Europe is again on the brink of financial Armageddon. This time it may not step back
By newseditors // 2024-12-06
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How they laughed when Britain’s hard-won reputation for pragmatic and stable government descended into chaos in the aftermath of the vote for Brexit. (Article by Jeremy Warner republished from Telegraph.co.uk) How they gloated and delighted in saying “told you so” when Liz Truss threw caution to the wind and in an act of breath-taking recklessness delivered an unfunded tax cutting mini-Budget that both trounced the pound and caused interest rates to rocket. I was in Washington for the annual meeting of the International Monetary Fund when the Bank of England was forced to step in to save the gilts market from oblivion, and the sense of schadenfreude among global policy makers was palpable. The faux concern for a country that had seemingly lost its way could not disguise the glee that many felt at Britain’s discomfort. They positively revelled in it. Well now the tables have turned, and it is again the eurozone, and particularly France, which is in the dock. Britain, by contrast, looks like a haven of stability and relative common sense. The boot is on the other foot. It’s true that Sir Keir Starmer’s popularity has plummeted since being swept to power less than six months ago; also true is that his Chancellor’s first Budget has been ripped to shreds by the court of public opinion; business leaders, farmers and pensioners are up in arms. But compared to the political and fiscal chaos that has engulfed France, Britain’s position looks like one of calm and sure footedness. The £40bn of tax raising announced by the Chancellor, Rachel Reeves, little more than a month ago is wildly unpopular, but we can at least be reasonably confident that it will actually happen, and that debt markets will therefore remain relatively compliant. Not so in France, where attempts to plug a persistent 6pc plus fiscal deficit with €60bn (£50bn) of tax increases and spending cuts has run into seemingly intractable political opposition which at the time of writing look destined to sink Michel Barnier’s government, and perhaps also Emmanuel Macron’s presidency along with it. Even for those well versed in the byzantine workings of the French constitution, it’s hard to know how the present impasse might pan out, but in financial markets, alarm bells are already ringing almost as loudly as they did at the height of the eurozone debt crisis of 2009-2012. If a tiny little country such as Greece can threaten Europe’s grand experiment in monetary union, as it did back then, think what a major economy such as France – one of the two cornerstones of Europe’s wider economic and political union – might do. Europe once again stands at the edge of the precipice, staring into the abyss below. It has been there so many times before, only to step away at the last minute, that one must suppose some way will again be found to muddle through. Yet at this point things look pretty desperate. The situation is similar in some respects to the threat of government shutdown that perennially afflicts Washington when congressional lawmakers refuse to raise the debt ceiling. In France, no debt can be raised without parliamentary approval, implying that if the budget fails, there would be a serious risk of outright default. Read more at: Telegraph.co.uk
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