Not that it hasn’t done it before, but Britain looks like it may be in danger of breaking one of the Maastricht limits again.
Maastricht limits are part of the criteria for joining the euro. The UK of course has opted not to join — though with the pound trading at Great British Krona levels, many have argued it may be time to reconsider.
Maastricht requires, for a start, that the government debt to GDP ratio stands at no more than 60 per cent. UK debt is currently at something like 44 per cent of GDP – relatively low – but is forecast to jump as the government engages in fiscal stimulus to boost the economy. That stimulus to be outlined, by all accounts, in next week’s pre-budget report.
From Bank of America:
In terms of the total UK debt picture, the need for radically higher borrowing due to economic recession, the inclusion of the £50bn bank capitalization plan and the nationalisation of Northern Rock and Bradford & Bingley looks set to push the debt-to-GDP ratio to just under 65% in coming years, in our view, from 36% prior to NR’s nationalisation at the end of last year. It is worth noting that, since the ONS will likely not offset the liabilities from the government’s bank recapitalization plans or from the nationalized institutions against their non-liquid assets, i.e. their mortgage books, the deterioration in the debt/GDP would be be somewhat overstated but still alarming nonetheless.
A debt to GDP ratio above 40 per cent would also violate the UK government’s own sustainable investment rule. Of course, since rules seem to have become fairly useless in the current climate anyway, expect them to suspend it.
Related link
Great Britain alert – FT Alphaville