Safe haven, for now
"Could it happen here?" That's the question I keep getting asked, as the Greek tragedy in the markets continues to unfold.
I did a fairly comprehensive piece on the differences between Britain and Greece some time ago. But a pocket summary of my conclusions: like Greece we're borrowing a lot at the moment. Like other governments that are borrowing a lot, ours would be vulnerable if international investors decide, overnight, that sovereign debt isn't a safe bet after all. Like then, we also recently won the chance to host the Olympics. But there the similarity ends.
We have four important advantages which Greece lacks.
First, our stock of debt is rising fast, but it's still much lower than in Greece - and many other European countries. The OECD predicts that British government debt will rise to 78% of GDP in 2010. The forecast for Greece is 120%, with an average for the Euro area of 85%. (These are all on the Maastricht definition of gross public debt, which comes out higher than the net debt figure the government tends to use.)
Second, the average maturity of our debt is much higher - at around 13 years. That's the highest of any major economy. It means that, even with our big deficit, the British government is going to be raising less new debt in the markets this year than Germany, France or Italy. It also means that any rise in the cost of borrowing takes a long time to affect the average cost of the debt. (A point I made on Today this morning.)
Third, unlike Greece, we have a good track record of raising - and collecting - taxes when the Treasury needs them. Many voters would say, too good.
Fourth, and, most crucially, we're not in the euro. If push comes to shove, we can always rely on a falling currency to make our debt easier to manage. That is why most investors think it is more or less inconceivable that the British government would actually go into default.
If you don't believe me, ask international investors. The price of British government debt has risen today, only slightly less than Germany's -as the price of Greek debt continues to fall. You wouldn't guess it from the feverish debate here over the deficit, but right now investors think we're a "safe haven".
That may change. We may, after all, have some serious political uncertainty coming down the track. But market movements today are a good reflection of the distance between London and Athens.
Investors may worry a lot more about Britain's public finances than they did a few years ago. But they worry half as much about it as they worry about Greece.
Update 16:00: A bit of show and tell to back up my previous comments on the difference between Britain and Greece. This is what's happened to the interest rate on Greek and British two-year debt since last autumn.
(The white line represents the UK and the orange line represents Greece.)
As you can see, Greek debt has had a heart attack. The English patient is alive and well.