The Great Debate UK
from Anatole Kaletsky:
Among all the obituaries and encomiums about Margaret Thatcher, very few have drawn the lesson from her legacy that is most relevant for the world today. Lady Thatcher is remembered as the quintessential conviction politician. But judged by her actions rather than her rhetoric, she was actually much more compromising and pragmatic than the politicians who now dominate Europe. And it was Thatcher’s tactical flexibility, as much as her deep convictions, that accounted for her successes in the economic field.
Governments in Europe and Britain today are obsessed with hitting preordained and unconditional targets: Inflation must be kept below 2 percent; deficits must be reduced to 3 percent of gross domestic product; government debt must be set on a declining path; banks must be recapitalized to arbitrary ratios laid down by some committee in Basel. In sacrificing their citizens’ well-being and their own political careers to these numerical totems, modern leaders often claim inspiration from Thatcher. And when voters turn against them, Europe’s leaders keep repeating Thatcher’s most famous slogans, “There is no alternative” and “No U-turn”. But are these the right lessons to draw from Thatcher’s political life? A closer look at her economic achievements suggests otherwise.
In the 20 years she spent in parliament before becoming prime minister, Thatcher first saw Harold Wilson’s Labour government wrecked by currency crises and trade union militancy; then Ted Heath ousted by a miners’ strike; and finally James Callaghan humiliated by the 1976 sterling crisis and driven out of office by the wave of public-sector strikes that came to be called the “winter of discontent.” After these searing experiences, her immediate priority on becoming prime minister was to turn British monetary management and labor relations upside down. Yet her actions were much more cautious and pragmatic than her rhetoric.
In fact, the Thatcher revolution started with a huge tactical surrender: Within two months of taking office, she gave the public-sector unions that had brought the country to a standstill pay raises averaging 21 percent. This huge award resulted in the biggest increase in inflation in British history – from 10 percent when Thatcher took over to 22 percent a year later (as measured by the retail price index). Controlling this inflationary upsurge required stratospheric interest rates and an overvalued currency. These, in turn, led to a trebling of unemployment and the collapse of many British manufacturing businesses. In response to this economic disaster, Thatcher quickly abandoned the monetary targets she had initially claimed as the lodestar of her economic policies. While Thatcher’s recession seemed to go on forever to Britons who lived through it in the early 1980s, her U-turn against austerity came dizzyingly fast by the standards of today’s obstinate politicians, especially those in Europe.
from The Great Debate:
My immediate and lasting memory of Mrs. Thatcher -- Maggie as we called her -- is sitting next to her in the late sixties at a dinner table as she scorched a bunch of City of London financial types. I was astonished. She wasn't yet the Iron Lady. She wasn't in government. Labour was in power. She was an obscure back bench Conservative MP, elected only in 1959, noticed in those sexist days (has much changed?) as much for her hats and aggressive hair style as for her passionate defence of grammar schools under threat of closure from Labour.
What she did with the City of London men was later characterised as a "hand-bagging." A black Asprey bag she always carried was metaphorically wielded against people she saw as standing in the way of the greatness of Britain as Boudica, the leader of a British tribe, wielded a lance against the Roman occupiers. I suppose that as a new national editor (of The Sunday Times), and with normal male presumption , I had expected to lead the questioning of the ten or so big names and the table. I didn't stand a chance. Maggie pounded and pummeled them all by herself for an hour. I can't pretend this is verbatim but it went something like this: "All you people are interested in is moving paper around, making money not things. What are you doing for British industry? When are you going to help business stand up to the unions?" They murmured, they shuffled, they were outclassed. British elections -- six weeks to a vote and no paid television ads -- have never been as corrupted by money as much as American, so she was not turning off a potential source of funding as an American candidate would fear to do. Still these were men -- all men of course -- who were influential and articulate and used to reverence not rebuke.
from Anatole Kaletsky:
The Age of Austerity is over. This is not a prediction, but a simple statement of fact. No serious policymaker anywhere in the world is trying to reduce deficits or debt any longer, and all major central banks are happy to finance more government borrowing with printed money. After Japan’s election of Prime Minister Shinzo Abe and the undeclared budgetary ceasefire in Washington that followed President Obama’s victory last year, there were just two significant hold-outs against this trend: Britain and the euro-zone. Now, the fiscal “Austerians” and “sado-monetarists” in both these economies have surrendered, albeit for very different reasons.
Much attention has been focused this week on the chaos in Cyprus. Coming after the Italian election and subsequent easing of Italy’s fiscal conditions, the overriding necessity to keep Cyprus within the euro -- and its military bases and gas supplies outside Russian control -- will almost surely mean another retreat by Germany and the European Central Bank from their excessive austerity demands. But an even more remarkable shift has occurred in Britain. The Cameron government, which embraced fiscal austerity as its main raison d’etre, was suddenly converted to the joys of debt and borrowing in this week’s budget.
By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own
Boris Johnson's intervention in the European debate reduces the chance of a British exit from the European Union - or Brexit. The Mayor of London, a popular Conservative politician, says he will campaign to keep Britain in the EU provided it can negotiate a pared-down relationship based on the single market.
from Hugo Dixon:
Investors have been obsessed with the notion of “Grexit” - Greece’s exit from the euro. But “Brexit” - Britain’s exit from the European Union - is as likely if not more so. The country has never been at ease with its EU membership. It refused to join its predecessor, the European Economic Community, in 1957; it was then blocked twice from becoming a member by France’s Charles De Gaulle in 1960s; and shortly after it finally entered in 1973, it had a referendum on whether to stay.
The euro crisis has put further pressure on this difficult relationship. David Cameron’s Conservative Party, the governing coalition’s dominant group, delights in pointing out the flaws in the single currency. The party’s eurosceptics feel vindicated because they have long believed that monetary union was only possible with political union.
from Lawrence Summers:
It is the mark of science and perhaps rational thought more generally to operate with a falsifiable understanding of how the world operates. And so it is fair to ask of the economists a fundamental question: What could happen going forward that would cause you to substantially revise your views of how the economy operates and to acknowledge that the model you had been using was substantially flawed? As a vigorous advocate of fiscal expansion as an appropriate response to a major economic slump in an economy with zero or near-zero interest rates, I have for the last several years suggested that if the British economy – with its major attempts at fiscal consolidation – were to enjoy a rapid recovery, it would force me to substantially revise my views about fiscal policy and the workings of the macroeconomy more generally.
Unfortunately for the British economy, nothing in the record of the last several years compels me to revise my views. British economic growth post-crisis has lagged substantially behind U.S. growth, and the gap is growing. British GDP has not yet returned to its pre-crisis level and is more than 10 percent below what would have been predicted on the basis of the pre-crisis trend. The cumulative output loss from this British downturn in its first five years exceeds even that experienced during the Depression of the 1930s. And forecasts continue to be revised downward, with a decade or more of Japan-style stagnation now emerging as a real possibility on the current course.
from John Lloyd:
The last few days of Queen Elizabeth’s Diamond Jubilee celebration have prompted the outpouring of patriotism and affection. But it did not faze Britain’s most determined protester. Peter Tatchell generally campaigns against homophobia and for gay rights: In one of his many (and one of his best) public projects, he tried to make a citizen’s arrest of Zimbabwe President Robert Mugabe when the latter came shopping in London in 1999, drawing attention to the president having called gays “pigs and dogs”. (London’s finest arrested Tatchell, not the dictator, for that episode.)
He was out again this weekend, on a wet, cool and blustery day as a flotilla of boats sailed down the Thames to salute the monarch. Just by Westminster Bridge, he and fellow leaders of the British republican party rallied a crowd of like-minded folk and some hecklers, who heard him say that though he thought the queen was personally quite nice, she was at the pinnacle of a pernicious class system, possessed hundreds of flunkeys and hundreds of millions of pounds, and must now stand aside to let the British people elect their head of state, as people should in a democratic country.
from The Great Debate:
It was the Welsh sage Alan Watkins who remarked that a budget that looked good the day it was delivered to the British Parliament was sure to look terrible a week later, and vice versa. The avalanche of new information dumped by the Treasury is simply too much to grasp at a single sitting, and governments tend to bury bad news in a welter of statistics. And so it proved with finance minister George Osborne’s budget served up last week.
The immediate headlines stressed that rich Brits would pay less income tax – down from 50 percent to 45 percent – but it only took a day before even traditional Conservative cheerleaders like the Daily Mail were condemning Osborne for funding tax breaks for bankers and billionaires by stealing from those living in retirement. The paper’s cover screamed: “Osborne picks the pockets of pensioners.”
By Laurence Copeland. The opinions expressed are his own.
Not many people seem to have noticed, but something almost unthinkable has happened in the Credit Default Swap (CDS) market recently. It is now one point cheaper to insure against a default by Her Majesty’s Government than by the Federal Republic of Germany. Given that only a few months ago, Markit was quoting twice as much to insure against a default on gilts as on bunds, this is a major change – but what is it telling us?
The message is unclear, but my guess is it is not quite the one which Britain’s Chancellor, quite reasonably from his point of view, would have us believe. Yes, the market has faith in our ability and willingness to repay – but that is far from the whole story.