Who Runs Britain? The Markets or the Politicians?


by Alex Massie

Question: What's the difference between Greece and Britain?

Answer: Britain has the Elgin Marbles.

Well, I exaggerate. But only slightly. Britain's financial position isn't quite as bad as Greece's but it's clattering downhill all the same and looking desperately likely to end in a fearful crash. If the budget deficit peaks at 13% of GDP this year then we'll look back on that as a good result. Which is kind of terrifying in its own right.

The seriousness of the fiscal crisis - brought on by a combination of feckless government spending (mislabelled, as is traditional now, as "investment") and the near-collapse of the banking system - is such that, frankly, the public would rather not contemplate it. But the next government, whether run (sic) by Gordon Brown or David Cameron is going to be in hock to the bond markets and it is they who will call the tunes.

The idea that neither party might win a majority and that instead we'll have a hung parliament (great for pundits; not so hot for the markets) is already spooking the markets. This spring is a good time for Americans to visit the UK: the pound has fallen below $1.50 and will probably fall further.

Worse, from the perspective of Britishers rather than tourists, there is a non-trivial possibility that Britain will lose its Triple A credit rating. We're not there yet and Britain isn't Greece yet but it's a testament to the seriousness of the situation that such comparisons can be made in the first place.

This, then, is the background to the election and yet no-one really wants to confront it. Both parties agree that cuts in public spending will have to come and that taxes will have to rise (VAT will almost certainly be increased to 20% for instance) but no-one, understandably, wants to frighten the voters too much by talking about any of this in any great detail.

But the underlying fiscal reality is that the winner of the election is going to have to tell the public that there isn't any money left. This too is something the public doesn't much care to hear and that only increases the sense that there will be few prizes awarded for winning this election.