UK an Example on Austerity? No, That's Estonia
CNBC EMEA Head of News
UK Chancellor George Osborne told CNBC on Tuesday that Britain is an example to countries like Greece on austerity.
Having implemented big cuts in government spending, Osborne is hoping the UK will avoid the bond vigilantes turning their attention to the Gilt market; but one investor believes the UK is not doing enough and should take a look at the example of former communist Estonia.
“Estonia, at the height of the financial crisis, implemented a series of government spending cuts so brutal I could not recommend them but the results have been impressive,” Jon Moulton, the founder of private equity group Better Capital said in an interview with CNBC on Thursday.
“Estonia cut government spending from just under 50 percent of gross domestic product to close to 40 percent in 2009, driving unemployment from 5.5 percent to 17.5 percent in just a year,” Moulton said.
With Estonia’s national debt now around 20 percent of GDP and the government running the only spending surplus in Europe, growth is above 4 percent.
“Unemployment is still in double figures but moving in the right direction,” said Moulton.
Is the UK an Example? Late last week Jim Rogers from Rogers Holdings told CNBC that the UK would itself need a bailout at some point and Moulton finds it difficult to argue with this analysis.
“Last year the UK government spent 694 billion pounds ($1.12 trillion). How much is it spending this year for all the talk of austerity? 710 billion pounds, in 2012 the estimate is for 720 billion pounds,” he said.
“The debt is not falling, on normal measures the UK’s fiscal position is worse than when we where forced to go to the IMF in the 1970s. It is going to need some balls – and no not Ed Balls the Labour Shadow Chancellor - to get us out of this situation,” Moulton said.