Leaders: The facts have changed so it’s time Europe did too

THOUGH there is no proof Lord Keynes ever actually said it, he is generally credited, on being asked why his opinion of something had altered, with replying: “When the facts change, I change my mind. What do you do, sir?”

This thought should be ringing in the ears of the leaders of the world’s most developed economies as they head for this weekend’s G8 summit in America.

Two years ago, the economic facts said that the governments of these economies were spending too much in excess of their tax revenues and to deal with these potentially destabilising deficits, spending should be cut. The assumption was that, after a couple of years and with evidence that government debt was under control, growth would be resuming and unemployment would be on the way down.

But now the facts say that while public debt is more under control than it was, growth is evaporating, renewed recession is now gripping Europe and unemployment is rising. So the facts have changed and the case for the G8 leaders to change their minds is becoming more compelling.

Growth is also an essential ingredient for deficit reduction. If a government’s spending deficit remains the same in cash terms but the economy is growing, then the deficit as a percentage of GDP reduces. Recession, on the other hand, which is now evident in the eurozone, in the UK and which may yet return in the US, means that, even if deficits stay at current cash levels, they will grow as a proportion of the economy.

Rather obviously, this is not what was intended. Neither does it seem sensible to stick with more of the same, for any expectation that austerity alone would stabilise the euro currency has been blown away. If there is to be a change of course to recognise these altered circumstances, then the leader who has to make it is Germany’s Angela Merkel.

Germany needs to recognise it is not immune to Europe’s economic crisis. Its car-makers and other manufacturers have prospered from the weak euro. Mercedes cars and machine tools are a lot cheaper in world markets than they would be under the Deutschmark, or in a much shrunken eurozone. Thus, while Germany has shouldered much of the financial burden of the crisis so far, it may have to take still more of the load to avoid a far worse penalty.

Pre-summit signals from Berlin seem to indicate that Mrs Merkel is prepared to shift her stance but only to the extent that if there is to be a eurozone growth strategy introduced, austerity must be maintained. But that, as fears mount that Greece must leave the eurozone, threatening the same fate for Spain and Portugal, seems not just pointless, but also self-defeating.

And if Mrs Merkel moves, the pressure on Britain’s David Cameron to recognise that more growth stimuli are needed in the UK will surely also increase. Hopefully, he will respond and go for growth.

War of words is over

Throughout the half-century of confrontation between Soviet dictatorship and western democracy, Britain’s possession of nuclear weapons was argued to be an essential guarantor that world war would not break out. The ability to obliterate an aggressor’s capital city was enough to ensure that an attack would not come.

But the mere description of the capacity to deliver sufficient megatons to ensure this – the Moscow Criterion – says that it is an out-dated concept that needs rethinking. The simplistic stance is to argue that since there is no longer a Soviet threat, Britain should just scrap the Trident submarine fleet, return all the missiles and warheads to the USA, and save the £20 billion cost of replacing them.

But the world is much more complicated than that. British unilateral disarmament would do nothing to make today’s potential nuclear combatants – Israel and Iran, India and Pakistan, plus the completely unpredictable North Korea – abandon either their nuclear arms or ambitions.

Nevertheless, a serious strategic rethink is clearly needed. Who are we hoping to deter? What do we need to deter them? And if there are good answers to these questions, does British public opinion still support the possible use of nuclear weapons?

These and many other calculations need to be made in the review now being undertaken by the UK government. Initially, this review seemed to be not much more than a sop to the Liberal Democrats. But it is becoming evident that it is being taken more seriously than that by military planners.

The review should look into far more than just what kind of nuclear weapons we can afford.