'The UK Will Need a Bailout Soon': Jim Rogers
Associate Editor, CNBC
Britain isn’t cutting its structural deficit by enough or doing it quickly enough and may need a bailout from its European partners, investor Jim Rogers told CNBC.
But UK-based analysts disputed this view, saying the austerity measures were enough.
Rogers said the UK coalition government needed to go further in order to avoid financial catastrophe.
“They [the government] are not doing it. They are saying they are doing it but they are not. They are saving £1 billion ($1.6 billion) here or there but they are not doing what they really need to and I’m not sure the government would survive the kind of pain that is really required," he said.
“How can the UK ever repay the debt that is continually rising? The UK will need a bailout soon. You have the advantage that your debt is longer term but let’s assume the government keep to these austerity plans or really put them in place people will start to complain," Rogers explained.
“The government will begin to lose by-elections and the government could fall, then what?”
His comments came as the British electorate went to the pollsfor the first time since last year’s general election, which resulted in a coalition government of the Conservative party and Liberal Democrats and a program of public spending cuts which began in earnest in March.
Elections were being held for the devolved national assemblies of Scotland, Wales and Northern Ireland as well as over 200 local councils.
A national referendum to decide on whether to change the voting system from its current first past the post, (one person, one vote) to a form of proportional representation called the Alternative Vote, as used in Australia, also took place on Thursday.
The referendum was the first national referendum since 1973 when the UK voted on whether to remain a member of the European Economic Community (EEC).
It was one of the Conservative party’s concessions to their Liberal Democrat partners during last year’s coalition negotiations following the general election.
However, campaigning ahead of the referendum has become embittered with members of the cabinet including Lib Dem energy secretary Chris Huhne and his colleague business secretary Vince Cable becoming increasingly vociferous in their complaints about the behaviour of their Conservative cabinet colleagues.
The Liberal Democrats were expected to not only lose the vote on reform of the UK’s electoral system on Friday but also several key City councils in their power base in the north of England, such as Sheffield, Hull, Manchester and Stockport.
The results will mean that Deputy Prime Minister and Lib Dem leader Nick Clegg will come under further pressure to put some political distance between his party and the Conservatives.
The elections were also the first real test of support for the coalition government‘s austerity plans - already the deepest cuts in public spending since the end of the Second World War.
Two senior economists said Rogers showed a lack to understanding of the UK economy and defended the government’s current austerity plans.
“I would flatly reject the idea that austerity measures are not going far enough," Peter Dixon, economist at Commerzbanksaid.
"The fact of the matter is we have fiscal tightening equivalent to five percent of GDP at a time when the economic recovery is very weak."
“In terms of a bailout that shows a lack of understanding of the UK economy The UK has control of its own currency, it’s not part of the euro, so debt restructuring is not going to happen,” he added.
Cuts 'Incredibly Tough'
George Buckley, chief UK economist at Deutsche Bank, also defended the government’s austerity proposals.
“That [view] is going to one end of the spectrum," Buckley said.
"The true answer is that if you look at how much the government is cutting it’s comparable to around 8.5 percent of the structural deficit which is much tougher than we saw the last time there were cuts of this nature."
“Compared to the 1980s and 1990s which saw cuts of 7 to 7.5 percent over a far longer period of time that’s incredibly tough,” he added.
Both men warned that cutting spending further would stifle any kind of economic growth, which they said would remain weak for up to two years as household consumption contracted as a direct result of the government’s austerity plans.
Dixon added that he did not see the stability of the coalition government as being a concern in terms of either investor confidence or the wider UK economy in general.
But he warned things could “deteriorate fairly rapidly.”
“Nick Clegg and the rest of the Lib Dem MPs are perceived to have sold out and are seen as following a Tory line. But bear in mind that these MPs are likely to be in parliament for the next four years,” he said.
“I think we will see the coalition trying to continue with its current plan for a couple more years. But if in 2013 the economy is not doing well, and unemployment is up, and people are feeling the pain, then that’s when the Lib Dem MPs might get concerned that they are going to lose big at the next election and that’s when the coalition might well come under the kind of pressure that could led to a split,” Dixon added.