BBC

10th December, 2008

The German finance minister has launched an outspoken attack on the UK government’s plans to help pull Britain out of the economic downturn.

In an unusual breach of standard diplomacy, Peer Steinbruck attacked the UK’s decision to cut VAT and raise the national debt to record levels.

Mr Steinbruck said the UK’s switch from financial prudence to heavy borrowing was both “crass” and “breathtaking”.

His comments came in an interview with Newsweek magazine.

“There is a broad international consensus that a fiscal stimulus is right thing for economies now,” said a Treasury spokesman.

‘Debt generation’

Criticising the UK government’s decision to cut VAT from 17.5% to 15%, Mr Steinbruck questioned how effective this will be.

“Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90?” he said.

“All this will do is raise Britain’s debt to a level that will take a whole generation to work off.”

Saying the UK government was now “tossing around billions”, Mr Steinbruck questioned why Britain was now closely following the high public spending model put forward by 20th Century economist John Maynard Keynes.

“The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking,” he said.

“When I ask about the origins of the [financial] crisis, economists I respect tell me it is the credit-financed growth of recent years and decades.

“Isn’t this the same mistake everyone is suddenly making again, under all the public pressure?”

German spending

Chancellor Alistair Darling announced in last month’s pre-Budget report that the government would inject an extra £20bn into the UK economy in a bid to get it moving again.

At least £15bn of this total will come from increased government borrowing, which is expected to take the UK national debt to £118bn next year.

While Mr Steinbruck has accused the UK of over-spending on the economic recovery, the German government has put 480bn euros (£370.4bn; $645bn) into a rescue package for its banks.

Most other European government’s have also increased public spending to try to ease the impact of the economic downturn.

France recently announced plans to spend 26bn euros, and the European Commission wants to spend 200bn euros across the European Union.