Krugman likes us!

I'm sure I'm not the only Brit who has been following with interest the expressions of mild enthusiasm that global econopundit in chief, Paul Krugman, has expressed towards our sceptered isle over recent months. So, I'm also sure I'm not the only one who was interested to read Krugman's interview with Will Hutton in this weekend's Observer. In it, Krugman reiterates his view that the Brown-Darling early stimulus package combined with significant currency depreciation places Britain in a comparatively strong place to exit the recession ahead of continental Europe, whilst the dependence of otherwise solid industrial economies (Germany and elsewhere) on exports to the crunch-hit world makes them more vulnerable than their relative isolation from the subprime crisis might have initially suggested.

So much for the end of the Anglo-Saxon model. This view will perhaps be a surprise to anyone who reads the British press only, in which the UK's overdependence on the financial sector is often dwelt upon to suggest we're in a much deeper hole than the rest of the continent. (Though, of course, these two views are not strictly exclusive.)

Krugman's enthusiasm for Britain may have a solid basis in fact - only time will tell - but I suspect it also reflects his expectations for the next eighteen months in American politics. In the same interview, he talks up the possibility of a second stimulus package in the US, arguing that the major economic figures in the Obama administration (Summers, Geithner, Romer) are all ready to consider such a measure if the economy doesn't rebound rapidly this year. "You know, the buzz I'm getting is that a second-round stimulus might well come on the agenda," he says. But Krugman must know well that a second stimulus would precipitate the mother of all battles with the newly fiscally conservative GOP rump. With Britain several months ahead in the process (thanks to America having to wait for Obama to take office before being able to act decisively), even tentative signs of green shoots in the economy 'over here' might end up providing a useful piece of evidence for the big spenders to point to 'over there'.

Meanwhile, with Brown seemingly destined to lose in next year's election and the Tories committed to sweeping cuts in spending, it may be that these lessons are not learned on the side of the pond in which they were actually put in place. It will be a great irony if Brown's last days in office see his policies gain greater credit abroad than they do at home.

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