The State of the Nation report, by the Centre for Economics and Business Research, shows the planned reduction in public expenditure between 2010 and 2012 is lower in Britain than the average for other Euro countries.
On average, EU countries are expected to reduce their public expenditure by 2.4 percentage points as a share of gross domestic product, while Britain will reduce it by 2.2 percentage points.
As we know, economies with floating exchange rates have fiscal multipliers of the order of zero*. So our Continental brethren do have to worry about the effects of fiscal contraction as they cut their overburdened budgets.
We do not, as we have a floating currency. So we can and should cut more than they, as we don\’t have to worry about fiscal contraction.
*According to that report Will Straw drew our attention to.