Osborne gets Moody

This past weekend probably wasn't the most relaxing UK Chancellor George Osborne has ever had.  On Friday afternoon, after the markets closed, Moody's Investor Services cut the UK's sovereign credit rating by one notch, from AAA to AA+.  Ever since coming into office in 2010, Osborne had portrayed retention of the top rating as a key benchmark of the credibility of the Government's economic policies.  So much for that.

Here is the BBC's report of how Osborne fared when he faced the House of Commons on Monday morning.  To nobody's surprise, he interpreted the downgrade as a clear warning that the Government should stay on the course of austerity, lest Moody's chop the rating even further.  Under heavy fire from the Labour benches, he made a few good points and rather more very questionable ones.  Some examples:

* As he has in the past, Osborne sought to pin much of the blame for the downgrade on weak global growth, which is hampering efforts to get the British economy back on track.  That's true enough.  However, good economic policy would surely try to offset weakness from abroad, perhaps by stimulating domestic demand, rather than adding to the problem by imposing domestic austerity.

* Also as in the past, Osborne pointed to the debt burden left behind by the previous Labour government, which in his view demanded prompt action.  It's true that Labour's fiscal policy was crass, with massive, debt financed spending growth at a time when the economy was expanding smartly anyway.  Sad to relate, over the last decade UK fiscal policy has provided stimulus at the wrong time, closely followed by a switch austerity at an equally inappropriate time. No doubt the party had to end sometime:  recall that Labour's election platform in 2010 was explicit about the need to rein in spending and borrowing. However, that in no way excuses Osborne from persisting with policies that are making the situation worse rather than better.

* Osborne says it's "patently ludicrous" to think that the deficit could be eliminated overnight, and wants credit for reducing it by a quarter in just less than three years.  I don't recall anyone suggesting overnight deficit reduction was possible:  Osborne is not being measured against "ludicrous" expectations, but against the deficit reduction plans he himself set.  On that basis, his plans are far behind schedule, and austerity is now set to last until at least 2018.  Even the reduction in the deficit that has been achieved needs to be looked at with a jaundiced eye; it owes much to accounting tricks, such as the decision to take the massive Post Office pension plan under the Treasury's wing.

Labour's economic spokesman, Ed Balls, landed a few good verbal blows, but with LibDem spokesman Vince Cable dismissing Moody's action as insignificant, there's no prospect of the Government changing course any time soon.  So,  it's on the the annual budget next month, which is unlikely to bring any relief.  And then on April 1, the spending cuts that the Government has been talking about for so long really start to bite. To borrow an old Canadian political adage, "Tory times are hard times", and those times are going to last a whole lot longer yet.