened up to more types of organisation, such as housing associations.

Meanwhile, nothing at all has been done to unlock the vast reserves of cash salted away by companies too nervous about the future to invest. A tweak to investment tax breaks could help tip the balance. Vague proposals to persuade pension funds to channel at least some of Britain's vast pool of private savings into infrastructure programmes should also be expedited. And Nick Clegg's recent claim, that an instruction "from the top of government" to the Treasury that the Government balance sheet be used to underwrite anything from housing schemes to youth unemployment programmes, needs to be shown to be more than bluster.

The Prime Minister was fond of calling for a "big bazooka" to deal with the euro crisis. His Government could do with following such advice at home.

The thinking behind Mr Osborne's warnings about Europe is not hard to discern. For a Chancellor whose hopes of winning a majority in the next election rest on economic recovery, sowing the seeds of blame early is a good insurance policy (even if it does come at the cost of further irritation for our European allies). For all that, Mr Osborne's strategy is a feeble one. Not only does it provide thin cover for the Chancellor's own failures of fiscal imagination. He is also in danger of losing the argument on deficit reduction altogether, and undermining the foundations of his entire economic policy.

The Chancellor is right. A resolution of the eurozone crisis would, indeed, "do more than anything else to give our economy a boost". But that does not excuse Mr Osborne from finding answers for Britain, whatever happens in Europe. Pleading force majeure is not enough.

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