Merryn's Blog

A warning to the next Prime Minister

The European Commission has bad news for Britain's next PM - we're the worst debtors in Europe.

Who's the ugliest of them all? Judged on the national balance sheet, that is.

The debate rumbles on.

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Just as we're all sharpening our voting pencils, the European Commission has just had its say. And today it has warned the future occupant of No.10 that he'd better get his act together fast.

This year, Britain's budget deficit how much we'll need to borrow as a country this year will be the worst in the EU at 12% of GDP, according to the Commission's Spring economic forecasts. That will be even bigger in percentage terms than Greece, whose troubles we take a look at in this week's MoneyWeek magazine.

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"The first thing for the new government is to agree on a convincing, ambitious programme of fiscal consolidation to start to reduce the very high deficit and stabilise the UK's high debt level", says European economic and monetary affairs commissioner Olli Rehn. "That's by far the first and foremost challenge of the new government. Whatever its colour, I hope it will take this measure".

Of course, there's not much 'new' news here. By now we've heard ad nauseam about the spending cuts the next government will have to put through to try to make its books more balanced. "Get ready for the Great Squeeze", says Jonathan Loynes at Capital Economics.

But this EC caveat is another very clear sign that the rest of the world is watching us very closely. What's more, despite all the warnings, not all investors will have prepared their portfolios for what's in store.

Now we're sometimes accused of being too gloomy. That's because we don't take official optimism at face value. And we freely admit that we still see plenty to worry about financial-wise. Many of the problems that caused the last boom and bust haven't yet been sorted out.

That means we'll be especially vigilant in the near future about spotting the rising risks that markets will be facing. If you haven't signed up to our free daily Money Morning emailor magazine, this might be a good time to start. (Click here to claim a three week free trial to MoneyWeek.)


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