Finance Minister's Ignorant Comments About Cyprus Are Why The UK Economy Is Such A Disaster

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The U.K. economy is currently in or on the verge of a triple-dip recession.

The pound has been tanking and there are loud worries about stagflation.

Yet despite the downward spiral, the current U.K. government, led by PM David Cameron and Finance Minister George Osborne has insisted that the current path of austerity must be preserved to bring the debt down, and maintain the confidence of world markets.

Of course, this is a canard.

Austerity has not brought the debt down, as targets have been missed. And when you have your own central bank/currency (as the U.K. does with the Bank of England) global market confidence is kind of irrelevant when it comes to your debt.

As such, the comments of Osborne in the wake of the Cyprus bailout are quite revealing.

First there's a hometown angle here for the UK, since a lot of U.K. members of the military have money in Cypriot banks. The U.K. government has said they will be re-compensated for whatever bank deposit haircuts they endure.

But check out what Osborne took away as the broader message from Cyprus. He used it as an example of why the U.K. must maintain its austerity path:

“That is an example in Cyprus of what happens if you don’t show the world that you can pay your way.

“I mean that is why in Britain we’ve got to retain the confidence of world markets,” he said.

This is sheer nonsense. This has nothing to do with whether the country could "show the world that you can pay your own way." It has to do with the fact that the Cypriot banks had large exposure to Greek debt (because of how intertwined their economies are) and took big losses on Greek debt writedowns. And it has to do with the screwed-up Euro system, whereby no country has their own currency.

And it has to do with having an oversized banking system, and all kinds of other things. There are virtually no applicable lessons to the U.K. here. But the government is using the incident as another excuse to justify disastrous policy.