Welcome to Britale | The Economist

In 2012 Les Truss and Kwasi Kwarteng, two of the authors of a pamphlet called “Britannia Unchained,” used Italy as a warning. Overgrown public services, low growth, poor productivity: the problems of Italy and other southern European countries were also present in Britain. Ten years later, in their unsuccessful attempt to forge a different path, Ms. Truss and Kwarting helped make the comparison inevitable. Britain continues to suffer from disappointing growth and regional disparities. But it has also been bogged down by chronic political instability and under the control of bond markets. Welcome to Britale.

The comparison between the two is inaccurate. Between 2009 and 2019, Britain’s productivity growth rate was the second slowest in the world J7, but Italy was much worse. Britain is younger and has a more competitive economy. Italy’s problems stem partly from being inside the European club. Britain, in part, from abroad. A comparison of bond yields in the two countries is misleading. Britain has less debt, its own currency and central bank. The market believes the chance of default is much lower than Italy’s. But if Britale isn’t a statistical fact, she’s picking up on something real. Britain has come very close to Italy in recent years in three ways.

First, and most obviously, the political instability that used to set Italy apart from the world afflicted Britain entirely. Since the end of the coalition government in May 2015, Britain has had four prime ministers (David Cameron, Theresa May, Boris Johnson, and Truss), as has Italy. Countries are likely to hold together for the foreseeable future. Giorgia Meloni is expected to be sworn in as the new Prime Minister in Rome; Ms. Truss’ future couldn’t be more precarious. Ministerial longevity is now calculated in months: since July in Britain four ministers of the exchequer; The interior minister resigned this week after just 43 days in office. Confidence in politics has waned as chaos has increased: 50% of Britons trust the government in 2010 and less than 40% trust it now. The gap with Italy on this scale narrowed from 17 percentage points to four.

Second, just as Italy became the bond markets game during the eurozone crisis, it is now clearly responsible for Britain. The Conservatives have spent the past six years chasing the dream of enhanced British sovereignty. Instead they lost control. Silvio Berlusconi was ousted from power in Italy in 2011 after falling into the hands of Brussels and Berlin; Mr. Kwarteng has been fired from his job as Treasury Secretary due to the market reaction to his batch of unfunded tax cuts. Gold bond traders are the arbiters of British government policy at the moment. Jeremy Hunt, the new chancellor, removed most of the tax cuts and rightly decided to redesign the government’s energy price guarantee scheme from April 2023. The decisions he must make to close the remaining fiscal gap are being designed with markets in mind.

Just as Italians worry spread lo Between standard government bonds and bonds, so Brits had a crash course in how gold yields affect everything from the cost of a mortgage to the safety of their pensions. In Italy, institutions such as the presidency and the central bank have long served as a bulwark against politicians. So it is now in Britain. By ending emergency bond purchases on October 14, the Bank of England forced the government to reverse course even faster. There is no room for Mr. Hunt to disagree with the Office of Budget Responsibility, a financial watchdog. These institutions were constraints on the elected deputyBefore, but now the chains are connected tightly and clearly.

Third, the problem of low growth in Britain is becoming more entrenched. Political stability is a prerequisite for growth, and it is not a good idea to have it. Italian governments struggle to get anything done; The same is true of summary administrations in Britain. When changes in leader and government are always around the corner, mummering and character politics are replaced. Some have called Johnson “Borsiconi”. By continuing to soar over the political arena, he may make this comparison even more stark.

And while fiscal discipline should calm bond markets, it will not, in and of itself, increase growth. Mr. Hunt is racing to balance the books as part of a medium-term financial plan that will be revealed on October 31. Saving money by spending less on infrastructure would be good for the staggering returns, but it wouldn’t help the economy grow. There is little scope for swing cuts in public services. It’s better to phase out the “triple lock,” a generous formula for increasing state pensions, and raise money in more reasonable ways: abolishing “non-local” tax status, for example, or increasing inheritance taxes. An increase in the income tax would be preferable to a re-increase in the National Insurance contributions, which fall solely to the workers.

At the moment, things are turning Britly more than ever. Conservative Party deputyThey are in disarray — manifested in the chaotic vote on crackdowns and rumors of more resignations — and once again consumed by intrigues about how long their prime minister can last. Mrs. Truss has become the human equivalent of the cat “Larry”, who lives in Downing Street but has no power. If the Tory deputyDeciding to get rid of it, they need to find a replacement themselves rather than outsourcing it to Tory members. The odds of their feuding factions landing on a uniform number are low.

Spaghetti Junction

As a result, the argument for an early general election has become stronger. Unlikely to happen: why would Tori deputys vote on their demise? The argument that Mrs. Truss or any of her successors lack mandate is flawed in the parliamentary system. But if Parliament is unable to form an effective government, it is time to go to the electors. That moment is approaching.

Holding elections did not solve Italy’s problems. But there is reason to feel more hopeful about Britain, where political instability is now a one-party disease. The Conservative Party has become close to uncontrollable, due to the erosion of Brexit and the sheer exhaustion of their 12 years in power. Ms Truss is right to identify growth as Britain’s biggest problem. However, growth does not depend on imaginative plans and big bangs, but rather on stable government, thoughtful politics and political unity. In their current incarnation, conservatives cannot provide it.

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