Crises have always led to intense discussion of the role of the state. The present one should be no exception. The immediate danger has not passed: just look at events in the eurozone. But the time has come to look at longer-run implications of the crisis. This is particularly important when one considers fiscal consolidation. On this I make a simple point: it is not just about debt; it must also be about assets.
That the challenge of fiscal consolidation is large is indisputable. The new Economic Outlook from the Organisation for Economic Co-operation and Development argues that “merely to stabilise debt-to-gross domestic product ratios by no later than 2025 requires strengthening the underlying primary balance from the current position by more than 5 per cent of GDP in the OECD area on average. Tightening by more than 8 per cent of GDP is called for in the US and Japan, with the UK, Portugal, Slovak Republic, Poland and Ireland all requiring consolidation of 5 to 7 percentage points of GDP.”
It is inescapable, too, that much of the consolidation will – and should – fall on spending. This has now turned out to be unsustainably high, given reductions in potential income.