The circumstances and timing of this disclosure are odd - to say the least. If the Commission has leaked it, what is their motivre. Or is it someone from the Franco-German axis inside the Commission firing another shot in their war on the City of London.
If it were true - and I think the Treasury figures do understate ther problem - then our situation would be almost beyond redemption.
Christina
TELEGRAPH
11.9.09
European Commission sees galloping UK debt crisis
Britain's public debt will explode to 180pc of GDP within a decade unless future governments take drastic measures to restore fiscal probity, according to a confidential study by the European Commission.
By Ambrose Evans-Pritchard
The projection is more than twice the level forecast by the UK Treasury, which expects the debt to peak at around 80pc before gradually falling as growth revives and tax revenues come back to life.
What is shocking is that UK risks decoupling from the other major economies in Europe, vaulting past Germany, France and even Italy into a wholly different league. Ireland is in the worst shape, with debt projected to reach 200pc of GDP.
The report is being prepared for the October meeting of EU finance ministers in Göteborg, which will focus on the exit strategy from the economic crisis and the long-term sustainability of EU public finances.
The figures are based on the assumption that the emergency fiscal support of the last year is withdrawn in an orderly way by 2011, but that there is no further retrenchment thereafter. "It is a no-policy-change scenario, not a prediction of what will happen," said one official.
The Commission fears Britain will suffer lasting damage as result of the financial crisis and the bursting of the property bubble. Neither banking nor construction will recover quickly, relegating the country to a lower growth trajectory.
Brussels warned Britain before the onset of the crisis that public spending was out of hand, repeatedly reminding Gordon Brown that the credit boom was masking the true scale of the problem. [I would like chapter and verse foir this assertion. If this is a quote from the Commission’s “confidential study” one wonders just how it just happened to reach A.E-P’s desk ??? -cs] The UK ran deficits of 3pc of GDP at the top of the cycle, while Spain was running a surplus of 2pc. Britain was the only major country to face the EU's excessive deficit procedure in 2007, even before recession played havoc with state finances.
Stephen Lewis, chief strategist at Monument Securities, said that once public debt goes much above 100pc of GDP it becomes hard to reverse. "The debt snowballs because interest costs alone push up the deficit, so you can race up to 180pc very fast."
Attempts to bring the debt down by a spending squeeze can prove counter-productive because lack of growth itself drives the deficit higher. "Once you get there your trapped," he said.
Britain's debt briefly touched 252pc of GDP after World War Two, but the circumstances were then entirely different. War-time spending could be slashed instantly and the demographic balance of young and old was still positive.
Debt anywhere near 180pc of GDP today would test the UK Gilt market to destruction. While Japan is still able to fund an even higher level of debt without paying exorbitant rates, it is does not depend on foreigners to cover the bond auctions.
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