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Friday, 5 August 2011

Black August

July saw a Westmister piranha feeding frenzy over phone hacking. It ended in anti-climax, with an unenlightening select committee appearance from the Murdochs and a wonderfully timed Commons statement from David Cameron. The PM arrived in the Commons just as the story had hit its peak of intrigue and was coming back down again. Even Ed Miliband had run out of blows to land on the Prime Minister, resorting to the tortuous detail of who knew what when over Coulson.

The hacking scandal has finally run dry. For now. Or at least until the Guardian's journos come back from their summer hols.

Hyperbole and hyperactivity over hacking in the media meant we heard little about a famine in East Africa; a full-blown financial crisis in Greece; deepening crises in Spain, Italy; and - most worryingly of all - the United States on the brink of debt default.

Barack Obama has succeeded in persuading Republicans to raise the US debt ceiling, avoiding a potentially disastrous default on its debt that would have triggered a fresh global economic crisis. But Obama couldn’t avoid America's dirty financial laundry being aired all over Washington and the world.

With the eurozone threatening to break up, with the contagion spreading into the much larger economies of Italy and Spain, and America on the verge of default, the markets are fearing that sovereign states, not just corporations, could go the same way as Lehman Brothers and become insolvent. The twin concerns of US and European debt default, and sluggish growth across America and Europe is fuelling fears of a double-dip recession.

Europe may be on holiday, but it won't be long before Europe will need to dig into its pocket again to boost Spain and Italy, to avoid two of the bigger beasts of the eurozone going under. Both are borrowing money at unsustainable rates, heading into Grecian territory. Something's going to have to give to avoid further trouble in the eurozone, just weeks after the Greek bailout deal was secured.

The markets rallied today, but it's clear that the world economy is going through another critical wobble… and the markets.

Back in the UK, a Tory consensus is building around cutting the 50p rate of tax for the highest earners by 5p, ostensibly to show that Britain is "open for business". Whilst Treasury figures show this could only cost around £750m, I can’t see how this is a priority. The UK economy is growing by the smallest of margins, we are on course to miss growth targets of 1.7%.

A tax cut on the richest earners seems a total irrelevance. The priorities are to boost demand, consumer confidence and consumer spending; and to help create the private sector jobs that are needed to absorb those being laid off in the public sector. Putting more money in the pockets of those on lower incomes, who will - we find out today - face massively increase gas and electricity bills, with EON announcing hikes of up to 18%. A cut in the rate of VAT would do more to boost the economy, by reviving the troubled High Street where the big names have been tumbling out of business over recent months.

So, forget about phone hacking (the multitude of enquiries won't report for years anyway)…it's all going to be about the economy this autumn. Saving the eurozone from breaking up and a subsequent collapse in market confidence. And finding a Plan A.2 for the UK economy to improve our worrying growth figures.

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