“There needs to be a certain credibility,” opined Mario Draghi, President of the European Central Bank, as he launched outright Eurozone quantitative easing last Thursday. “Today, we’re showing that such credibility is deserved”. When used by an economist, “credibility” is indeed a very important word. But I’m afraid I take issue with Signor Draghi’s usage.
When I began studying the dismal science – some 30 years ago, I’ve just realised with anguish – central bankers gained “credibility” by implementing policies which were tough over the short-term but ultimately constructive for the longer-term health of the economy.
“Deficit reduction will lead to economic recovery,” say the Tories. “That is the heart of our growth strategy – getting our public finances under control”. The above paragraph, I would say, is a fair approximation of the UK government’s current economic policy – or at least, the Tory majority in government.
As regular readers will know, I have some sympathy for this view. This column has been warning about Britain’s impending budgetary ruin, and the danger of gilt market meltdown, for many years, not least during the mid- and late-2000s when David Cameron’s Tories were spouting opportunistic nonsense from the opposition benches about “matching Labour’s spending plans” and “sharing the proceeds of growth”.