The claim
“This year, actually, we are borrowing more as a percentage of GDP than the Greeks are. Of course there are differences between Britain and Greece and you can see that in all sorts of ways. But Greece stands as a warning to what happens if you don’t pay back your debts.”
David Cameron, Conservative Party leader, 28 April 2010
The background
It is perhaps no surprise that politicians are talking about comparisons between the UK and Greece again after the dramatic down-grade of Greece’s credit rating and the ensuing panic.
Aside from David Cameron, George Osborne made a similar comment to the Institute of Directors and Lib Dem Vince Cable told Reuters:
“The Greek position is much more serious but is a salutary warning that unless the next government gets seriously to grips with the deficit problems, as we’re determined to do, we could have a serious problem.”
But for Labour, David Miliband and Peter Mandelson were vigorously defending Britain’s economic strength.
It is a comparison that has not passed FactCheck by. The first time, Mr Cameron claimed the budget deficit was bigger than Greece “today”. We found that the statistics didn’t back Mr Cameron up on that occasion. But the situation has developed fast in the two and a half weeks since we last took a look at the numbers. So how far are the comparisons valid?
The analysis
When FactCheck first looked at comparisons with Greece that Mr Cameron made, we found that as a percentage of GDP, the UK had borrowed less than Greece last year, and was forecast to borrow more this year. But we’re not there yet.
Since then, the Greek deficit for 2009 has been revised upwards too 13.6 per cent from 12.7 per cent. The European Union statistics office has said that the gap may yet turn out to be higher.
As we said before, the UK deficit for last year was predicted to be 12.6 per cent at the end of 2009, but was revised down in the March budget to 11.8 per cent. So the gap between the UK and the Greek deficit for last year has widened.
Yet today Mr Cameron changed his wording, saying that our borrowing is more as a percentage of GDP than Greece. In this he is closer to the mark – the UK Treasury deficit target is 11.1 per cent for 2010/11, compared to the target Greece has set of 8.7 per cent. We’ll have to wait until the end of the year to see how close either side is to their target with the goalposts moving so rapidly at the moment.
But all this that doesn’t necessarily mean we’ll be the next country to plead for a bailout.
Oxford Economics told FactCheck that the UK was in a “reasonably advantageous position” compared to Greece.
Firstly, the Greek debt as a proportion of GDP is much larger than in the UK, running at 115 per cent in 2009 and projected to rise to 125 per cent in 2010 – the highest within the Eurozone.
In contrast, statistics from the OECD put the UK total debt at more like 68.1 per cent of GDP. (N.B. the European comparisons use gross debt whereas the government measure is lower because they tend to use net debt and also exclude the costs of the bank bailouts.)
Secondly, some of the urgency surrounding Greece’s crisis is the frequency with which their debt has to be renewed and the volume coming due.
As Oxford Economics points out, during 2010 Greece needs to raise as much as 60bn euros to finance their deficit and repay maturing debt, and are losing confidence of investors.
They are now struggling to find investors to buy the debt, compounded in recent days by their debt being downgraded to “junk” – a tag handed to them by respected ratings agency Standard & Poor when they downgrade Greece’s debt to BB+, the first of the “junk” status grades.
In contrast, the UK currently still maintains its AAA rating – the highest rating on the Standard & Poor list – and the average maturity of government bonds in the UK is around 14 years, making it much less vulnerable to the whims of investors.
So, Andrew Goodwin of Oxford Economics says, the issues facing the UK are much more long-term.
And if Mr Cameron takes Greece as a warning, he might also want to listen to the criticisms from the Institute for Fiscal Studies yesterday. They criticised all parties for failing to explain how they would repair public finances, and the Conservatives and the Lib Dems for the vagaries of their fiscal targets.
Their analysis also says the Conservative plans “would make a relatively modest difference to the long-term outlook for government borrowing and debt” – a slap in the face for the party who are pushing to separating themselves as the party of cuts now not later.
The verdict
So, Mr Cameron is more accurate with his comparisons that he was a couple of weeks ago, but the comparison does not explain the whole picture – the UK economy would have to fall a long way before it hit the crisis point of Greece.
And if the Greek crisis holds a warning for the UK, Mr Cameron – as he suggests himself – needs to heed it as much as the other parties if he is serious about paying down the debt.
