Only 'Fools' would scuttle a recovery

In contrast, the UK has benefited because it has been able to devalue the pound by about 25 percent, which has helped to stimulate exports and import substitution at home. As a member of the Bank of England's Monetary Policy Committee, I tried to talk the pound down, especially in the spring and summer of 2008, when my colleagues wouldn't cut interest rates, even though the UK had entered recession in April 2008.

Since that time, Governor Mervyn King has, appropriately in my view, been successfully talking the exchange rate down against most major currencies. But these options aren't open to countries in the euro straitjacket or to U.S. states.

At last, the European Commission has said it is prepared to propose the creation of a so-called European Monetary Fund to cope with future debt crises in the region. It's about time.

Most nations in the Organization for Economic Cooperation and Development, perhaps with the exception of Australia, have anemic economic growth, driven mostly by government spending and stock building. In the U.S., there are some signs that unemployment may have peaked and some industries other than temporary-help firms are starting to hire, though there is little sign that investment is picking up.

In the most recently published data, Ireland's unemployment rate jumped to 13.8 percent in January 2010 from 13.3 percent a month earlier. The unemployment rate in Spain is 18.8 percent, up from an average of 8.3 percent for 2007, and an astonishing 40 percent for those younger than 25.

I have every expectation that there will be a jobless recovery across the OECD. And there is little evidence to suggest the consumer will start spending again soon. The Conference Board's latest Consumer Confidence Index fell to 46 in February compared with expectations among economists that the index would fall to 55 from 55.9.

The British Retail Consortium and KPMG retail-sales monitor in January 2010 was the worst reading in the 15-year history of the survey. The EU-wide consumer-confidence index dropped again in February after improving a little in December and January. A couple of months of positive data don't make a trend.

Claims that cuts in spending should be done in the depths of a recession are driven by politics, not by economics. Electorates are likely to be unimpressed by governments deferring economic policy to financial markets, given that they got us into this mess in the first place.

Keynes warned that the classic policy error is to tighten too soon. Beware the fools and madmen who argue any different.

David G. Blanchflower, a former member of the Bank of England's Monetary Policy Committee, is professor of economics at Dartmouth College and the University of Stirling. The opinions expressed are his own.

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