The German government's failed debt auction this week was certainly well timed for George Osborne.
Leaving aside the economic implications for the eurozone – which are opaque and concerning, in equal measure – the unsold Bunds are a rare ray of political sunshine for the British Chancellor. When he delivers his much-vaunted Autumn Statement next week, Mr Osborne must contend with a slew of domestic economic indicators pointing resolutely the wrong way. Flat-lining growth, soaring inflation, and rising unemployment are becoming increasingly difficult to explain away.
The expectation that private-sector expansion will counterbalance public spending cuts now appears laughably optimistic. And, although annual borrowing levels are still just about on track, Britain's books are unlikely to be balanced within a single parliament as planned. Even the Prime Minister admitted last week that tackling the deficit was proving harder than expected, paving the way for more detailed admissions from the Chancellor on Tuesday.
Forcing through £83bn worth of public spending cuts was never going to be easy. But just how painful it will be is only just starting to be felt. It is here that the unwanted Bunds come in. Mr Osborne can use the fact of UK gilt yields dropping below their German equivalents as evidence that his austerity programme is working: where once there were threats of a credit-rating downgrade, Britain is now a safe haven. It is a reasonable point, and Mr Osborne deserves some credit. He should hold his course, despite ever-louder demands he turn back on the debt-funded taps.
But the Chancellor's job does not begin and end with placating the bond markets, vital though such a strategy may be. Elsewhere, he has abjectly failed. After months of sliding performance, only now is he to set out the growth plan that the economy desperately needs. It had better be good.
Job creation must be a central theme. the Deputy Prime Minister's £1bn youth employment plan is a helpful effort to avoid a generation of young people lost to the labour market, although it is of more social than economic impact, at least in the short term. This week's proposals to tweak employment law to make it less risky to hire new staff are also welcome. Efforts to target younger workers – using National Insurance contributions, for example – would be even more so.
Rule changes to encourage businesses to recruit are just one side of the issue, however. Official figures suggest as many as one in five company loan applications is still being turned down. In setting out the details of his nebulous "credit easing" programme next week, the Chancellor needs not only to clarify how the scheme will work, but also how it will get off the ground fast enough to make a difference. And more effort must still go into boosting bank lending, accompanied by revamped tax breaks to encourage capital investment.
More than anything, Mr Osborne must boost demand. It is not enough to rely on quantitative easing. The Government must act directly. The effort to attract pension funds to invest in infrastructure has potential, as would recycling underspent Whitehall budgets into building projects. For an immediate impact, however, existing capital investment programmes must be brought forward.
So far, Mr Osborne has been fortunate. With Labour still lacking economic credibility, calls for a fiscal Plan B are not yet dominant. But as the economy dips and the euro remains unresolved, the case for Plan A will be ever harder to make. So far, the Chancellor has done half his job. Now he must prove he can do all of it.Reuse content