The appointment of Ed Balls as shadow chancellor has most certainly livened up the political and economic debate. Along with the putative dilemma facing the Bank of England, it has also revived international interest in the UK economy.

Last week the International Herald Tribune, the international edition of the New York Times, reprinted an NYT article under the headline: "Governor under fire at the Bank of England – critics assail policies they claim have mired economy in stagflation." And your correspondent was invited, with former chancellor Lord Lamont, on to the BBC World Service's Politics UK programme to discuss the Osborne/Balls confrontation, which appears to have captured the interest of listeners beyond these shores.

Before I continue, however, I feel it my public duty to note that Politics UK is threatened by the kind of cuts that Lamont and I were discussing – with somewhat different views about the necessity for them.

There is something barbaric about the way this coalition is setting about a deficit problem whose seriousness it has cynically magnified for its own political purposes. And there is something especially inane about attacking the World Service, whose radio broadcasts are the envy of the rest of the world, not least because of their reputation for balanced reporting. Many a nation would love to possess a radio station that commanded such respect; I recall, for instance, a lecture given by Alan Greenspan at the Bank of England, while he was chairman of the US Federal Reserve, in which he told us how he would regularly tune in to its broadcasts. He is one of hundreds of millions around the world.

At all events, the economic debate is most certainly hotting up. Balls is not letting the coalition get away with the claim that the deficit is entirely the fault of the Labour government of which he was a part. Indeed, as he repeatedly points out (one has to repeat things in his business: Churchill himself gave some of his purplest passages several outings before they penetrated the public consciousness), "before the crash we had the second- lowest debt in the G7, at 36.5% of gross domestic product", down from the 42.5% Labour inherited in 1997. The collapse in output precipitated by the banking crisis meant that, by definition, as GDP fell, the proportion of debt to GDP rose.

An interesting example of the damage to public finances caused by the Great Recession is provided by Italy. Having worked hard on deficit reduction from 1993, the Italians had got their debt-to-GDP ratio down from 125% to 102% just before the financial crisis. Then, hey presto, in the words of one senior financial official, "in two years we almost burnt the efforts of 15 years, and are now back to 119%".

Much of the debate in Europe is about the need to restore order to the public finances, but the only serious case of fiscal laxity being the prime cause of crisis in a eurozone country is Greece. However, that does not prevent the present chancellor from likening the British economic picture to that of Greece, or from accusing anybody who suggests that the position is not quite as he makes it out of being a "deficit denier".

So how did George Osborne face up to the prospect of the first serious week of assault from the man he regards as the nation's leading deficit-denier?

He was clearly nervous about the prospect. The chancellor had been relieved when Ed Miliband originally declined to make Balls shadow chancellor. And although from Labour's point of view, and that of the nation at large, it seemed a pity that the best-qualified man for the job was originally passed over, from Balls's personal point of view a period out of the economic limelight had its advantages. It at least offered him a chance to distance himself from his close association with the man who is credited with having saved the financial system, but who is still blamed for having failed in his quixotic attempt to abolish "boom and bust": Gordon Brown.

However, having reconciled himself to what Attlee would have called a period of silence on his part, Balls was thrust back into the limelight by Alan Johnson's sudden resignation. And having been relieved that he was not to be subjected to what he sees as 24-hour rottweiler attacks by Balls, Osborne found his a very short respite.

Osborne is tough, and can easily be underrated. It should not be forgotten that by wrong-footing Brown on the inheritance tax in autumn 2007, Osborne successfully destabilised the Labour camp, contributing to the panic surrounding "the election that never was" and all that followed.

His tactic last week was to try to take the wind out of Balls's sails by making an unexpected announcement about a levy on the banks. We also got the usual stuff about the contribution of Brown and Balls to the crisis.

It seemed to me that each gave as good as he got. Ironically, Osborne's announcement about the bank levy was redolent of New Labour, as it was essentially about the timing of the collection of a tax that had already been announced.

As for Project Merlin, the so-called deal between the government and the banks, we should not forget that the merlin is a bird of prey, and with their contemptuous disregard of the public mood on the issue of bonuses, certain bankers continue to prey on society.