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How would you assess the current condition of the global economy?
We’re in a lot better shape than we were just before Christmas. There was a real fear that a euro-zone bank might fail, that we’d have a sovereign debt problem in one of the larger European economies. That’s dissipated, thanks largely to the action of the European Central Bank. And the better numbers out of the U.S. give a sense, as we come into the spring, that sentiment might have improved. Confidence is coming back. I’d say it’s still fragile, and I’d look at, for example, oil prices as something we should be concerned about. But if you’d asked me back in December if I’d like to be here in March, I would have said yes.
To Europe specifically, and Greece especially, do you believe that the situation is now under control? Will the firewall be strong enough?
We’ve got a Greek program now that other members of the euro zone are contributing to, and that the IMF is about to contribute to. The difference now is that even if the program does not work out exactly as planned, the rest of Europe is in better shape than they were to deal with that. So the European Central Bank is being much more active than it was, say, last fall. And we’ve also got plans to try and correct this firewall, this larger bailout fund. We’ll see if the euro zone can deliver on that. If you look at countries like Spain and Italy, which were giving us cause for concern … we are not as nervous as we all were last autumn.
What has to happen before Britain gives more to the International Monetary Fund?
Christine Lagarde, the excellent managing director of the IMF, has said she doesn’t feel the IMF has enough resources to deal with whatever the world might throw at us. Now there’s a discussion taking place about whether countries should make additional contributions. Britain is part of those discussions. But everyone is saying, whether you’re talking to me as the British finance minister or the Chinese finance minister or the Japanese finance minister, we’ve got to first see the color of the euro-zone money first. We need to see more of a contribution from euro-zone countries to their own bailout fund before we can have that conversation about whether other countries of the world need to enhance the funds of the IMF. I suspect that when we all come back here in April for the spring meeting for the IMF, that will be the main topic.
Moody’s warned that it may cut Britain’s AAA rating, along with a number of other countries’. What was your reaction to that?
The question that Moody’s put to the British government, and I guess the British public, was this: “You’ve got to deal with your very high deficit”—and we have one of the highest deficits in the world, that’s the situation this new British government has inherited—“have you got the political will to see it through or are you going to chicken out? Are you going to back off your austerity plan?” Of course, they’re entitled to ask that question. What I would say is we are demonstrating, and we will demonstrate again when I produce the British budget next week, that we absolutely will stick to our deficit-reduction plan. We have to get that deficit down. We know that, and we’re prepared to take big substantive decisions on entitlements, on welfare, budget, and the like to get that down.
What do you say to those who say that your austerity program lacksa growth element?
I take issue with those who say, “Britain should spend and borrow more.” They’re exactly the same people, in good times and bad, who always say, “Britain should spend and borrow more.” We have, in Britain, automatic stabilizers. Our welfare budgets go up when unemployment rises, for example. But if you are not dealing with an 11 percent budget deficit, which is what I found the country with two years ago … market interest rates will go up; your central bank, in our case the Bank of England, will not be able to take the monetary activist approach that it wants to take; and it will be entirely self-defeating.
What’s an appropriate ratio of debt to GDP? You’re at 70-something percent now …
It’s approaching that. We want that to peak by 2015.
That peak will be around 79 percent?
Well, the reason I’m being a little cagey is that in a week’s time I’m going to produce the latest U.K. economic forecast for our debt-to-GDP ratio. So, as much as I’d like to announce them now, I think I would be breaching a number of government protocols.
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