The Union’s Credibility Gap
Moody’s decision yesterday to strip the UK of its AAA credit rating (‘UK loses top AAA credit rating for first time since 1978’) represents a severe blow to the UK coalition government’s economic credibility. When the UK was first placed on negative outlook back in 2009 during the dying days of the New Labour era, George Osborne said he would restore the faith of the international financial markets in the British economy with an aggressive deficit reduction programme. Now, after nearly three years of Tory shock therapy – and with a decade of stagnation and unemployment ahead of us – the Chancellor’s austerity strategy lies in tatters. The case for a capital expenditure stimulus couldn’t be stronger. Labour, and shadow chancellor Ed Balls in particular, have every right to gloat. But before they do, they should bear in mind how heavily the unionist campaign has stressed the importance of British economic ‘strength’ when making the case against independence.
Here are a few choice quotes:
Scottish Labour leader Johann Lamont, 7 February 2012, in the Daily Mail on reports that an independent Scotland would not secure an AAA rating:
The economic case for separation is unravelling by the day….While independence may be an article of blind faith for the SNP, people deserve to know the real consequences of breaking away from the rest of the United Kingdom.
Even more embarrassingly, Scottish Conservative finance spokesman Gavin Brown, in the same article:
Ratings agencies are taken extremely seriously by investors all over the world, and this warning is therefore deeply concerning. A drop of just one notch would have severe consequences for our economy and it is vital that we maintain triple-A status. If we are to present ourselves as a country worth investing in we must be seen as a solid economic prospect, and the rating the UK currently holds guarantees this.
You can read the Chuckle Brothers here.
Andrew Hough, one of a slew of Torygraph writer’s who have obsessed on this issue wrote this time last year:
Standard & Poor’s, Moody’s and Fitch suggested an independent Scotland would not automatically inherit Britain’s top-notch credit rating, potentially leading to higher borrowing costs. One agency reportedly privately stated that Scotland’s “investment grade” rating would be some notches below AAA status.
And here’s Chief Secretary to the Treasury Danny Alexander in June of last year:
Credit rating agencies have said countries with new institutions take time to establish credibility. We’ve said before if interest rates went up one per cent, it would cost families across the UK an extra £10 billion in mortgage costs. It is likely the same one per cent would cost families in Scotland up to an extra £1billion.
Almost two-thirds of the countries that now hold triple-A status have populations of less than ten million – including Finland, Sweden, Denmark, and Norway.
Now, what was all that about ‘making it up as you go along’?