Skip to main content

As the political vacuum in the UK continues, the markets are filling the gap

The UK fiasco has continued unabated. Neither the Conservatives nor the Labour party have any effective leader. It is quite clear that the victorious Leave camp is totally divided as to what should happen next, and there is no clear plan as to what level of engagement or disengagement the UK will have with the European Union.

The market collapse that is taking place is the responsibility of the utterly irresponsible leaders of the Leave campaign. So, it could well be that having wielded the knife against David Cameron, Boris Johnson may yet go the way of a previous Tory challenger: Michael Heseltine. Perhaps Theresa May as leader could provide some reassurance, but in the face of economic meltdown, the calls for an early general election -which under the circumstances is clearly necessary- may create an untenable situation for any party. The fractious and divided body politic of the UK is on the brink of collapse. The cowardly, but sullen and determined Jeremy Corbyn is facing the total breakdown of his leadership, but there are few amongst the Labour leading lights who can inspire in the face of the national catastrophe that we now have to face.

Into this chaos the markets are injecting their own commentary. Despite the brief reemergence of the Prime Minister and his Chancellor, the market collapse is now assuming a very dangerous shape. Some are suggesting that the cable (USD/GBP) rate is now headed to parity, which implies a fall of one third from Thursday night's close. The implications are startling. The UK will fall from the fifth largest nominal economy to eighth, just above Italy. The recession that this implies is into double figures. It implies the implosion of the UK property market, it implies cuts in the government budget of the order of 10-15% across the board- a level of austerity that could seriously test the social order of the country. All of the gains made since the early 1990s will have gone over the course of a few weeks. UK bank stocks are now in deep decline- over a third of the value of the UK banking sector has gone in two trading days. The rout is expanding into construction, property and any business that relies on imports, which in the UK is pretty much all of them. The Brexit shock could push inflation very sharply higher. The scale of the meltdown is mind boggling and since there is still no clear plan emerging in London, there is no bottom on the market.

Nor have other European markets been immune- there remains considerable uncertainty as to how the impact of the UK exit can be contained. Wisely, Mrs. Merkel has shown a cool head, suggesting that there was no immediate hurry and that it would be counter-productive to seek to punish the UK for this disaster. She is, of course, right: the punishment being meted onto the UK already is severe enough. However within a few days London must set out a timetable for what is going to happen next- and there is no such timetable. It is not even clear if any new Prime Minister would be able to enact an article 50 notice without a new general election. Paradoxically this chaos may stabilize the European Union itself, as other nationalist movements see what could happen to them, if they push things too far. 

Yet even if the UK general election chose a solidly remain government and the referendum was indeed rescinded, the damage and humiliation being visited on the UK will not go away. Even though Scottish separation in the immediate future would be an economic neutron bomb if it was done too soon, there are hot headed calls for an immediate rerun of the independence vote: and the only leadership in the UK at the moment is coming from those who want to destroy it. 

Personally I think that a lot of people now want to the Conservatives destroyed- they and their UKIP cronies are responsible for this catastrophe. Yet the pathetic response from Labour reminds us that politics as usual is not an option. Any election, however necessary, could throw up a Parliament that can not form a government of any kind.

The fact is that we may still not have reached any understanding of where the bottom of this crisis is going to be, and for as long as that remains the case, the markets will be in turmoil. 

Comments

Popular posts from this blog

Concert and Blues

Tallinn is full tonight... Big concerts on at the Song field The Weeknd and Bonnie Tyler (!). The place is buzzing and some sixty thousand concert goers have booked every bed for thirty miles around Tallinn. It should be a busy high summer, but it isn´t. Tourism is down sharply overall. Only 70 cruise ships calling this season, versus over 300 before Ukraine. Since no one goes to St Pete, demand has fallen, and of course people think that Estonia is not safe. We are tired. The economy is still under big pressure, and the fall of tourism is a significant part of that. The credit rating for Estonia has been downgraded as the government struggles with spending. The summer has been a little gloomy, and soon the long and slow autumn will drift into the dark of the year. Yesterday I met with more refugees: the usual horrible stories, the usual tears. I try to make myself immune, but I can´t. These people are wounded in spirit, carrying their grief in a terrible cradling. I try to project hop...

One Year On

  Head vabariigi iseseisvuspäeva! Happy Estonian Independence Day! It is one year since I stood outside the Estonian Parliament for the traditional raising of the national flag from Tall Hermann tower. Looking at the young fraternities gathered with their flags, I was very sure that Estonia too would soon be facing the aggression of the criminal Russian regime. A tragic and dark day. 5 eyes intelligence had been clear: an all out invasion was going to happen, and Putin´s goals included- and still include- "restoration" of Russian imperial power across Europe, even to the Atlantic. Yet there was one Western intelligence failure: we all underestimated the guts of the Ukrainian armed forces, the ZSU, and its President and people. One year on, Estonia, and indeed all the front line states against Russia, knows that Ukraine saved us. Estonia used that time to prepare itself, should that "delayed" onslaught ever be unleashed, but equally the determination of Kaja Kallas, ...

A Hard Frost

  After a week of slush and damp, tonight there is a hard frost in Tallinn. The general election campaign has started with the parties submitting their lists of candidates and announcing their programs. The polls seem to show a polarization of views. Although the Liberal Reform party of PM Kaja Kallas is set to remain as the largest party in the 101 seat Riigikogu, the steady rise of the far right EKRE seems to place them firmly in second place, replacing the Social Liberal Centre Party, who seem set to lose several seats. In addition to the Conservative Isamaaliit and the Social Democrat SDE, there is a fair likelihood that a new party will join these in Parliament, namely the Business/Green minded Eesti 200. The Greens and the Libertarian "Right wingers" look like they will struggle to gain seats. A Moderate Reform/SDE/E200 coalition would be a good outcome, but the numbers will have to fall just so, otherwise there remains the chance of another Centre/Isamaa/EKRE coalition...