British-Cypriot Christopher Pissarides said Osborne had exaggerated the risk of a Greek-style debt crisis ahead of introducing the most severe cuts in a generation in Wednesday’s comprehensive spending review.
“Unemployment is high and job vacancies few,” he told the Sunday Mirror. “By taking the action that the chancellor outlined in his statement, this situation might well become worse.”
He argued Osborne could have outlined a clear deficit-reduction plan over the next five years, postponing more of the cuts, until the recovery became less fragile. “The ‘sovereign risk’ would have been minimal,” he added.
“Overall, the chancellor is putting the economy through some unnecessary risks because of his fear of sovereign risk, which does not appear justified.”
Osborne argued that £81 billion of savings were needed to avoid a Greek-style crisis where investor confidence collapsed and the cost of government borrowing soared.
On Saturday, Prime Minister David Cameron reiterated his party’s argument in a podcast on the Number 10 website that the country faced economic ruin unless it tackled a record peacetime budget approaching 11 percent of GDP.
But the main opposition Labour party has said the cuts go too deep. The Conservative/Liberal Democrat coalition has attempted to stave off criticism by saying it is applying the cuts fairly, with the richest bearing the biggest load.
Cameron said: “We didn’t just do the right thing; I really believe we are doing it in the right way. We’ve gone about these spending cuts in a way that is fair and in a way that will help promote economic growth and new jobs.”
An ICM poll for Sunday’s News of the World showed 45 percent of those questioned thought the measures were unfair compared with 42 percent who considered them fair. The number was even higher in a ComRes opinion poll in the Independent, where 59 percent thought the cuts were unfair.
