The economy faces “very serious” problems but the government will not veer from a path of swinging austerity cuts to tackle a big budget deficit despite anaemic growth, Deputy Prime Minister Nick Clegg said on Sunday.
Britain was not isolated from the sovereign debt crisis in Europe’s euro zone countries — a key export market — and supported co-ordinated international action to prevent the currency bloc falling apart, he said.
“I think the situation is very serious. We are a very open economy. We are hugely dependent on what happens around us, particularly on the euro zone,” Clegg told the BBC in Birmingham, where his Liberal Democrat party is holding its annual conference.
“Forty percent of our exports and more go into the euro zone, things are spluttering there and of course that affects us massively, which is why it is hugely in our national interest to make sure that the euro zone is strong,” he said.
Britain’s economy has barely grown since last September and the coalition government is under pressure to find ways to boost growth without breaking its commitment to cut public spending over four years to reduce a record budget deficit.
Opposition party Labour and trade unions have called for the government to relax its austerity programme in a bid to stimulate the economy and create jobs, but Clegg said the government would stick with its plans.
“People who advocate that, just need to think this through,” Clegg said.
“Does anyone seriously think that by ripping up the plan to balance the books, that somehow you will create growth by next Tuesday? It is a complete illusion. Actually what you would create is outright market panic, higher interest rates and more unemployment.”
Last week the government said it would prioritise a number of infrastructure projects to help growth and is looking at ways to boost housebuilding as a way of creating jobs.
It will make 500 million pounds ($790 million) available to developers whose construction projects were stalled by cash-flow problems or the need to build local infrastructure, Treasury Minister Danny Alexander said on Sunday.
The funding, which would have to be repaid, will come from money unspent by other government departments, and so remains within government spending plans.