By Alex Brummer
Last updated at 12:18 PM on 16th April 2011

George Osborne is more confident than ever that the steps the Coalition has taken to cut Britain's public debt are right. He believes the stand in favour of bold and fast cuts is being vindicated by what other countries are doing.

In the eurozone the problems among those countries already in the intensive care ward, Greece and Ireland, are not getting any better.

Despite reassurance from the IMF here in Washington that the austerity measures are on track, the markets clearly disagree. Bond rates in Greece are flashing a very dangerous red and in Ireland the credit ratings agency Moody's has inflicted new damage.

Landmark speech: Barack Obama has made it clear he favours a 75 per cent cuts and 25 per cent higher taxes split

Landmark speech: Barack Obama has made it clear he favours a 75 per cent cuts and 25 per cent higher taxes split

Osborne's preference is to look away from the European periphery and focus on more positive examples.

He argues the tough actions taken by Spain - first to deal with its budget deficit in a credible way and to clean-up its sick banking system - have stabilised the situation and the bond markets have acted positively by allowing it to borrow at cheaper rates.

But Osborne is drawing most comfort from events in the United States where the budget debate has moved on by leaps and bounds in the last few days.

Ed Balls, Labour's economic attack dog, has been using America's reluctance to tackle its deficit as evidence growth is not well established enough in the advanced economies to take risks with fast cuts.

However, last week's budget deadlock in Congress - which almost led to a government shutdown - has placed both the Republican controlled House of Representatives and the White House on the same budget cutting track.

The debate is about where the cuts fall and should taxation play a part, rather than the need to act.

In his landmark speech at George Washington University this week Obama made it clear he favours a 75 per cent cuts and 25 per cent higher taxes split.

The Republicans want the axe to fall on domestic programmes including Medicare and Medicaid, the health schemes for the elderly and less well-off, whereas Obama wants some of the pain to be taken from the wealthy and corporate tax evaders.

But the bottom line is the US has set itself on a course to rein in the federal deficit by up to 2 per cent - which the Tories note is more than the 1.6 per cent implied by the UK's own 80billion of budget cuts over four years.

Pinning so much significance on the budget numbers spelled out in the Obama speech is probably a little unwise.

An analysis by the Congressional Budget Office suggests there is far less to the announced reductions that meets the eye, with up to $18billion (11billion) of the cuts involving money that has never been fully authorised.

Still the decision of a President heading into an election to put on the hair shirt and argue that cuts and taxes on the wealthy are the answer to America's problems is a total change of tack. As in Britain, fiscal discipline is the new creed.

Glistening again

A clear secondary theme of the Washington meetings is how best the advanced democracies deal with the upheavals across the Middle East and North Africa region. At present the military stalemate in Libya takes it out of the game.

The consensus is that a combination of soaring food prices and youth unemployment gave momentum to the revolutions in Egypt and Tunisia and are also behind the uprisings elsewhere across the region. So the goal is to try and find new resources.

Clearly, the IMF and World Bank will play a key role.

But it now looks as if the Londonbased 'glistening bank' - the European Bank for Reconstruction & Development - is going to be mobilisedto the cause. It was set up after the fall of the Berlin Wall to encourage private sector investment in Eastern Europe.

As the pipeline of projects starts to dry up in Eastern Europe an effort is underway to change its mandate so it can invest and lend in North Africa too.

Originally, the EBRD was intended to wind down when its task was done. Now it is being offered a new lifeline in MENA.

Global institutions are far easier to set up than close down.

Fresh air

Britain's magnificent Lutyensdesigned embassy in Washington was - in an earlier age - a centre of activity during IMF meetings, with chancellors holding forth over breakfast and cocktail parties for world economic leaders.

This was ended during the austere Gordon Brown regime, when it became off-limits.

So there was an air of symbolism about George Osborne's decision to hold his press conference in the bright sunshine on the terrace of the residence overlooking the splendid spring blossom.

People:
George Osborne,
Gordon Brown
Places:
Berlin,
Washington,
Tunisia,
Egypt,
Greece,
Ireland,
Libya,
Spain,
United Kingdom,
America,
Middle East
Organisations:
White House,
International Monetary Fund

Here's what readers have had to say so far. Why not add your thoughts below, or debate this issue live on our message boards.

The comments below have not been moderated.

We need more cuts and faster to reduce the debt. The smaller the cuts the longer the pain, get it over swiftly.

Report abuse

What cuts. 160 billion borrowing was announced in the Budget. How about 160 billion in cuts. I'm sick of all this debt, and the fools that caused this have knocked my prudence for six.

Report abuse

Of course if the government created its own money instead of borrowing it then there would be no debt. - lendusaquid, Bournemouth, 16/4/2011 13:46 Something you should know. The value of a currency has to be based on solid assets, or as in the UK, the confidence that a pound is worth what people say it is worth. All that printing more money would do is increase the number of the liquid assets (coins and notes), but it wont change the quantity or value of the solid assets or value confidence on which our economy is based... The pound will be worth less than it was before, so we would end up actually paying out more money on imports, and getting less on exports. Our economy will become harder to run than normal, with smaller incomes and higher expenditures. Thus, we would end up needing to make cuts or tax increases to compensate. Which is exactly what we're doing now, just without the devaluation of the pound.

Report abuse

Why do we still base the whole world economy on the half baked ratings of the people who caused the collapse in the first place by giving a triple A rating to toxic mortgages.

Report abuse

Clive, Fife, 16/4/2011 13:59 The Weimar Republic had to pay impossible war reparations and with speculation on the currency the country was ruined. It was only when the government stopped the banks from operating and started to create its own money and distributed into the economy through works that the country recovered and became a powerhouse with full employment. The world banking system put an embargo on the country in retaliation but Germany continued trading by barter. If a company needs a loan then the government can create the money and lend it. The company does its business and repays the loan. The government can then remove the money from the system or lend out again depending on the state of the economy. Where is the inflation?

Report abuse

"... It appears that any savings (reduction of the deficit) have been more than equalled by the bail-outs to Greece, Ireland and probably Portugal ... - John Bracewell, Bristol" The money we used to bail out Greece and Ireland will be paid back. Our country currently has a AAA credit rating which means we can borrow money at a low interest rate. The interest rates that Greece and Ireland have to pay is a lot higher as their credit ratings are terrible (they are a risky investment). So we borrow the money on their behalf with a low interest rate and then loan it to them for a slightly higher interest rate but less than what they would have to pay if they borrowed it. So in the long run we are actually making money of it :) However, if they fail, we are responsible for paying it back.

Report abuse

The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.