Osborne tells Commons that Britain would be thrown into a "financial whirlpool" if it retreated from deficit reduction

By Tim Montgomerie
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The Chancellor of the Exchequer took the opportunity of the recall of parliament to update MPs on the government's economic plan. Highlights are pasted below.

Private and government debt got the world into this mess: "The crisis of confidence in the ability of Eurozone countries to pay their debts has spread from the periphery to major economies like Italy and Spain. But these events did not come out of the blue. They all have the same root cause. Debt. In particular, a massive overhang of debt from a decade-long boom when economic growth was based on unsustainable household borrowing, unrealistic house prices, dangerously high banking leverage, and a failure of governments to put their public finances in order. Unfortunately, the UK was perhaps the most eager participant in this boom, with the most indebted households, the biggest housing bubble, the most over-leveraged banks and the largest budget deficit of them all."

Britain is a safe haven in an international storm: "The market for our government bonds has benefitted from the global flight to safety: UK gilt yields have come down to around 2.5% - the lowest interest rates in over 100 years; And earlier this week the UK’s Credit Default Swap spread, or the price of insuring against a sovereign default, was lower than Germany’s. This is a huge vote of confidence in the credibility of British Government debt and a major source of stability for the British economy at a time of exceptional instability. And it is a reminder of the reckless folly of those who said we were going too far too fast."

International market confidence is good for British homeowners and workers: "The very same rating agency that downgraded the United States has taken Britain off the negative watch that we inherited and reaffirmed our AAA status. This market credibility is not some abstract concept – it saves jobs and keeps families in their homes. Families are benefitting from the lowest ever mortgage rates and companies are able to borrow and refinance at historically low rates thanks to the decisions we have taken."

There will be no retreat from deficit reduction: "Let me make it clear not only to the House of Commons but to the whole world. Ours is an absolutely unwavering commitment to fiscal responsibility and deficit reduction.  Abandoning that commitment would plunge Britain into the financial whirlpool of a sovereign debt crisis, at the cost of many thousands of jobs. We will not make that mistake."

The €urozone needs greater fiscal integration: "I have said many times before that the Eurozone countries need to accept the remorseless logic of monetary union that leads from a single currency to greater fiscal integration.  Many people made exactly this argument more than a decade ago as a reason for Britain staying out of the single currency – and thank God we did. Solutions such as euro bonds or other forms of guarantees now require serious consideration. And they must be matched by much more effective economic governance in the eurozone to ensure fiscal responsibility is hard wired into the system. The break-up of the euro would be economically disastrous, including for Britain, so we should accept the need for greater fiscal integration in the Eurozone, while ensuring we are not part of it and our own national interests are protected."