The IMF, the AAA and all that

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Who cares what the IMF thinks about UK fiscal policy? Certainly not most ordinary voters.

I don't get the impression that serious investors are hanging on the fund's every word on the subject either.

Unfortunately for the chancellor, he has spent the best part of three years implicitly suggesting otherwise.

So it's politically damaging for George Osborne that the fund has this week moved a few steps closer to telling him that he is doing the wrong thing.

Let's face it, almost anything can be important politically if a senior politician has talked about it often enough.

But that is much less true in economics.

For something to matter economically, it usually has to make a concrete difference to, er, the economy.

It is hard to recall a time in the past 10 years when the fund's opinion on a G7 country's policies has made any concrete difference to that country's fortunes at all.

Many would say the same was true of the move from a AAA sovereign credit rating to a AA.

Crisis countries

If you're a developing or emerging country, the IMF and the ratings agencies loom very large indeed.

They might be your only chance of getting a loan.

If you're Ireland, Greece, or even Spain, those two institutions also matter now - more than they have in a long time - because the crisis countries in the eurozone can't be sure, any more, whether the demand for their government bonds is going to hold up.

Image source, PA
Image caption,
George Osborne remains committed to austerity measures

But Britain doesn't need the IMF's money. Nor does it need the fund's stamp of approval to borrow at a decent price in international markets.

If the US and French examples are anything to go by, the loss of another top AAA rating - from Fitch - will not make a big difference to the government's borrowing costs either.

As the fund itself pointed out in this week's Fiscal Monitor UK came into the financial crisis with a higher proportion of "real money" international investors holding its government assets than any other country - including even the US.

Demand for UK government bonds from those investors has been remarkably stable since then despite high deficits and rising debt. That is reflected in the government's very low cost of borrowing.

Is that stability down to George Osborne? Supporters, like the fund's managing director, Christine Lagarde, would say yes.

Others - including its chief economist, Olivier Blanchard - might well take a different view.

Both would probably admit that the Bank of England's decision to buy about a third of the total stock of public debt as part of its policy of quantitative easing didn't hurt.

The key point is that what matters, at the end of this very irritating week for George Osborne, is not what the IMF or Fitch are saying about the UK, but the economics behind it.

Lively dialogue

The Financial Times suggested this week there would be a "dust-up" over fiscal policy when fund staff come to the UK in a few weeks' time to do their annual report on the UK.

In a BBC interview for HardTalk, Madame Lagarde has now insisted "we don't do dust-up, we do dialogue".

We can certainly expect the dialogue to to be lively. And potentially embarrassing for George Osborne.

But don't expect a lot of clear water between the IMF and the chancellor at the end of it. Or an alternative IMF budget.

Politics has always played a big part in what the IMF says publicly about UK fiscal policy - and that has been particularly true in the past three years.

What should matter most to the rest of us is not how those pronouncements have changed but who is actually right.