The Economy

As it happens, there is a passage in my book about the trend rate of growth. I believe that economists find it terribly difficult to work out what the right trend rate of growth is. On the point raised in the Select Committee this morning, I am surprised that the OBR has said that the productive capacity of the economy has been so reduced, partly because of lack of productivity. Part of the OBR's problem is that it fails to recognise that businesses have retained labour through this recession in the hope that they will need it when recovery comes. One worry is that if businesses think there will not be a recovery, the people they have held on to will then lose their jobs. No doubt the Select Committee will look into that. Let me touch on what is happening in Europe. I appreciate that it is a risky business because what is happening today might not be what is happening tomorrow or the day after that. The Chancellor touched on it and I hoped he would say rather more about what is being proposed—if, indeed, he knows. As far as I can see, the agreement reached between President Sarkozy and Chancellor Merkel on Monday seems to be a recreation of the stability and growth pact—and we know which were the first two countries that actually broke it. I have a feeling that they are trying to reach a sufficient political agreement to give Mario Draghi of the European Central Bank sufficient cover to do what we all know the ECB has to do in terms of intervening in the market. It does not go any further than that. Mario Draghi made a good speech last week, in which he said, ““Look, we're ready to intervene, but you lot have got to show willing.”” Interestingly, that is exactly the same position that Jean-Claude Trichet took in the ECB at the last ECOFIN meeting I attended in May 2010, to which the Chancellor is fond of referring, when it was necessary for Ministers in the European Union and the eurozone to decide on sufficient action to allow the ECB to intervene. I am glad that the ECB is going to intervene, but the agreement reached on Monday does not go far enough because it does not address the fundamental questions and fundamental problems of having a single currency without something approaching fiscal or economic union. That was not addressed and neither was the Greek problem, which will not go away because that fix will not work. The rescue fund is still a virtual one and, of course, there is the whole question of the recapitalisation of European banks, which remains for next summer.