A flaw in Osbourne's plans maybe

We may be on the edge of the EU's tackling or non tackling of the Greek crisis but its outcome may may profound effects on George Osborne's economic visions.

According to Chris Dillow,

Greece’s troubles cast doubt over George Osborne’s “new economic model”, which envisages a rebalancing of the economy away from public spending and towards exports?

after he has argued that tough fiscal medicine will be balanced by the creation of an export market as sterling weakens.

However

What if all countries are tightening fiscal policy? They can’t all have falling exchange rates.

Where do our exports go then

More of the same

Can someone please help.

What exactly are these benchmarks that George Osborne has laid down this morning and how are they any different we have heard from anything before?

For the record here they are

1.Create a more balanced economy - ensuring higher exports, business investment and saving as a share of GDP

2. Ensure the whole country shares in rising prosperity - by raising the private sector's share of the economy in all regions of the country, especially outside London and the South East.

3.Get Britain working

4.Ensure macro-economic stability

5.Make Britain open for business

6.Reform public services to deliver better value-for-money

7.create a safer banking system that serves the needs of the economy

8.Build a greener economy

and what makes these any different to what we have got at the moment?

Can a fall in the pound help the economy recover

One possible economic way out of our current dilema is to allow the pound to fall and as Chris Dillow reports,this is being considered by a future Tory government.

He quotes from Giles Wilkes' papers slash and burn in which the author says that

George Osborne’s determination to cut the deficit at all costs risks leaving the economy sluggish and the government still mired in debt, according to a new report from liberal think tank CentreForum.

adding that

Even with a monumental collapse in the pound, there is little reason to believe that Britain’s export sector could respond fast enough to drive economic growth. Instead, this policy may just as easily weaken confidence and drive interest rates up, which would wreck a fragile recovery

So according to Chris

Imagine it's 2010-11, and Osborne announces big spending cuts. The Bank of England responds by keeping interest rates low. However, the Fed and ECB start to raise rates. The UK could soon end up with almost the lowest rates in the world. Carry traders around the world will then short sterling. The pound will fall, possibly very sharply. This effect would almost certainly swamp any uplift the pound gets from improved confidence about the public finances.