Posts tagged ‘strikes’
An unruly student mob marches through the capital’s streets. A few dozen hotheads storm and occupy the HQ of the ruling party and, forcing their way onto the roof, throw missiles at the seemingly powerless police lines below. Windows are broken, fires started, arrests made.
A week ago the notion that this would have been the headline story across the British press would have seemed absurd. News like this belongs in Paris, surely, or Athens perhaps – not London. After all, it was only three weeks ago that we saw a much more low key student protest in response to the Comprehensive Spending Review – a mere 2,500-3,000 marchers and a half hearted attempt to break into a government building. This week’s events, which involved twenty times the number of participants, were shocking.
So what is the significance of this news for financial markets?
Over the summer, we noted the remote but real risk of economic disruption arising from a possible reaction to the UK’s planned austerity measures:
Britain’s coalition is holding up reasonably well for the moment. But over the next few months we will be enacting austerity measures of our own. British people haven’t had a sovereign crisis and IMF intervention to convince them of these measures, and they are likely to prove unpopular. Should the coalition face Greek-style resistance to its plans, together with siren voices from the Labour opposition denying that they are necessary, might it fall apart? Or seek to preserve itself by watering down its commitment to reduce borrowing? […] What price sterling under those conditions?
Today that risk looks rather less distant. While the kind of strikes and stoppages that have become a routine feature of fiscal consolidation in parts of Europe are far harder for unions to orchestrate in this country, Wednesday’s riot reminds us that there are people who would love to take us down that road.
Lest we forget where that road leads, the sclerosis in Greece together with the accompanying fall off in tourism is expected to see its economy contract by 4% this year, followed by another 2.5-3% in 2011. This is worse than its performance over the previous two years, and worse than the government had been expecting as recently as July.
Let us hope that in future, we in the UK have no cause to rank the phrase “it couldn’t happen here” alongside “this time it’s different” in the lexicon of investment folly.
As equity markets consolidate their summer gains and the economic recovery continues to hold, now is a good time to remind ourselves of the serious problems still faced by many countries in the wake of the financial crisis.
Last week, Anglo Irish, the broken and soon to be broken up bank, announced that it needed a little more help from the Irish taxpayer to stay solvent:
Anglo Irish Bank Corp. said Aug. 31 it needs about 25 billion euros ($32.1 billion) in state funding, equivalent to about two-thirds of this year’s tax revenue. Standard & Poor’s, which last week cut the country’s credit rating to AA‑, said the state may have to inject as much as 35 billion euros.
The Irish finance minister has even gone on the record to say that the latest bailout bill won’t bankrupt the country. Of course, the very fact that such an assurance is necessary makes it less than entirely reassuring.
Meanwhile, over in Spain, where unemployment of 20% is even higher than it is in Ireland (14%), trade unions are planning a general strike for the end of this month to protest the enactment of labour market reforms. Said one union leader, the appropriately surnamed Ignacio Fernandez Toxo, at a rally in Madrid yesterday: “Now more than ever, a general strike makes sense.”
It would be too glib to dismiss this as isolated squealing from the PIGS. This week’s transport strikes here and in France could well foreshadow worse to come. After all, it is not just the Irish who face the prospect of having to inject more taxpayer funds into a banking system that had outgrown the national balance sheet; nor is it just the Greeks who are having to confront the problem of rising debt to avoid the nightmare of a full blown sovereign crisis.
We remain sceptical of a double dip and constructive on the economic outlook, therefore, but cautiously so. Events over the last couple of weeks should serve to remind us that along the road to recovery the world will encounter a few speed bumps – and the occasional land mine.
As we have already mentioned in passing, there seems to have been little debate as to the consequences of the possible failure of the austerity measures that several countries are now proposing or trying to adopt to deal with their budget deficits. The impact of budget cuts on growth has received a lot of attention; the importance of those cuts, not so much.
There are two items in the news this week that suggest it should.
First is the latest from Greece, where striking lorry drivers are defying the prime minister’s emergency order, signed yesterday, to return to work. This has led to fuel shortages in Athens, and together with other strikes and rioting, a fall in tourist numbers. (There are echoes here of Britain’s haulage strikes over the price of fuel ten years ago: for a few days they were an inconvenience – then high street chemists started to run out of insulin, among other serious problems.)
The second item concerns the funding of Trident. The chancellor is insisting that the cost of renewing Britain’s nuclear deterrent should be met out of the defence ministry’s budget (of which it would account for about half), rather than being provided for separately. The ministry is not best pleased. It looks as though the British cabinet is split – and not even along party lines at that, as the chancellor and defence minister are both Conservatives.
Britain’s coalition is holding up reasonably well for the moment. But over the next few months we will be enacting austerity measures of our own. British people haven’t had a sovereign crisis and IMF intervention to convince them of these measures, and they are likely to prove unpopular. Should the coalition face Greek-style resistance to its plans, together with siren voices from the Labour opposition denying that they are necessary, might it fall apart? Or seek to preserve itself by watering down its commitment to reduce borrowing?
Both of these are risks that seem remote at present, but events at home and abroad suggest that they are real. A broken (rather than merely Brokeback) coalition, or a failure to stave off a debt crisis … What price sterling under those conditions?