Bleak news across much of Europe this week. In France, Emmanuel Macron invoked emergency powers to pass his budget without parliamentary consent. A vote of no confidence failed to bring down the government, though the country has been experiencing mass strikes connected to the cost of living. The latest polls of economists, meanwhile, suggest that the Eurozone will slip into recession next year.
Searching for Consensus
This is mainly due to Germany, where shortages of natural gas are likely to significant hurt local industry. The German government also had part of its energy price cap ruled unconstitutional, adding to the country’s woes. More positively, however, Italy’s new prime minister was finally sworn in after extensive coalition negotiations – though Georgia Meloni remains a controversial figure for many.
Inter-European co-operation has been strained by this crisis. European leaders have had difficulties agreeing to an energy price cap, though consensus has finally been reached. France, Spain and Portugal also settled on a compromise over a new pipeline from the Iberian peninsula through France to central Europe. After French objections, the pipeline will only carry hydrogen – though there is some, perhaps deliberate ambiguity over whether it may also carry LNG as originally envisaged.
All this is necessary economic and political context for events unfolding in the UK, where chaotic scenes in parliament followed Liz Truss’s resignation. Though amplified by her political ineptitude and her opponents’ plotting, Liz Truss and Kwasi Kwarteng were unfortunate to take power in a moment of Europe-wide political and economic volatility (see here for an explanation of the LDI crisis). It remains to be seen whether a divided Conservative Party can choose a more effective successor.
In Ukraine, Ukrainian forces continue to make incremental gains against the Russian occupiers. With Iranian help, Russia has launched attacks against Ukrainian power plants – and has reportedly mined the Nova Kakhovka Dam, which if so could place hundreds of thousands of civilians at risk of flooding.
Check out our recent podcast interview with Professor Ashoka Mody. Professor Mody is a visiting professor of economics at Princeton University, and worked for the IMF. The interview is a wide-ranging exploration of a variety of themes and his new book, India is Broken: A People Betrayed: From Independence to Today.
Elsewhere, Briefings Co-Editor Robert Tombs has written on Russian myths of military invincibility and the problems they create for Russia’s war in Ukraine – read it at the Daily Telegraph. Co-Editor Graham Gudgin has analysed the government’s collapse for the website – see below.
Finally, our Report on the impact of Brexit has suprassed 6,000 views and has garnered some great responses – keep sharing it so we can keep debunking myths about the economic impact of Brexit that inspire Rejoiner marches like this one.
What on Earth just happened?, by Graham Gudgin
The dramatic fall in the Truss administration is generally regarded as due to the negative reaction of the financial markets to her flawed growth plan. However, the market reaction has few long-term consequences and the politics could have been managed. So why did she fall?
“The key political factor has been the rise in mortgage rates, even though this will not be felt in most family budgets for a year or so. The evidence suggests that a substantial rise would have occurred anyway and that the mini-budget merely brought the rise forward. Mortgage rates are usually 1-2% above the Bank of England’s base rate although the gap has been nearer 3% over the last decade of low interest rates.”
Is Sunak the UK’s Trump?, by Catherine McBride
The UK must follow the US’s lead and have a judicial review into this extraordinary well-funded coup, falsely blamed on financial market turbulence despite all of Truss’s tax changes being well flagged during the leadership election and timed to coincide with the passage of bills that would sort out the Norther Ireland Protocol, ratify our new trade deals and finally free the UK from EU regulations.
“I have been shocked by the number of MPs who have remained silent while Liz Truss’s tax-cutting policies were being blamed for a Liability Driven Investing (LDI) pension fund crisis that has been building up for ten years, but ignored by both this Governor of the Bank of England and his predecessor.”
The (pro-Brexit) economics editor of the Guardian Larry Elliott describes Jeremy Hunt’s approach to economy policy as ‘managed decline’. He advocates a more honest approach to UK weakness and an approach involving a national development plan that emulates successful economies like Taiwan with improved educational standards and the development of new world-beating industries.
“Truss’s botched experiment represents a setback to new thinking of any kind, and that’s a depressing prospect. The perpetuation of abacus economics may keep the financial markets quiet for a while, but what rule by technocrats like Hunt really offers is a managed decline. The only sustainable way to get healthy public finances is to improve the performance of the economy.”
Amid the general disarray engulfing British politics, significant global developments risk being overlooked. Among these is Xi Jinping’s consolidation of power at the Communist Party Conference this week. It was expected that the event would see the term limits on his office removed. But the president went a step further, publicly humiliating his predecessor Hu Jintao. Mr Jintao was dragged out of the event in front of the media by security personnel as the 2,300-strong hall of delegates stared motionlessly.
Officially, Mr Jintao was removed due to concerns about his health. But his name has been scrubbed from domestic media sources, and his position as a senior member of a more reform-minded party faction makes him a prime target for such a public display of authority by Mr Jinping.
This public assertion of Mr Jinping’s power contrasts sharply with China’s deteriorating economic position. Growth is forecast to slow to 3.3% this year – well short of the regime’s 5.5% goal – and there are signs this low rate could be a more long term feature. Zero-covid policies, an ageing workforce, and a potential property-price crash all drag on the economy, as do the possibility of renewed US sanctions.
This is not necessarily a bonus for the West. Like Putin’s Russia, an economically foundering regime might seek to shore up support by foreign adventurism – namely by attacking Taiwan. The Communist Party made noises in this direction by affirming that Taiwan is an integral part of China in its party in the nation’s constitution – and tensions have been increasing in recent months. Economically, too, cheap Chinese manufacturing underwrote large elements of the global economic system. A slowdown there could have a knock-on impact.
We are also on Twitter, posting articles and retweeting the daily events that bring Brexit to the fore in the national news.
Discussion also continues over on Facebook.
How you can help
There is much about Britain’s relationship with Europe that remains to be decided. Our MPs listen to their constituents. Do continue to send them links to our articles, especially on matters relevant to your constituency – for example, in rural areas, articles on the threat to British agriculture. Alternatively, make an appointment to speak to them at their next surgery. Let them know what you want post-Brexit Britain to look like.
As Boris Johnson said in in his post-election address, it is also time for unity and reconciliation. Keep reading our posts and share links to our quality content to help others understand how leaving the EU benefits the UK economy and our own democratic governance. We aim to educate our critics to think differently and more positively about the long-term impact of Brexit.
A Cambridge PhD Student
Economist, Centre for Business Research, Judge Business School University of Cambridge
Emeritus Professor of French History, University of Cambridge