Chancellor of the Exchequer George Osborne said economies across Europe including Britain are being damaged by uncertainty over the future of the euro region rather than budget cutting.
Osborne is seeking to counter a growing anti-austerity backlash in Europe, where voters in France and Greece revolted against cuts in elections this month. Osborne insists he is sticking to his deficit-reduction plans to shield Britain from the crisis of confidence engulfing the euro region.
“This is a time of considerable uncertainty in the euro- zone economies,” Osborne said today as he arrived for talks with European Union finance ministers in Brussels. “And that uncertainty is undermining the entire European recovery.”
Today’s meeting takes place amid renewed market turbulence as wrangling between political parties in Athens raises the possibility of Greece leaving the euro. The country is still without a government more than a week after inconclusive elections. Its crisis has multiplied concerns about recession- afflicted Spain, where the government is struggling to convince investors it can clean up its banks and curtail regional spending.
In Britain, Prime Minister David Cameron’s government is under growing pressure to spur an economy that has slipped back into a second recession in three years. Economic woes and voter anger over a budget perceived to have cut taxes for the rich at the expense of the less well off saw the Conservatives and their Liberal Democrat coalition partners lose seats to the opposition Labour Party in municipal elections this month.
A YouGov Plc (YOU) survey in the Sunday Times newspaper May 13 gave Labour leader Ed Miliband a higher approval rating than Cameron for the first time in a year. A separate YouGov poll for the Labour-linked Fabian Society research group showed Labour leading the Conservatives by eight percentage points.
Osborne and Cameron say there can be no compromise on their plans to eliminate the bulk of a deficit of 8 percent of gross domestic product by 2017. The cuts, the deepest since World War II, will see more than 700,000 government jobs axed.
The deepening political impasse in Greece led investors to seek the relative safety of U.K. government debt yesterday, taking 10-year yields to 1.86 percent, the lowest since Bloomberg began compiling the data in 1989. Ten-year Spanish debt climbed to 6.23 percent and Italian bonds of the same maturity rose to 5.70 percent.
Another political turning point comes today when Francois Hollande is sworn in as French president in the first power shift to the Socialists in the second-biggest euro economy since 1981. He will then travel to Berlin for talks with German Chancellor Angela Merkel.
Hollande’s bid to inject a pro-growth element into Europe’s German-inspired austerity strategy got a boost on May 13 when Merkel’s party was drubbed in elections in Germany’s largest, most industrial state, North Rhine-Westphalia.
EU finance ministers will make a renewed attempt to hammer out an accord on boosting the amount of capital and liquid assets that must be held by banks after the U.K. rejected a previous compromise.
“We are reaching a point where we have got to make a decision and see the euro zone stand behind their currency,” Osborne said today. “A very important part of that is strengthening the European banking system and that is what we intend to do today.”
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