Advancing a Free Society

Q&A with Niall Ferguson

Friday, April 30, 2010

By Carrie Tate, Financial Post

Q What are your thoughts on the U.K. economic situation as it relates to the election?

A The situation of the United Kingdom in fiscal terms is in fact worse than the situation of Greece. That may come as a surprise to you, but if you look at the most recent paper on the subject published by the Bank for International Settlements, it is very clear. The trajectory of U.K. public debt over the next 30 years, absent a major change of policy, will take it to a mind-blowing 500% of GDP, which is about 100 percentage points worse than Greece. If Britain had done what many right-thinking people thought it should do and joined the euro, the situation of Britain would be worse than that of Greece today. The only reason that Britain isn't an honourary member of the PIIGS club, along with Portugal, Ireland, Italy and Spain, is that it stayed outside the eurozone and therefore reserves the right to debase the currency as an exit strategy. I don't know about you, but I don't find that very cheery as a prospect

So, Britain has a massive fiscal crisis that is just about to break. Whoever wins this election ... they are going to have a ghastly task on their hands to try to reform a system of entitlements and welfare and state subsidy that has hugely expanded under Gordon Brown since 1997. I think Britain was more ready for Thatcherism in 1979 than it is today, and yet it needs it more today than it did then.

The situation is so unpromising that I would anticipate the International Monetary Fund having to come into Britain as it did in 1976. So there's a great deal of smoke and mirrors about this subject. None of the candidates want to level with the British electorate, but the day after the election we'll start seeing just how dire it is. And it will be a terrible indictment of Gordon Brown's time as chancellor of the exchequer and as prime minister.

Continue reading this Q&A with Niall Ferguson at the Financial Post