Another Perspective on the UK Election

#1
This from the Globalist on the election:

Globalist Analysis > Global Politics
The Coming British Collapse

By Martin Walker | Wednesday, May 05, 2010

It appears increasingly likely that Britain’s May 6 elections will result in a hung parliament. Martin Walker argues this could spook financial markets by making it more difficult for the United Kingdom to mitigate its debt crisis — leading to a swift fall of the pound, higher interest rates and an instant financial crisis.

here has been an ugly symmetry in the way that Britain’s general election unfolded alongside the Greek fiscal tragedy and the crisis of the euro.

On the one hand, it has vindicated much of the criticism that Anglo-Saxon economists have made against the euro since its inception. On the other, it could plunge the British and wider European economies back into an even deeper and more painful recession.

While British politics may unfold in a stately, ponderous way, the financial markets operate by a more urgent clock.

Ironically, it was the success in the last televised debate of the most likely next British Prime Minister, Conservative David Cameron, that could condemn him to drink deep of the poisoned chalice that lies in store for the next British leader.

The Chicago-based economist David Hale has cast something of a pall over the British scene by indiscreetly recounting a recent conversation he had with Mervyn King, Governor of the Bank of England.

According to Hale, King said that so deep and savage were the public spending cuts that any incoming British government would have to impose that it would keep his party out of power “for a generation.”

It may be worse than that, because of Cameron’s success in the final debate. He stopped in its tracks the hitherto extraordinary rise of the appealing young Liberal Democrat Nick Clegg with two well-aimed blows.

With the first, he denounced Clegg’s proposal for amnesty for the uncounted number of illegal immigrants in Britain.

With the second, he reminded the most Euroskeptical voters in the European Union that Clegg was the EU’s most passionate fan in British politics, and that he favored dropping the British pound and joining the euro.

With Greece on the verge of a default on its debt, the Germans stubbornly resisting any realistic rescue and Portugal and Spain starting their own slides into similar disaster, this was not a week for a British politician to advocate joining the euro.

And much as Clegg protested that he would only do so “when economic conditions were right,” the damage was done. For all his fresh appeal in the face of the two unpopular old parties, Clegg’s association with the euro and amnesty have hurt him.

As the results of the elections become clear on Friday, May 7, the pound is likely to come under pressure.

But the harsh mathematical realities of the British election system now dominate the future. The latest opinion polls suggest Cameron has 33% of the vote, with Labour and Lib Dems at 28% each. That would not be enough to give Cameron a working majority in parliament.

Indeed, such an outcome would produce the monstrously unfair result of making Labour the largest party (because its votes are spread in such a way that gives them so many seats), and reducing the Lib Dems to a rump.

The BBC projects that such an outcome in votes would result in a parliament of 270 Labour MPs (members of parliament), 267 Conservatives and a mere 84 Lib Dems.

This is where the nightmare begins, since 326 seats are required for a majority. As incumbent prime minister with the largest number of seats, Gordon Brown would remain in Downing Street and seek to negotiate a deal with Clegg for Lib Dem support. At the same time, David Cameron would also be negotiating with Clegg on the terms for Liberal support.

There is a deadline: May 25, the date of the Queen’s Speech, when the government in power has to outline its political agenda for the coming year and subject itself to a vote.

If Cameron reaches a deal with the Lib Dems, Brown could be thrown out by losing an early vote of confidence before May 25.

If Brown (or another Labour leader) reaches a deal with Clegg, Labour would remain in office and then have Lib Dem support to win the vote on the Queen’s speech.

If there is no deal by Monday, May 10, ratings agencies may cut Britain’s credit status below AAA.

Either way, precious time will be consumed. And while British politics may unfold in a stately, ponderous way, the financial markets operate by a more urgent clock. As the results become clear on Friday, May 7, the pound is likely to come under pressure. If there is no deal by Monday, May 10, that pressure will intensify, and the ratings agencies may carry out their threat to cut Britain’s credit status below AAA.

At that point, the markets will note that Britain has a budget deficit that rivals that of Greece, and that its national debt is soaring unsustainably. Britain must raise close to $100 billion in the world’s bond markets this year, and the risk is that investors will go on strike, as they did when Italy tried to sell a bond last week.

Even if the Lib Dems reach a speedy deal (unlikely), a hung parliament would lead to a kind of coalition government, with no clear dominant party and a prime minister constantly having to satisfy two different party blocks.

Given the perilous state of the British economy, that could provoke a very swift and deep fall of the pound, forcing higher interest rates (if the markets would lend Britain money at all) and an instant financial crisis.

Interest rates would have to rise — not to the dizzy heights of over 25% that Greek two-year bonds reached in late April 2010, but to somewhere above 5%.

That would produced an instant jump in mortgage rates and a housing crisis, provoke a wave of bankruptcies of companies that are now clinging on to life, and require the intervention of the International Monetary Fund, on whose client list the UK found itself last in 1976.

And meanwhile, the Greek crisis continues — and interest rates in Portugal and Spain are rising ominously.

The necessarily deep and savage public spending cuts could keep a party out of power “for a generation.”

Remember that the Great Depression of the 1930s had two triggers. There was the stock market crash of October 1929, followed by what seemed to be a modest recovery. And then in 1931, the government debt crisis hit, and the Great Depression was under way.

That is the worst-case scenario. But there are few rosy ones that could result from the very great likelihood of a hung parliament in Britain this week.

http://www.theglobalist.com/StoryId.aspx?StoryId=8440
Martin Walker
Senior Director of the Global Business Policy Council


Martin Walker

Martin Walker is the Senior Director of the Global Business Policy Council, a private think-tank for CEOs founded by the A T Kearney business consultancy. He is also a syndicated columnist and Editor-in-Chief Emeritus of United Press International.

Previously, in his 25 years as a journalist with The Guardian newspaper, he served as bureau chief in Moscow and the United States, as well as European editor and assistant editor.

A regular broadcaster on the BBC, National Public Radio and CNN, and panelist on Inside Washington and The McLaughlin Show, he is also a senior scholar at the Woodrow Wilson International Center for Scholars in Washington DC, a senior fellow of the World Policy Institute at the New School for Social Research in New York, and a contributing editor of the Los Angeles Times's Opinion section and of Europe magazine.

His books include "Waking Giant: Gorbachev and Perestroika," "The Cold War: A History," "Clinton: The President They Deserve" and "America Reborn," published in May 2000 by Knopf. His latest novel "Bruno, Chief of Police" will be published in the U.S. in 2009 by Knopf and in Germany by Diogenes.
 
A

ALVIN

Guest
#2
Loads and loads of deals being made behind closed doors! ....... Meanwhile, Our country is divided and the people are left unguided. (Crises? What crises)
 
#3
Oh it's certainly one hell of a mess this side of the pond JJH. It seems that most of the population are too thick to understand the consequences of a thirteen year spending spree......
 
#4
ALVIN said:
Loads and loads of deals being made behind closed doors! ....... Meanwhile, Our country is divided and the people are left unguided. (Crises? What crises)
Like the obesity I saw in the UK last week, I think we are also sending you our way of politics, at least with the current masters.
 

Sixty

ADC
Moderator
Book Reviewer
#5
ALVIN said:
Our country is divided and the people are left unguided.
Yep, I could hardly move today for zombie-like voters milling about like sheep, unguided by our leaders and moral pathfinders.

Get a grip. Have you ever looked at a career politician for guidance in your day to day life?
 
#6
Sixty said:
Have you ever looked at a career politician for guidance in your day to day life?
To do so is the ultimate exercise in folly and futility!
 
#7
EX_STAB said:
Oh it's certainly one hell of a mess this side of the pond JJH. It seems that most of the population are too thick to understand the consequences of a thirteen year spending spree......
You are not alone in that my friend except here were are spending at about 10X your rate!
 
#8
OK, I have to admit that I have never understood by what logic the financial markets function, if any. So I am going to ask for a little help in understanding things here. A hung parliament, as far as I can see, means that government will be restricted in its freedom of action to pass fresh legislation regulating the money markets. If the money marketroid "Masters of the Universe" are really the swashbuckling free-spirited entrepreneurs they portray themselves as, what can they possibly object to in having central government's ability to interfere with them weakened?

It's all very strange.

All the best,

John.
 
#9
I tried to vote for Obama, if he's the USA's saviour then he should be ours as well

I kicked up a hell of a stink, you should've seen the queue by the time they got me out of there
 
#10
jumpinjarhead said:
EX_STAB said:
Oh it's certainly one hell of a mess this side of the pond JJH. It seems that most of the population are too thick to understand the consequences of a thirteen year spending spree......
You are not alone in that my friend except here were are spending at about 10X your rate!
Hope you like rice and noodles..... :x
 
#11
ted-stryker said:
I tried to vote for Obama, if he's the USA's saviour then he should be ours as well

I kicked up a hell of a stink, you should've seen the queue by the time they got me out of there
Can we send Him over now?
 
#13
ted-stryker said:
If you take Blair and promise Madonna never comes back then we can open tentative discussions
You drive a hard bargain--will you keep Elton John over there?
 
#14
So apparently we should fear upsetting the financial institutions that dropped us in the mess in the first place, or they might not lend us our own money that we bailed them out with?

I can see strong arguments for a permanently hung parliament:

If politicians make incompetent decisions then crippling their ability to make more seems sensible.

If the ability to follow clear strategic course leads to stability, for the markets, then we'd be better off without the prospect of a complete change of tack from left to right every 5 years, or less.


It's not even the banks to blame really. They couldn't have saddled us with billions in bad debt if we hadn't been so stupid as to rack up trillions in personal debt in the delusion we were getting rich by overvaluing our homes.
 
#15
WO2.Ghandi said:
It's not even the banks to blame really. They couldn't have saddled us with billions in bad debt if we hadn't been so stupid as to rack up trillions in personal debt in the delusion we were getting rich by overvaluing our homes.
I am glad to see you end with this observation rather than fall for the red herring our politicos on both sides of the pond are dragging across their own trail of incompetence, cronyism, greed and selfishness. They are more concerned with retaining party power and individual perks than they are with the good of the nation and its people.

While I agree that some in the private sector have the same issues, I still feel more comfortable where companies and individuals have the opportunity to make money through their own ideas, efforts and sweat than to rely on a bloated cancerous government to provide for us in a sort of lowest common denominator fashion that is destructive of self esteem, confidence and all the other qualities that made our countries great in the first place.

OUr politicians want us to savage the corporate world in a virtual class warfare sense so they can remain comfortably on the sidelines and await thew fallout where they will pitch themselves as our savior. This is the stuff that totalitarian societies are made of and I hope our respective common peoples will soon wake up and realize what is happening. These so-called "emergencies" are created by our politicians either directly or indirectly (such as the federal govt interference in the housing lending markets that required in the name of "social justice" that banks to lend money to those who could not ever repay it) as a means to do things they would not otherwise be able to do in terms of increasing control over us.
 
#16
What really highlights the absurdities of the UK system of voting, and of the vast majorities perspective on life, is that we as a nation just love the underdog, or in most cases, the looser.

Cameron and the Tory party take 306 seats, the next nearest rival manages 258 yet the guy who's party only managed a measly 57 seats now holds the balance of power in his, and his useless minority party's hands.

Here in the UK we just can't help buy to reward failure and scorn upon success. Remember Eric the Eel, or Eddie the Eagle..! Most people can, but how many can remember who actually won those events..?

We [the west] have gone to war in many countries to try to impose our system of fair democracy. We have deposed despot leaders and scorned upon other that also rule by fear. Had this situation been the end result in any of them, then the world's big brave leaders would have stood on there soap boxes and demanded a re-vote.

Come to think of it, it's not just those most desperate countries that are ordereed to take a re-vote when no likeable result is achieved, those in the undemocratic European Union are also ordered to fudge up a result that is more pleasing to the eye....
 
#17
heard_it_all_before said:
What really highlights the absurdities of the UK system of voting, and of the vast majorities perspective on life, is that we as a nation just love the underdog, or in most cases, the looser.

Cameron and the Tory party take 306 seats, the next nearest rival manages 258 yet the guy who's party only managed a measly 57 seats now holds the balance of power in his, and his useless minority party's hands. ...
The figures above are facts. However, if I may point out that the winner of '57 measly seats' polled:

6,827,938 votes in the UK as a whole and only:

969,926 votes less than Labour in ENGLAND alone. (Lab = 7,037,229. Libs = 6,067,303)

The system is badly flawed - as is the Liberal Democrat Party.

The system must be changed - I doubt the Lib / Dems are capable of change.
 
#18
jumpinjarhead said:
ted-stryker said:
If you take Blair and promise Madonna never comes back then we can open tentative discussions
You drive a hard bargain--will you keep Elton John over there?
No you can have him for free isnt he a Spam his bum chum is and was strutting about in a USMC setof blues at a birthday bash not long ago!
 
#19
Here is an idea for thought. Her Maj takes control and tells the politicians to sort their lives out and do as they are told. It does not matter what party they belong to they all work together to sort the counrty out or it`s of to the tower with them. After a year when all is well and good again she calls another general election and we carry on from there.

It will never happen which is a shame as I am sure the Queen is a very intelligent person who knows what the public want a hell of a lot more than the politicians in westminster do.
 

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