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10 December 2023

Stiglitz urges Britain to continue stimulus

Nobel laureate economist Joseph Stiglitz has warned Britain not to withdraw its fiscal stimulus, saying markets are a "crazy man" that spending cuts will not tame, in an interview published on Tuesday.

Stiglitz, who won the Nobel Prize for economics in 2001 and served as an economic adviser to former US president Bill Clinton, warned that removing the stimulus too early could plunge the country back into recession.

"You're dealing with a crazy man," he told the Independent newspaper, referring to the current state of financial markets.

"You're asking what I can do to placate a crazy man? Having got what he wants he will still kill you."

Official data revealed at the end of last month showed that Britain's battered economy grew by just 0.1 per cent in the fourth quarter of 2009, ending the country's deepest recession in modern history.

However, the anaemic growth rate disappointed many economists because market expectations had been for stronger expansion of 0.4 per cent.

Removing emergency measures introduced to combat the downturn made slipping back into recession more likely, Stiglitz warned.

"It there is a premature withdrawal of stimulus it is more likely that there will be a 'double dip,'" he said.

A "double-dip" recession refers to a recession followed by a short-lived recovery, which is cut short by a fall back into negative growth.

Britain's fragile economy and the inevitable cuts needed to rein in huge debts are a key political battleground ahead of an election that must be held by June, and which the ruling Labour government is tipped to lose.

Stiglitz also criticised US President Barack Obama's plan to break up banks, saying it "doesn't go far enough", and said Britain's record on the issue was better.

"What (Prime Minister Gordon) Brown has done in terms of banks so far is far better that what the US did; he demanded better compensation for providing money, better accountability, better attempts to restart lending, than in the US," said the economist.


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