Some predictions don’t, as they jeer on X, “age well.” Back in September, I wrote that Britain and France were “still heading toward financial crisis.” They still are. So far so good (or bad).
But then, fatally, I added that, of the two, France “may be the first to face some sort of reckoning.” I put forward a couple of reasons for this, including:
To start with, Britain’s economic crisis is unlikely to be exacerbated by political chaos, at least in the immediate future; the longer term is a different matter.
Oh.
As far as the danger of “political chaos” was concerned, my reasoning was straightforward enough:
However awful it may be (very) and however ominous some of the signs of deep discontent, Britain’s hugely unpopular government is not about to fall: It has a massive parliamentary majority, and its MPs know how they would fare at the ballot box should they revolt in enough numbers to trigger a snap election.
That is still the case. Labour is going to remain in power, but the party’s drubbing in recent local elections may be leading it to a leadership crisis. A “stalking horse” (a no-hoper who runs in the hope of triggering a serious challenge) emerged, only to (half) back off, saying it would be enough if Prime Minister Keir Starmer said that he would stand down by some unspecified date.
Now Wes Streeting, the health minister, has resigned. He has not yet mounted a formal challenge, but that a challenge was on the way (presuming Streeting can get the support of enough MPs to get things going) was the barely submerged subtext to his resignation letter. Streeting is more of a centrist than Starmer (not hard despite the prime minister’s carefully manufactured image), but the parliamentary party is some way to the former health minister’s left.
Starmer, warning of, well, chaos, clearly wants to tough this turbulence out, but various other people are eyeing his job. These include three prominent current or former MPs to Starmer’s left (including Ed Miliband of net-zero infamy). The former MP, Andy Burnham, who is currently mayor of Greater Manchester, has found a current MP who will become a former MP in the hope that Burnham will replace him. If Burnham wins the ensuing special election, he would probably, one way or another, be the most likely to succeed Starmer.
Financial markets are watching nervously. Yields on gilts (British government securities) have been generally higher over the last few days. Investors are well aware that Burnham has grumbled about “this thing of being in hock to the bond markets.”
The ratio of net U.K. government debt to GDP is 94 percent, so that rather goes with the territory, but not to worry. Labour MP Paula Barker, a Burnham ally, has said that “the markets will have to fall into line.” That seems optimistic. Meanwhile the pound has been falling against the dollar and euro.
This might help Starmer, busily positioning himself as the anti-chaos candidate. That this argument might have some credibility shows the extent of the mess in which Britain currently finds itself.
The Economist notes that the U.K. pays higher interest rates in its debt than any other G7 country. There are various reasons for this, including higher inflation and steep energy costs.
Speaking of the latter, Miliband is behind a new energy “independence” bill that would permanently ban new oil and gas drilling in Britain and its offshore waters. The bill, which will do nothing for the climate and nothing for energy independence, will probably pass and will add to the country’s economic woes. At a time of British establishment panic over populism, it is worth asking whether the definition of extremism needs tweaking.
As for the markets, investors might decide that it’s easier to move on. Roughly 30 percent of British government debt is held by foreigners.