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Why the Eurozone crisis is a bigger problem for Balls than Osborne

By Paul Goodman
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Ed Balls is garlanded by the Wintour and Watt double act in the Guardian today for helping to keep Britain out of the Euro: his name takes precedence in their roll of honour over Gordon Brown.  (Rightly, the duo also cite John Major and William Hague; wrongly, they omit Sir James Goldsmith.)  The list is a reminder of how Balls and Brown forged Labour's economic policy together from the mid-1990s on, and ruthlessly expunged from the party's 1997 campaign the errors that helped cost it the election in 1992.  By 1997, there was not only no Neil Kinnock, but no shadow budget, a pledge to stick to Conservative spending plans, and a popular windfall tax pledge on private utilities rather than an unpopular promise not to raise the national insurance contribution threshold.

My sense is that Balls's plan as Shadow Chancellor has been to repeat this successful strategy in 2015: in other words, first to lambast "the cuts" for the next three years or so, and then proclaim in the fourth that Labour will contest the coming election on a commitment to stick to future Coalition spending plans.  In other words, no shadow budget.  No pledged tax increases (other than those aimed at unpopular targets, such as the banks, for spending on popular causes, such as "kids").  And no room for David Cameron to re-fight the 1992 election, during which he played a part in projecting one of the most successful posters in political history - "Labour's tax bombshell".  As we approach next week's autumn statement, all eyes are on George Osborne.  Fewer have spotted a growing problem for Balls's fledgling plan.

That the Eurozone crisis is also a banking crisis and a sovereign debt crisis and political crisis - on a scale at least as vast, I would argue, as that of the early 1930s - is usually seen as a challenge for Cameron, Osborne and the Government.  But, surely, not the Shadow Chancellor, too.  Growth would provide the tax receipts to fund the spending which Balls supports.  And if growth doesn't come those receipts won't either.  Which would leave a horrendous choice for him in 2015.  If he's still in place then and growth hasn't come, he must either promise to cut further (which we must presume will be the Government's position) or spend more.  If he takes the route of cutting further, he will enrage the strike-supporting Labour base.  But if he pledges to spend more, Cameron will dust down that tax bombshell poster.

Either way, the longer Balls bangs on about low growth and "the cuts", the more often he will be asked whether, as Chancellor, he would tax and borrow further.  The Eurozone crisis is a problem for Osborne.  But it is an even bigger one for Balls.