MercoPress. South Atlantic News Agency

Former IMF economist has UK in the same bag as Greece, Portugal and Spain

Simon Johnson, also described the G7 group of leading economies as “fundamentally useless”

Britain should be seen in the same category of countries as Greece, Portugal and Spain, who are facing severe debt problems, a leading economist has said. Ex-IMF chief economist Simon Johnson, also described the G7 group of leading economies as “fundamentally useless”.

His comments to the BBC came as G7 finance ministers discussed the growing crisis in some Euro-zone nations. UK Treasury sources said all three major credit rating agencies had reaffirmed the UK's triple A credit status.

One of the major concerns about a country having large budget deficits is that it cannot spend sufficiently to boost its economy.
Although the UK did officially come out of recession in the fourth quarter of 2009 - ending six consecutive quarters of economic decline - the growth was just 0.1%, much less than expected.

“It is right that borrowing has been allowed to rise so that the government has been able to protect the economy from the global downturn,” a Treasury spokesman said.
“But, supporting the economy through to recovery goes hand-in-hand with steps to rebuild fiscal strength once recovery is firmly established.
”That is why the government has set out a clear plan to halve the deficit over the next four years, while protecting the frontline services that people depend on.“

Last week the Euro hit a seven-month low against the dollar, as traders worried that Greece's government debt problems could spread to other European countries such as Spain and Portugal.

Stock markets have seen big falls too, as investors studied the countries' spiralling deficits and questioned their commitment and ability to bring them down.

Mr Johnson has said that the UK should be added to those countries, whose government debt ratings have come under serious pressure.
”The financial markets are taking a long hard look at the fiscal accounts of all these countries and they don't like what they see,“ he said.

”Now Greece is an extreme example - there I think you can see that it's going to get very messy very quickly - but unfortunately the budget situation in these other countries is also weak.

“And I have to add the UK to this list. Unless you can persuade the markets that you're really going to bring the budget under control within the foreseeable future and you're going to have some credible actions - and you're going to have to do some persuading - you're going to have big trouble.”

Mr Johnson also called the G7 a “fundamentally useless organisation” for not reacting quickly enough to the problem and for remaining in an out-of-date mindset.

“The G7 countries are completely asleep at the wheel. I looked at the information they put out from their meeting I was absolutely shocked,” he said.
“They seem to show no awareness at all that much of Europe is facing a serious crisis and it's not limited to Spain, Greece and Portugal, it's also going to include Ireland. I think Italy is also very much in the line of fire. There's a very serious crisis inside the Euro-zone.”

His damning critique of the G7 came only hours after the very last meeting of its finance ministers at which the Europeans had to reassure their counterparts from the US, Canada and Japan over the deteriorating state of the public finances in some Euro-zone countries. At the gathering, it was agreed not to involve the IMF and to leave the matter to the European Union.

UK chancellor Alistair Darling, who was at the meeting in northern Canada, said the world was set for a steady but slow recovery and that governments' stimulus packages should remain in place until the recovery was assured.

“The important thing is that we all are absolutely committed to maintaining the support for our economies until we make sure we have recovery established, and than to make sure we can chart a way to ensure that we got sound, long-term growth in the future,” he said.

“In the last 18 months, we've come through an extremely turbulent period. But I think we can be confident, although we remain cautious, that we are on the right path, provided we see that through.”

But his words were brushed aside by the former IMF chief economist, who said that he had not seen any strong EU leaders stepping up and acting on the issue.

He said that many of them were still in the mindset of a few months ago - and that they hadn't realised that sentiment in financial markets had changed.

The pressure on the EU to act will be brought into sharp focus this week when the new President of the European Council Herman von Rompuy chairs a special economic summit in Brussels at which the public finances of Greece, Spain and Portugal will be discussed. (BBC).-