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raivo pommer-www.google.ee.

raivo pommer-www.google.ee



Equally, it may be true that British GDP will be lower than the government forecasts by the middle of the next decade - credit crunches are much harder to slip away from than the government forecasts. But after the stimulus the economy has received, there should be some growth, broadly corresponding to the shape the Treasury predicts.

The real issue is the evaporation of our economic and political pretensions. The Treasury has been forced to recognise that 5% of Britain's GDP has disappeared forever. Too many industries were dependent upon the crazy world of ever-rising house prices and easy credit; now gone for ever. This means that the path to sustainable public finances is going to be astonishingly painful. We can live with national debt doubling, but it cannot double again.

The numbers are terrifying. Budget deficits, even for Keynesian apostles of deficit finance like me, cannot stay at 12% of GDP, or £175bn, for very long, however justifiable in recession. The problem is that so much economic capacity has permanently disappeared, along with those parts of the economy that used to deliver rich tax revenues; the post-recession economy will only reduce the deficit by a quarter. The rest has got to be found by tax increases or reductions in planned spending.

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