Opinion

Anatole Kaletsky

It ain’t over yet: Last-minute promises to Scotland will scar the UK

Anatole Kaletsky
Sep 26, 2014 04:27 UTC

Britain's Prime Minister David Cameron delivers a speech at the Aberdeen Exhibition and Conference Centre in Aberdeen, Scotland

Astonishing as it was to contemplate the breakup of Europe’s most stable nation-state threatened by last week’s Scottish referendum, we now have an even more extraordinary possibility. In the days since the Scottish voters rejected secession 55 percent to 45 percent, a new threat has suddenly appeared to blight Britain’s political and economic prospects for years ahead. It now looks like Britain may be dissolved by one rogue opinion poll.

The YouGov survey, released shortly before the referendum, found nationalists overtaking the unionists for the first time. (And, as it turned out, the last time.) This triggered total panic among Britain’s establishment politicians.

The outcome was a signed statement on the front page of the Scottish Daily Record by Prime Minister David Cameron, along with the leaders of Britain’s Labour and Liberal Democrat parties, promising immediate legislation to give the Scottish Parliament almost complete control over income tax, health and welfare policies — on top of the autonomy it already enjoys. They also issued a permanent commitment to channel £1,700 more per head in government spending to Scotland than to England, despite per-capita incomes that are approximately the same.

Deflated "Yes" campaign balloons lie on the grass in George Square after Scotland voted against becoming an independent country, in GlasgowBy signing the statement, Cameron and the other party leaders opened a Pandora’s Box of political and economic controversies that are certain to destabilize British politics. Businesses and investors who have viewed Britain as the most politically predictable and stable nation in Europe are in for a shock.

The Scottish vote, instead of confirming Britain’s historic stability, now looks like the prelude to a long period of constitutional, legislative and fiscal turmoil. This will certainly damage the current government’s re-election chances and could yet threaten a chaotic breakup of Britain.

Why breaking up Britain could tear apart the EU, too

Anatole Kaletsky
Sep 12, 2014 19:10 UTC

A bunch of 'Yes' balloons are seen as Scotland's First Minister Alex Salmond campaigns in Edinburgh, Scotland

While recent opinion polls have swung slightly back toward the “no” camp, there remains a distinct possibility that Thursday’s Scottish referendum will trigger a previously unthinkable breakup of Britain.

If this were to happen, the biggest risks for global businesses and investors do not lie in the economic problems created by Scotland’s choice of currency or the inevitable arguments about sharing North Sea oil revenue and the British national debt. These are crucial challenges for Scotland and have been much discussed in financial institutions and think tanks. But the crucial issue for the world economy and financial markets is about the resulting impact on the European Union — and especially on Britain, which would remain the world’s sixth largest economy even if Scotland departs.

These political risks, which I discussed here last week, can be broken down into four questions: What would Scottish independence, if it happens, mean for British politics and economic management over the nine months, until the May 2015 general election? What effect would it have on the election results? How would all this turmoil affect Britain’s fraught relationship with Europe? Would Scottish independence act as an inspiration for secessionist movements in other European countries?

Can central bankers succeed in getting global economy back on track?

Anatole Kaletsky
Aug 15, 2014 22:24 UTC

Stanley Fischer, the former chief of the Bank of Israel, testifies before the Senate Banking Committee confirmation hearing on his nomination in Washington

Why is the world economy still so weak and can anything more be done to accelerate growth? Six years after the near-collapse of the global financial system and more than five years into one of the strongest bull markets in history, the answer still baffles policymakers, investors and business leaders.

This week brought another slew of disappointing figures from Europe and Japan, the weakest links in the world economy since the collapse of Lehman Brothers, despite the fact that the financial crisis originated in the United States. But even in the United States, Britain and China, where growth appeared to be accelerating before the summer, the latest statistics — disappointing retail sales in the United States, the weakest wage figures on record in Britain and the biggest decline in credit in China since 2009 — suggested that the recovery may be running out of steam.

As Stanley Fischer, the new vice chairman of the Federal Reserve Board, lamented on August 11 in his first major policy speech: “Year after year, we have had to explain from mid-year onwards why the global growth rate has been lower than predicted as little as two quarters back. … This pattern of disappointment and downward revision sets up the first, and the basic, challenge on the list of issues policymakers face in moving ahead: restoring growth, if that is possible.”

World War One: First war was impossible, then inevitable

Anatole Kaletsky
Jun 27, 2014 06:00 UTC

British troops advance during the battle of the Somme in this 1916 handout picture

Why does the assassination of Archduke Franz Ferdinand — the event that lit the fuse of World War One 100 years ago Saturday — still resonate so powerfully? Virtually nobody believes World War Three will be triggered by recent the military conflicts in Ukraine, Iraq or the China seas, yet many factors today mirror those that led to the catastrophe in Sarajevo on June 28, 1914.

The pace of globalization was almost as dramatic and confusing in 1914 as it is today. Fear of random terrorism was also widespread — the black-hatted anarchist clutching a fizzing bomb was a cartoon cliché then just as the Islamic jihadist is today. Yet the crucial parallel may be the complacent certainty that economic interdependence and prosperity had made war inconceivable — at least in Europe.

An undated archive picture shows German soldiers offering to surrender to French troops, seen from a listening post in a trench at Massiges, northeastern FranceA 1910 best-selling book, The Great Illusion, used economic arguments to demonstrate that territorial conquest had become unprofitable, and therefore global capitalism had removed the risk of major wars. This view, broadly analogous to the modern factoid that there has never been a war between two countries with a MacDonald’s outlet, became so well established that, less than a year before the Great War broke out, the Economist reassured its readers with an editorial titled “War Becomes Impossible in Civilized World.”

Osborne: Stealth convert to ‘Keynesian Thatcherism’

Anatole Kaletsky
Mar 20, 2014 18:46 UTC

Britain’s government budget released this week is not a statement of economic policy. It is a program for winning next year’s general election.

In this sense, Chancellor of the Exchequer George Osborne’s speech was a natural development from the 2013 Budget, which launched Britain’s current economic recovery. I was one of the few analysts to perceive the remarkable transformation of the British economy that immediately resulted from last year’s budget because what Osborne did was deliberately obscured by what he said.

Osborne’s mantra last year was “you can’t cure debt with more debt.” Yet he did precisely that with his audacious plan to provide $198 billion (£120 billion) in government guarantees for additional mortgage borrowing.

Britain’s strength is its weakness

Anatole Kaletsky
Feb 14, 2013 16:19 UTC

Mirror, mirror on the wall, who’s the weakest of them all? As G20 finance ministers warn of the threat of a “global currency war” at their meeting in Moscow this weekend, two odd features of this looming financial conflict tend to be overlooked.

The first is that every country’s objective in this war is to “lose” by making its currency weaker. This is because a weak currency tends to support exports, employment and economic growth (if all other things are equal, which they never quite are). The second oddity is that the clear winner in this global currency war has not been Japan, Switzerland, China or any of the other usual suspects, but a country rarely accused of financial aggression: Britain.

Since the global financial crisis started in mid-2007, the pound sterling has been, by a wide margin, the weakest major currency. The Bank of England’s trade-weighted sterling index fell by a record 30 percent in early 2009 and, despite a modest rebound in 2010-12, it remains 24 percent below its level of mid-2007. Japan, by contrast, has endured a rise in its trade-weighted exchange rate of 60 percent from July 2007 to late last year, when Prime Minister Shinzo Abe committed his new government to a more competitive rate. Japan is therefore fully entitled to resent other countries’ accusations of currency warfare, when it has in fact been a long-suffering pacifist, exposing its export companies to the full burden of other countries’ post-crisis currency adjustments.

David Cameron pushes his EU luck

Anatole Kaletsky
Jan 17, 2013 17:16 UTC

Editor’s note: After this column was published, Cameron announced he would be delaying his speech in Amsterdam due to the hostage crisis in Algeria.

Some think the prospect impossible. Many think the outcome inevitable. Most think the question irrelevant.

Will Britain pull out of the European Union or fundamentally renegotiate the terms of its EU membership?

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