NATO allies finally agreed earlier this year that China is a “challenge.” What that means is anyone’s guess.
That’s the task now facing officials from NATO’s 30-member sprawl since they settled on the label in June: Turning an endlessly malleable term into an actual plan.
Progress, thus far, has been modest — at best.
At one end, China hawks like the U.S. are trying to converge NATO’s goals with their own desire to constrain Beijing. At the other are China softliners like Hungary who want to engage Beijing. Then there’s a vast and shifting middle: hawks that don’t want to overly antagonize Beijing; softliners that still fret about economic reliance on China.
U.S. Ambassador to NATO Julianne Smith insisted the American and NATO strategies can be compatible.
“I see tremendous alignment between the two,” she told POLITICO. But, she acknowledged, translating the alliance’s words into action is “a long and complicated story.”
Indeed, looming over the entire debate is the question of whether China even merits so much attention right now. War is raging in NATO’s backyard. Russia is not giving up its revanchist ambitions.
“NATO was not conceived for operations in the Pacific Ocean — it’s a North Atlantic alliance,” said Josep Borrell, the EU’s top diplomat, in a recent interview with POLITICO.
“Certainly one can consider other threats and challenges,” he added. “But [for] the time being, don’t you think that we have enough threats and challenges on the traditional scenario of NATO?”
The issue will be on the table this week in Bucharest, where foreign ministers from across the alliance will sign off on a new report about responding to China. While officials have agreed on several baseline issues, the talks will still offer a preview of the tough debates expected to torment NATO for years, especially given China’s anticipated move to throttle Taiwan — the semi-autonomous island the U.S. has pledged to defend.
“Now,” said one senior European diplomat, “the ‘so what’ is not easy.”
30 allies, 30 opinions
NATO’s “challenge” label for China — which came at an annual summit in Madrid — is a seemingly innocuous word that still represented an unprecedented show of Western unity against Beijing’s rise.
In a key section of the alliance’s new strategic blueprint, leaders wrote that “we will work together responsibly, as Allies, to address the systemic challenges” that China poses to the military alliance.
It was, in many ways, a historic moment, hinting at NATO’s future and reflecting deft coordination among 30 members that have long enjoyed vastly different relationships with Beijing.
The U.S. has driven much of the effort to draw NATO’s attention to China, arguing the alliance must curtail Beijing’s influence, reduce dependencies on the Asian power and invest in its own capabilities. Numerous allies have backed this quest, including Canada, the United Kingdom, Lithuania and the Czech Republic.
China is “the only competitor with both the intent to reshape the international order and, increasingly, the economic, diplomatic, military, and technological power to do it,” the U.S. wrote in its own national security strategy released last month.
NATO is a wide-ranging alliance | Denis Doyle/Getty Images
But NATO is a wide-ranging alliance. Numerous eastern European countries lean toward these hawks but want to keep the alliance squarely focused on the Russian threat. Some are wary of angering China, and the possibility of pushing Beijing further into Moscow’s arms. Meanwhile, a number of western European powers fret over China’s role in sensitive parts of the Western economy but still want to maintain economic links.
Now the work is on to turn these disparate sentiments into something usable.
“There is a risk that we endlessly debate the adjectives that we apply here,” said David Quarrey, the United Kingdom’s ambassador to NATO.
“We are very focused on practical implementation,” he told POLITICO in an interview. “I think that’s where the debate needs to go here — and I think we are making progress with that.”
For Quarrey and Smith, the U.S. ambassador, that means getting NATO to consider several components: building more protections in cyberspace, a domain China is seeking to dominate; preparing to thwart attacks on the infrastructure powering society, a Western vulnerability Russia has exposed; and ensuring key supply chains don’t run through China.
Additionally, Quarrey said, NATO must also deepen “even further” its partnerships with regional allies like Japan, South Korea, Australia and New Zealand.
While NATO allies can likely broadly agree on goals like boosting cyber defenses, there’s some grumbling about the ramifications of pivoting to Asia.
The U.S. “wants as much China as possible to make NATO relevant to China-minded Washingtonians,” the senior European diplomat said. But, this person added, it is “not clear where NATO really adds value.”
And the U.K., the diplomat argued, is pressing NATO on China because it is “in need of some multilateral framework after Brexit.”
Perhaps most importantly, a turn to China raises existential questions about Europe’s own security. Currently, Europe is heavily reliant on U.S. security guarantees, U.S. troops stationed locally and U.S. arms suppliers.
“An unspoken truth is that to reinforce Taiwan,” the European diplomat said, the U.S. would not be “in a position to reinforce permanently in Europe.”
Europeans, this person said, “have to face the music and do more.”
Compromise central
Smith, the U.S. ambassador, realizes different perspectives on China persist within NATO.
The upcoming report on China therefore hits the safer themes, like defending critical infrastructure. While some diplomats had hoped for a more ambitious report, Smith insisted she was satisfied. The U.S. priority, she said, is to formally get the work started.
“We could argue,” she said, about “the adjectives and the way in which some of those challenges are described. But what was most important for the United States was that we were able to get all of those workstreams in the report.”
But even that is a baby step on the long highway ahead for NATO. Agreeing to descriptions and areas of work is one thing, actually doing that work is another.
“We’re still not doing much,” said a second senior European diplomat. “It’s still a report describing what areas we need to work on — there’s a lot in front of us.”
Among the big questions that remain unanswered: How could China be integrated into NATO’s defense planning? How would NATO backfill the U.S. support that currently goes to Europe if some of it is redirected to Asia? Will European allies offer Taiwan support in a crisis scenario?
Western capitals’ unyielding support for Kyiv — and the complications the war has created — is also being closely watched as countries game plan for a potential military showdown in the Asia-Pacific.
Asked last month whether the alliance would respond to an escalation over Taiwan, NATO Secretary-General Jens Stoltenberg told POLITICO that “the main ambition is, of course, to prevent that from happening,” partly by working more closely with partners in the area.
Smith similarly demurred when asked about the NATO role if a full-fledged confrontation breaks out over Taiwan — a distinct possibility given Beijing’s stated desire to reunify the island with the mainland.
Instead, Smith pointed to how Pacific countries had backed Ukraine half a world away during the current war, saying “European allies have taken note.”
She added: “I think it’s triggered some questions about, should other scenarios unfold in the future, how would those Atlantic and Pacific allies come together again, to defend the core principles of the [United Nations] Charter.”
BALI, Indonesia — Ukraine’s President Volodymyr Zelenskyy on Tuesday called on G20 leaders not to offer his country any peace deal that would compromise its independence from Russia, amid recently renewed contact between Washington and Moscow over the future of the war.
Zelenskyy appeared at the Bali summit via videolink at the invitation of the Indonesian hosts, just days after Ukraine liberated Kherson from invading Russian forces — a feat he compared to the D-Day landing of allied troops in Normandy, a key turning point of World War II.
“For Ukraine, this liberation operation of our defense forces is reminiscent of many battles of the past, which became turning points in the wars of the past,” Zelenskyy said in his speech to world leaders, among them U.S. President Joe Biden — and, according to a Western diplomat, Russian Foreign Minister Sergey Lavrov. “It is like, for example, D-Day — the landing of the allies in Normandy.”
Pointedly addressing his comments to the “dear G19” — the leaders of the Group of 20, with a snub to Russia — Zelenskyy warned against making Ukraine weaker than it was before Russian President Vladimir Putin launched the full-scale invasion in February.
“I want this aggressive Russian war to end justly and on the basis of the U.N. Charter and international law,” Zelenskyy said in his speech, the content of which was leaked to POLITICO. “Ukraine should not be offered to conclude compromises with its conscience, sovereignty, territory and independence. We respect the rules and we are people of our word.”
Russian President Vladimir Putin was invited to the summit in Bali but last week decided not to attend, sending Lavrov instead.
In his speech on Tuesday, Zelenskyy rejected any negotiations like those Kyiv held with Moscow in previous years, after Russia invaded and annexed Crimea in 2014, before seizing, via proxies, territory in the Donbas region of eastern Ukraine.
“Apparently, one cannot trust Russia’s words, and there will be no Minsk 3, which Russia would violate immediately after signing,” Zelenskyy said, referring to the Minsk 1 and 2 agreements, signed in 2014 and 2015 and mediated by the leaders of France and Germany in the so-called Normandy Format, which were intended to bring an end to the war at that time.
Zelenskyy’s speech to the G20 came on the same day Chinese President Xi Jinping asked his French counterpart Emmanuel Macron to work toward negotiated peace for Ukraine.
According to the Chinese state media Xinhua, Xi “emphasized that China’s position on the Ukrainian crisis is clear and consistent, advocating ceasefire, cessation of war and peace talks. The international community should create conditions for this, and China will continue to play a constructive role in its own way.”
Nevertheless, Zelenskyy thanked countries including China for rejecting Russia’s threats to use nuclear weapons.
Slamming the “crazy threats of nuclear weapons,” the Ukrainian president added: “There are and cannot be any excuses for nuclear blackmail. And I thank you, dear G19, for making this clear.”
Bill Burns, the head of the Central Intelligence Agency, met his Russian counterpart Sergei Naryshkin in Turkey on Monday and warned Moscow against using nuclear weapons, according to the White House.
Hui Ka Yan, a member of the CPPCC National Committee and chairman of Evergrande Group, attends a press conference at the fifth session of the 12th CPPCC National Committee on March 9, 2017 in Beijing, China. (Photo by VCG/VCG via Getty Images)
VCG via Getty Images
Once China’s richest person, Hui falls out of the top 100 for the first time in 14 years.
Hui Ka Yan, the founder of real estate firm China Evergrande Group, has lost nearly all of his once massive fortune. Worth $42.5 billion and ranked the richest person in Asia at his peak in 2017, his wealth has been drastically diminished as debt woes plague the embattled developer. Yet as pressure mounts for the former tycoon to find a concrete way to repay his firm’s debts, analysts say he will certainly lose a lot more.
The 64-year-old, who dropped out of the 2022 ranks of China’s top 100 richest for the first time since his 2007 debut, now has an estimated net worth of $2.9 billion, an amount that is based entirely on the dividends he’s received over the years, though some of it has since been plowed into mansions, jets and a yacht. The number excludes Hui’s 60% stake in Evergrande, whose shares were suspended from trading in March, and still can’t meet the criteria for a resumption. Even before the suspension, the firm had lost about 95% of its peak value.
But even his personal assets are not safe from the firm’s creditors. Hui was forced to use $1 billion of his own cash to pay down Evergrande debt late last year earlier this year, and he sold earlier this year two luxury apartments at a discount–one in the city of Shenzhen and one in Guangzhou–for a combined $50 million (360 million yuan), apparently to help pay off more.
As Evergrande struggles to come up with a plan for restructuring its more than $300 billion in liabilities, which according to one person with knowledge of the matter will probably get delayed again and pushed out into 2023 due to the sheer size and complexity of the matter, more of his remaining trophy assets are likely at risk. Chen Zhiwu, a professor of finance at the University of Hong Kong, says amid China’s drastically changed political environment, the pressure is “really high, if not higher” for Hui to keep paying down corporate liabilities with his own money.
In fact, one of his three homes in Hong Kong’s prestigious The Peak neighborhood was seized by China Construction Bank (Asia) last week in November after Evergrande defaulted on a loan collateralized by the $90 million (estimated market value) property.
“Of course, he would like his personal assets and corporate assets very clearly separated, which officials aren’t willing to accept,” Chen says. “What this means is that when his company debt is in default, some of his personal fortune may have to be used to contribute to the payments to debt holders.”
The facade of 2-8a Rutland Gate, which is thought to be the most expensive home ever marketed in Britain, is recently put on sale by beleaguered billioniare Hui Ka Yan(Photo by Leon Neal/AFP via Getty Images).
AFP via Getty Images
Hui, who according to Evergrandethe company’s website is still a member of the ruling Communist Party, has pledged his two other luxury homes in the same posh Hong Kong locale as collateral for loans from Orix Asia Capital. He is also looking to sell his 45-room Knightsbridge mansion overlooking London’s Hyde Park area, two years after buying it from a Saudi prince for $232 million. And he owns private jets and a $60 million superyacht that he could be forced to sell.
As Evergrande’s revenues have fallen off a cliff (it only recorded $2.5 billion in contracted sales during the first eight months of the year, a plunge of around 96% from the prior year), Hui is unlikely to convince creditors that the company could ever generate enough cash flow for future repayment.
Of course, he would like his personal assets and corporate assets very clearly separated, which officials aren’t willing to accept.
Meanwhile, a nationwide mortgage boycott by angry buyers, who paid for their purchases in full but aren’t getting apartment complexes delivered on time after troubled developers such as Evergrande ran out of money, is putting pressure on the government. To quell public protests, which are rare in China, officials have agreed to issue special loans totaling $27.6 billion (200 billion yuan) to help with this type of work. Victor Shih, an associate professor of political economy at the University of California, San Diego, says banks are likely to have been told to lend to the financing arms of local governments, so that they could buy the unfinished projects from distressed real estate firms at a small discount. Evergrande said in September it had resumed working on 95% of its 706 pre-sold but undelivered construction projects.
But aside from protecting the interests of average homebuyers, few expect Beijing to reverse its course and unveil broader sector bailout measures–which are seen as crucial to restoring offshore creditor confidence. Kaven Tsang, a Hong Kong-based senior vice president at Moody’s Investors Service, says the economic pain inflicted by the real estate meltdown–including defaults, falling sales and rapidly slowing growth–are “within the [government’s] tolerance level.”
“The central government has made it clear in the past that they aren’t going to use the property sector to support the economy,” says Tsang. “We haven’t seen any changes so far.”
An Evergrande residential development under construction in Beijing, China. (Photo by Bloomberg)
Ron Thompson, a Hong Kong-based managing director at consulting firm Alvarez & Marsal Asia, says he thinks it would take at least two years for China’s housing demand to stabilize. Moody’s estimated in October that China’s property sales would continue to decline over the next 12 months, after shrinking 21% in August from the prior year, and 15.3% in September. Default risk remains high, given that the country’s developers have at least a combined $55 billion in bonds due over the next two years, but face weaker sales and limited refinancing options.
Amid this environment, bond investors mired in the restructuring of defaulted developers “aren’t expecting 100 cents on the dollar,” and are likely to demand equity and other collaterals to compensate for their rising losses, says Alvarez & Marsal Asia’s Thompson. Those who have lent specifically to Hui are increasingly taking things into their own hands, with more asset seizures and “wind-up” petitions to liquidate assets due to unpaid financial obligations, says Brock Silvers, a Hong Kong-based chief investment officer at Kaiyuan Capital, which invests in distressed assets.
Evergrande is facing a wind-up hearing in Hong Kong on Nov. 28, which was first brought in June by creditor and Samoa-based investment holding Top Shine Global Limited over $110 million in unspecified financial obligations.
Evergrande’s Hong Kong headquarters, which it acquired for $1.6 billion (HK$12.5 billion) in 2015 from Chinese Estates Holdings, controlled by Hui’s billionaire friend Joseph Lau, has also been seized by creditors and recently put on sale. The 26-story China Evergrande Centre located in Wan Chai now has an estimated value of around $1 billion, and the bidding process, concluded in late October reportedly drew interest from billionaire Li Ka-shing’s CK Asset Holdings.
Evergrande’s Hengchi 5 electric vehicle is on display at Hengchi experience center in Shanghai, China. (Photo by Wang Gang/VCG via Getty Images)
VCG via Getty Images
Hui appears to be pinning his last hope on electric cars. The Hong Kong-listed China Evergrande New Energy Vehicle Group , two thirds owned by parent Evergrande and whose trading has also been suspended since March, announced in late October that it had delivered the $24,700 Hengchi 5 electric sports utility vehicle to the first batch of 100 buyers, constituting a “major milestone” for Hengchi Auto. Parent company Evergrande also said in a July filing that it may offer equity interests in its EV unit as part of a “supplemental credit enhancement” package for restructuring offshore debt.
But Shen Meng, managing director at Beijing-based boutique investment bank Chanson & Co., says the EV deliveries offer little comfort to creditors. The beleaguered Hui, who once cherished ambitions to become the Elon Musk of China and propel Evergrande above Tesla, still has a long way to go before establishing Hengchi as a stable brand.
“The deliveries of the first batch doesn’t mean the maturing of Evergrande’s EV business, as it will take quite some effort to start bigger-scale production and delivery to the mass,” says Shen. “The EV unit is unlikely to be seen as a reliable asset, and it won’t help much with the restructuring process.”
LIVERPOOL, England — On the long picket line outside the gates of Liverpool’s Peel Port, rain-soaked dock workers warm themselves with cups of tea as they listen to 1980s pop.
Dozens of buses, cars and trucks honk in solidarity as they pass.
Dockers’ strikes are not new to Liverpool, nor is depravation. But this latest walk-out at Britain’s fourth-largest port is part of something much bigger, a great wave of public and private sector strikes taking place across the U.K. Railways, postal services, law courts and garbage collections are among the many public services grinding to a halt.
The immediate cause of the discontent, as elsewhere, is the rising cost of living. Inflation in the United Kingdom breached the 10 percent mark this year, with wages failing to keep pace.
But the U.K.’s economic woes long predate the current crisis. For more than a decade, Britain has been beset by weak economic growth, anaemic productivity, and stagnant private and public sector investment. Since 2016, its political leadership has been in a state of Brexit-induced flux.
Half a century after U.S. Secretary of State Henry Kissinger looked at the U.K.’s 1970s economic malaise and declared that “Britain is a tragedy,” the United Kingdom is heading to be the sick man of Europe once again.
The immediate cause of Liverpool dockers’ discontent that brought them to strike is the rising cost of living. | Christopher Furlong/Getty Images
Here in Liverpool, the “scars run very deep,” said Paul Turking, a dock worker in his late 30s. British voters, he added, have “been misled” by politicians’ promises to “level up” the country by investing heavily in regional economies. Conservatives “will promise you the world and then pull the carpet out from under your feet,” he complained.
“There’s no middle class no more,” said John Delij, a Peel Port veteran of 15 years. He sees the cost-of-living crisis and economic stagnation whittling away the middle rung of the economic ladder.
“How many billionaires do we have?” Delij asked, wondering how Britain could be the sixth-largest economy in the world with a record number of billionaires when food bank use is 35 percent above its pre-pandemic level. “The workers put money back into the economy,” he said.
What would they do if they were in charge? “Invest in affordable housing,” said Turking. “Housing and jobs.”
Falling behind
The British economy has been struck by particular turbulence over recent weeks. The cost of government borrowing soared in the wake of former PM Liz Truss’ disastrous mini-budget on September 23, with the U.K.’s central bank forced to step in and steady the bond markets.
But while the swift installation of Rishi Sunak, the former chancellor, as prime minister seems to have restored a modicum of calm, the economic backdrop remains bleak. Spending and welfare cuts are coming. Taxes are certain to rise. And the underlying problems cut deep.
U.K. productivity growth since the financial crisis has trailed that of comparator nations such as the U.S., France and Germany. As such, people’s median incomes also lag behind neighboring countries over the same period. Only Russia is forecast to have worse economic growth among the G20 nations in 2023.
In 1976, the U.K. — facing stagflation, a global energy crisis, a current account deficit and labor unrest — had to be bailed out by the International Monetary Fund. It feels far-fetched, but today some are warning it could happen again.
The U.K. is spluttering its way through an illness brought about in part through a series of self-inflicted wounds that have undermined the basic pillars of any economy: confidence and stability.
The political and economic malaise is such that it has prompted unwanted comparisons with countries whose misfortunes Britain once watched amusedly from afar.
“The existential risk to the U.K. … is not that we’re suddenly going to go off an economic cliff, or that the country’s going to descend into civil war or whatever,” said Jonathan Portes, professor of economics at King’s College London. “It’s that we will become like Italy.”
Portes, of course, does not mean a country blessed with good weather and fine food — but an economy hobbled by persistently low growth, caught in a dysfunctional political loop that lurches between “corrupt and incompetent right-wing populists” and “well-intentioned technocrats who can’t actually seem to turn the ship around.”
“That’s not the future that we want in the U.K,” he said.
Reviving the U.K.’s flatlining economy will not happen overnight. As Italy’s experience demonstrates, it’s one thing to diagnose an illness — another to cure it.
Experts speak of an unbalanced model heavily reliant upon Britain’s services sector and beset with low productivity, a result of years of underinvestment and a flexible labor market which delivers low unemployment but often insecure and low-paid work.
“We’re not investing in skills; businesses aren’t investing,” said Xiaowei Xu, senior research economist at the Institute for Fiscal Studies. “It’s not that surprising that we’re not getting productivity growth.”
But any attempt to address the country’s ailments will require its economic stewards to understand their underlying causes — and those stretch back at least to the first truly global crisis of the 21st century.
Crash and burn
The 2008 financial crisis hammered economies around the world, and the U.K. was no exception. Its economy shrunk by more than 6 percent between the first quarter of 2008 and the second quarter of 2009. Five years passed before it returned to its pre-recession size.
For Britain, the crisis in fact began in September 2007, a year before the collapse of Lehman Brothers, when wobbles in the U.S. subprime mortgage market sparked a run on the British bank Northern Rock.
The U.K. discovered it was particularly vulnerable to such a shock. Over the second half of the 20th century, its manufacturing base had largely eroded as its services sector expanded, with financial and professional services and real estate among the key drivers. As the Bank of England put it: “The interconnectedness of global finance meant that the U.K. financial system had become dangerously exposed to the fall-out from the U.S. sub-prime mortgage market.”
The crisis was a “big shock to the U.K.’s broad economic model,” said John Springford, from the Centre for European Reform. Productivity took an immediate hit as exports of financial services plunged. It never fully recovered.
“Productivity before the crash was basically, ‘Can we create lots and lots of debt and generate lots and lots of income on the back of this? Can we invent collateralized debt obligations and trade them in vast volumes?’” said James Meadway, director of the Progressive Economy Forum and a former adviser to Labour’s left-wing former shadow chancellor, John McDonnell.
A post-crash clampdown on City practises had an obvious impact.
“This is a major part of the British economy, so if it’s suddenly not performing the way it used to — for good reasons — things overall are going to look a bit shaky,” Meadway added.
The shock did not contain itself to the economy. In a pattern that would be repeated, and accentuated, in the coming years, it sent shuddering waves through the country’s political system, too.
The 2010 election was fought on how to best repair Britain’s broken economy. In 2009, the U.K. had the second-highest budget deficit in the G7, trailing only the U.S., according to the U.K. government’s own fiscal watchdog, the Office for Budget Responsibility (OBR).
The Conservative manifesto declared “our economy is overwhelmed by debt,” and promised to close the U.K.’s mounting budget deficit in five years with sharp public sector cuts. The incumbent Labour government responded by pledging to halve the deficit by 2014 with “deeper and tougher” cuts in public spending than the significant reductions overseen by former Conservative Prime Minister Margaret Thatcher in the 1980s.
The election returned a hung parliament, with the Conservatives entering into a coalition with the Liberal Democrats. The age of austerity was ushered in.
Austerity nation
Defenders of then-Chancellor George Osborne’s austerity program insist it saved Britain from the sort of market-led calamity witnessed this fall, and put the U.K. economy in a condition to weather subsequent global crises such as the COVID-19 pandemic and the fallout from the war in Ukraine.
“That hard work made policies like furlough and the energy price cap possible,” said Rupert Harrison, one of Osborne’s closest Treasury advisers.
Pointing to the brutal market response to Truss’ freewheeling economic plans, Harrison praised the “wisdom” of the coalition in prioritizing tackling the U.K.’s debt-GDP ratio. “You never know when you will be vulnerable to a loss of credibility,” he noted.
But Osborne’s detractors argue austerity — which saw deep cuts to community services such as libraries and adult social care; courts and prisons services; road maintenance; the police and so much more — also stripped away much of the U.K.’s social fabric, causing lasting and profound economic damage. A recent study claimed austerity was responsible for hundreds of thousands of excess deaths.
Under Osborne’s plan, three-quarters of the fiscal consolidation was to be delivered by spending cuts. With the exception of the National Health Service, schools and aid spending, all government budgets were slashed; public sector pay was frozen; taxes (mainly VAT) rose.
But while the government came close to delivering its fiscal tightening target for 2014-15, “the persistent underperformance of productivity and real GDP over that period meant the deficit remained higher than initially expected,” the OBR said. By his own measure, Osborne had failed, and was forced to push back his deficit-elimination target further. Austerity would have to continue into the second half of the 2010s.
Many economists contend that the fiscal belt-tightening sucked demand out of the economy and worsened Britain’s productivity crisis by stifling investment. “That certainly did hit U.K. growth and did some permanent damage,” said King’s College London’s Portes.
“If that investment isn’t there, other people start to find it less attractive to open businesses,” former Labour aide Meadway added. “If your railways aren’t actually very good … it does add up to a problem for businesses.”
A 2015 study found U.K. productivity, as measured by GDP per hour worked, was now lower than in the rest of the G7 by a whopping 18 percentage points.
“Frankly, nobody knows the whole answer,” Osborne said of Britain’s productivity conundrum in May 2015. “But what I do know is that I’d much rather have the productivity challenge than the challenge of mass unemployment.”
‘Jobs miracle’
Rising employment was indeed a signature achievement of the coalition years. Unemployment dropped below 6 percent across the U.K. by the end of the parliament in 2015, with just Germany and Austria achieving a lower rate of joblessness among the then-28 EU states. Real-term wages, however, took nearly a decade to recover to pre-crisis levels.
Economists like Meadway contend that the rise in employment came with a price, courtesy of Britain’s famously flexible labor market. He points to a Sports Direct warehouse in the East Midlands, where a 2015 Guardian investigation revealed the predominantly immigrant workforce was paid illegally low wages, while the working conditions were such that the facility was nicknamed “the gulag.”
The warehouse, it emerged, was built on a former coal mine, and for Meadway the symbolism neatly charts the U.K.’s move away from traditional heavy industry toward more precarious service sector employment. “It’s not a secure job anymore,” he said. “Once you have a very flexible labor market, the pressure on employers to pay more and the capacity for workers to bargain for more is very much reduced.”
Throughout the period, the Bank of England — the U.K.’s central bank — kept interest rates low and pursued a policy of quantitative easing. “That tends to distort what happens in the economy,” argued Meadway. QE, he said, is a “good [way of] getting money into the hands of people who already have quite a lot” and “doesn’t do much for people who depend on wage income.”
Meanwhile — whether necessary or not — the U.K.’s austerity policies undoubtedly worsened a decades-long trend of underinvestment in skills and research and development (Britain lags only Italy in the G7 on R&D spending). At British schools, there was a 9 percent real terms fall in per-pupil spending between 2009 and 2019, according to the Institute for Fiscal Studies’ Xu. “As countries get richer, usually you start spending more on education,” Xu noted.
Two senior ministers in the coalition government — David Gauke, who served in the Treasury throughout Osborne’s tenure, and ex-Lib Dem Business Secretary Vince Cable — have both accepted that the government might have focused more on higher taxation and less on cuts to public spending. But both also insisted the U.K had ultimately been correct to prioritize putting its public finances on a sounder footing.
It was February 2018 before Britain finally achieved Osborne’s goal of eliminating the deficit on its day-to-day budget.
Austerity was coming to an end, at last. But Osborne had already left the Treasury, 18 months earlier — swept away along with Cameron in the wake of a seismic national uprising.
***
David Cameron had won the 2015 election outright, despite — or perhaps because of — the stringent spending cuts his coalition government had overseen, more of which had been pledged in his 2015 manifesto. Also promised, of course, was a public vote on Britain’s EU membership.
The reasons for the leave vote that followed were many and complex — but few doubt that years of underinvestment in poorer parts of the U.K. were among them.
Regardless, the 2016 EU referendum triggered a period of political acrimony and turbulence not seen in Westminster for generations. With no pre-agreed model of what Brexit should actually entail, the U.K.’s future relationship with the EU became the subject of heated and protracted debate. After years of wrangling, Britain finally left the bloc at the end of January 2020, severing ties in a more profound way than many had envisaged.
While the twin crises of COVID and Ukraine have muddled the picture, most economists agree Brexit has already had a significant impact on the U.K. economy. The size of Britain’s trade flows relative to GDP has fallen further than other G7 countries, business investment growth trails the likes of Japan, South Korea and Italy, and the OBR has stuck by its March 2020 prediction that Brexit would reduce productivity and U.K. GDP by 4 percent.
Perhaps more significantly, Brexit has ushered in a period of political instability. As prime ministers come and go (the U.K. is now on its fifth since 2016), economic programs get neglected, or overturned. Overseas investors look on with trepidation.
“The evidence that the referendum outcome, and the kind of uncertainty and change in policy that it created, have led to low investment and low growth in the U.K. is fairly compelling,” said professor Stephen Millard, deputy director at the National Institute of Economic and Social Research.
Beyond the instability, the broader impact of the vote to leave remains contentious.
Portes argued — as many Remain supporters also do — that much harm was done by the decision to leave the EU’s single market. “It’s the facts, not the uncertainty that in my view is responsible for most of the damage,” he said.
Brexit supporters dismiss such claims.
“It’s difficult statistically to find much significant effect of Brexit on anything,” said professor Patrick Minford, founder member of Economists for Brexit. “There’s so much else going on, so much volatility.”
Minford, an economist favored by ex-PM Truss, acknowledged that “Brexit is disruptive in the short run, so it’s perfectly possible that you would get some short-run disruption.” But he added: “It was a long-term policy decision.”
Where next?
Plenty of economists can rattle off possible solutions, although actually delivering them has thus far evaded Britain’s political class. “It’s increasing investment, having more of a focus on the long-term, it’s having economic strategies that you set out and actually commit to over time,” says the IFS’ Xu. “As far as possible, it’s creating more certainty over economic policy.”
But in seeking to bring stability after the brief but chaotic Truss era, new U.K. Chancellor Jeremy Hunt has signaled a fresh period of austerity is on the way to plug the latest hole in the nation’s finances. Leveling Up Secretary Michael Gove told Times Radio that while, ideally, you wouldn’t want to reduce long-term capital investments, he was sure some spending on big projects “will be cut.”
This could be bad news for many of the U.K.’s long-awaited infrastructure schemes such as the HS2 high-speed rail line, which has been in the works for almost 15 years and already faces a familiar mix of local resistance, vested interests, and a sclerotic planning system.
“We have a real problem in the sense that the only way to really durably raise productivity growth for this country is for investments to pick up,” said Springford, from the Centre for European Reform. “And the headwinds to that are quite significant.”
For dock workers at Liverpool’s Peel Port, the prospect of a fresh round of austerity amid a cost-of-living crisis is too much to bear. “Workers all over this country need to stand up for themselves and join a union,” insisted Delij.
For him, it’s all about priorities — and the arguments still echo back to the great crash of 15 years ago. “They bailed the bankers out in 2007,” he said, “and can’t bail hungry people out now.”
Billionaire Wu Yajun has stepped down as Longfor chairman. (Photo by May Tse/South China Morning Post via Getty Images)
South China Morning Post via Getty Images
Wu Yajun, the billionaire cofounder of real estate developer Longfor Properties, has stepped down as chair of the company amid an industry-wide crisis that is showing little sign of abating.
Shares of the Hong Kong-listed Longfor tumbled as much as 38% on Monday after the 58-year-old tycoon announced her decision late Friday night. Due to age and health reasons, Wu has resigned as executive director and chairperson of the board, but will continue to advise the company on its strategic development, Longfor wrote in a filing to the Hong Kong Stock Exchange.
She has handed the reins over to 40-year-old Chen Xuping, who has been with the company since 2008 and first worked as a construction manager before being promoted through the ranks. But the mogul, whose wealth plunged $1 billion to $6.1 billion in a single day, isn’t giving investors much to cheer.
“Longfor is experiencing management changes when the industry is undergoing a lot of difficulties,” says Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities. “Investors are worried about how it would cope with the challenges.”
The company, for its part, said in a separate Friday filing that the role changes were results of its corporate governance strategy and focuses on nurturing senior managers through “culture and mechanism.” It disclosed in the same filing that contracted sales stood at 59.8 billion yuan ($8.2 billion) in the third quarter of this year, representing a mere 0.8% growth from the same period a year ago.
China’s real estate industry, meanwhile, is still mired in a deep crisis. Home prices have sank for a 13th straight month in September, as Beijing’s campaign to reduce financial leverage causes a wave of defaults, and buyer confidence remains weak in a slumping economy.
Longfor is considered to be on stronger footing than its debt-laden peers such as the now defaulted China Evergrande Group, thanks to Wu’s emphasis on financial discipline and relative prudence when it comes to borrowing. The company said in the aforementioned filing that it had no debt due this year, and its financial position “remains healthy and stable.” It was allowed in August to sell $219 million worth of yuan-denominated bonds that are guaranteed by the state, as Beijing sought to boost market sentiment towards healthier developers.
Still, the company’s shares have lost 70% of value year to date, underscoring investors’ pessimism toward the real estate sector. To prevent the current crisis from spiraling out of control, officials have also announced a series of easing policies including tax exemptions and lowering mortgage rates. But Fitch Ratings said in an October 24 report that the moves are “selective and modest in scale,” and unlikely to boost housing demand.
The U.S. accused Moscow of “weaponizing food” in suspending its participation in agreement allowing grain shipments to leave Ukraine’s ports.
The U.N. and Turkey, which brokered the deal in the summer, said on Sunday that they were in talks to try to bring Russia back into the accord. Ankara said in a tweet that Turkish Defense Minister Hulusi Akar “has been meeting with his counterparts” over the situation.
U.N. Secretary-General António Guterres is engaged in “intense contacts” aimed at bringing Russia back to the deal, the organization said on Sunday, after the Kremlin on Saturday said it was halting the agreement for an “indefinite period,” citing an attack on a base in occupied Crimea that Russia blamed on Ukraine.
The grain export deal, designed to make sure Ukrainian agricultural products can reach international markets, is considered critical to global food security given Ukraine’s role as a major producer of foodstuffs.
“Any act by Russia to disrupt these critical grain exports is essentially a statement that people and families around the world should pay more for food or go hungry,” U.S. Secretary of State Antony Blinken said in a statement late Saturday. “In suspending this arrangement, Russia is again weaponizing food in the war it started.”
U.S. President Joe Biden called Russia’s move “purely outrageous.”
“It’s going to increase starvation,” Biden told reporters in Delaware on Saturday.
Russia’s ambassador to the U.S. blasted Washington on Sunday for its reaction to Moscow’s decision and reiterated unsubstantiated claims that U.K. operatives were involved in a drone attack on the Russian fleet at the Black Sea port of Sevastopol in Crimea on Saturday.
“Washington’s reaction to the terrorist attack on the port of Sevastopol is truly outrageous,” Ambassador Anatoly Antonov said on Telegram.
The U.S. and the EU called on Russian President Vladimir Putin to reverse the decision on the Black Sea grain deal.
“Russia’s decision to suspend participation in the Black Sea deal puts at risks the main export route of much needed grain and fertilizers to address the global food crisis caused by its war against Ukraine,” Josep Borrell, the EU’s top diplomat, said in a tweet.
The Joint Coordination Center — the body established by the U.N., Turkey, Russia and Ukraine to coordinate foodstuff exports from Ukrainian ports — said it is “discussing next steps” following Moscow’s decision to halt the Black Sea agreement. At least 10 vessels, both outbound and inbound, are waiting to enter the humanitarian corridor established by the JCC, the center said late Saturday.
Ukrainian President Volodymyr Zelenskyy said Moscow has been “deliberately aggravating” the food crisis since September. “This is an absolutely transparent intention of Russia to return the threat of large-scale famine to Africa and Asia,”he said.
“From September to today, 176 vessels have already accumulated in the grain corridor,” Zelenskyy said in his nightly address Saturday. Some ships have been waiting for more than three weeks, he said.
Zelenskyy called for a “strong international response” to the Kremlin’s move, specifying the U.N. and “in particular” the G20. “How can Russia be among the G20 if it is deliberately working for starvation on several continents? This is nonsense,” Zelenskyy said.
Poland called the Kremlin’s move “yet another proof that Moscow is not willing to uphold any international agreements.”
“Poland, together with its EU partners, stands ready to work further to help Ukraine and those in need to transport essential goods,” the Polish foreign ministry said in a tweet on Sunday.
Nahal Toosi contributed reporting from Washington.
LONDON — Now on their third prime minister since the last general election, the despairing British public want a vote on who runs the country. They appear to be out of luck.
New U.K. premier Rishi Sunak did not secure the 2019 election win for the Tories. Neither did his predecessor Liz Truss, who instead for a chaotic 44 days tried to rip up many of the economic and policy promises in Conservative manifesto.
It was, of course, Boris Johnson who secured the Tories’ 80-seat majority almost three years ago — before being kicked out of Downing Street in the summer by his own MPs following a string of humiliating scandals. His replacement Truss, elected by just 81,00 Conservative members, lasted less than two months before her colleagues wielded the knife again.
This carousel of leaders has left some observers pondering how Britain, can repeatedly change its figurehead — not to mention, in Truss’ case, its entire economic direction — without once consulting the public.
Unsurprisingly, it’s a question opposition leader, Labour’s Keir Starmer, hopes to capitalize on.
Asking questions to the new PM in the House of Commons Wednesday, Starmer noted that the last time Sunak took part in a vote — his head-to-head contest with Truss — “he got trounced by the former prime minister … who herself got beaten by a lettuce.”
“Let working people have their say,” Starmer told the PM, “and call a general election.”
A defiant Sunak replied that his mandate “is based on a manifesto that we were elected on — an election that we won, and they lost.”
Public panic
Constitutionally, Sunak is correct.
The U.K. government retains total control over whether a snap election should be called ahead of the January 2025 deadline for the next vote — unless dozens of Tory MPs suddenly go rogue and decide to bring down their own regime via a no-confidence vote in the Commons.
And the Tories’ rock-bottom poll ratings mean any kind of electoral gamble is off the table for the foreseeable future. Conservative support among the public — already dire at the tail-end of the Johnson tenure — plunged to record lows under Truss.
“The short answer to anyone at home or abroad asking why the Conservatives don’t have an election, is because they don’t have to have an election,” said Joe Twyman, director at U.K. polling firm Deltapoll. “Given the situation the polls are in, they would be assured of a loss.”
Under the British political system, the public votes for a governing party rather than a specific prime minister — and it’s for each party to pick its leader as and when it sees fit. The set-up differs markedly from presidential systems in places like France and the U.S., which are led by directly-elected heads of state.
“It’s a fundamental rule of a parliamentary democracy that it isn’t the prime minister who wins a mandate at a general election, it’s the parliamentary party,” said Catherine Haddon, a constitutional expert at the Institute for Government think tank.
“Once you start going down the route of arguing every prime minister needs to win a general election to be able to hold the job, you are fundamentally changing the system.”
Furthermore, the U.K.’s “first-past-the-post” voting system tends to deliver single-party rule, meaning coalition governments — which might collapse in times of turbulence, so triggering an election — are historically rare.
So Sunak retains a healthy parliamentary majority, inherited from Johnson’s 2019 victory.
Left wanting
But the one thing counting against the Conservatives is public opinion.
A YouGov poll this week found 59 percent of the British public think Sunak should call an election — including 38 percent of all Conservative voters — compared with just 29 percent who thought he shouldn’t. That’s far higher than normal, and way above even the peak figure of 41 percent who wanted an election at the height of the Partygate scandal.
“Turmoil in the government, with the Conservatives now two leaders removed from the one who took them to election victory in 2019, has clearly convinced many Britons that the time is right for a new vote,” said YouGov’s head of data journalism, Matthew Smith.
An internal poll for the opposition Labour Party this week found similar results, with support for an election strongest among swing voters, according to a Labour official. Even a third of those 2019 Conservative voters who are still planning to vote the same way next time round want a snap election, the official said. Those leaning toward Labour are even more enthusiastic about a fresh campaign.
Other research confirms the public is getting restless. A focus group this week for the non-partisan “More in Common” campaign found seven out of eight participants wanted an election once the current economic crisis has died down — a significant increase on previous exercises.
Luke Tryl, the U.K. director of More in Common, said most people want “a choice over who is in charge” — although he noted that the same people also often feel conflicted, being “exhausted with the constant politics of the past few years.”
Consultants at the agency Public First have found similar results in their own focus groups. The firm’s founding partner James Frayne said demands for a general election had “surged in recent weeks, and won’t be going anywhere.” He added: “As far as most voters are concerned, one unelected PM screwed up the economy so badly that another unelected PM must impose brutal austerity in response.”
Internal dissent
Indeed, even some Conservatives — chiefly those supportive of Boris Johnson — have suggested an election is necessary following his departure from No. 10 Downing Street.
Former Cabinet Minister Nadine Dorries said publicly that an election would be “impossible to avoid” after her fellow MPs rejected Johnson’s recent comeback bid. Backbencher Christopher Chope and Tory peer Zac Goldsmith both made similar claims.
“Imposing a new prime minister no-one voted for goes against the grain of what is democratic,” said one Johnson-supporting Conservative MP. “Colleagues who removed Boris can’t have their cake and eat it. We’ve had a sh*t show since, and appointing Rishi without a single vote is precarious. But colleagues insist they don’t want a general election.”
For the vast majority of Conservative MPs, who want to avoid a vote at all costs, Sunak appears their best hope of calming the waters and so holding off the clamor for an election.
“It is legitimate to feel there should be an election,” said a former Johnson adviser. “But in a world where there’s no general election, the best thing for everyone is to have Rishi — because however well he ends up doing, I think he will be quite calm, professional, and not trying to do crazy things that f*ck up all our mortgages.”
Twyman, from Deltapoll, suggested that ultimately, being accused of dodging democracy is probably the “lesser of two evils” for the Tories.
“It doesn’t look good for the Conservatives,” he said. “But a Labour majority of 300 doesn’t look good for the Conservatives either.”
Annabelle Dickson contributed reporting.
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LONDON — Rishi Sunak has promised to “fix” the economic mess wrought by his predecessor Liz Truss after being appointed the new U.K. prime minister.
In a sombre speech on the steps of No. 10 Downing Street Tuesday, Sunak — who has spent the day fleshing out a top team that includes many carryovers from the Truss administration — admitted “mistakes were made” by his predecessor and said he had been appointed “in part, to fix them.”
Truss only took office as U.K. PM last month, but was swiftly forced to resign after her radical economic plan spooked the markets, sent Sterling plunging and drove U.K. borrowing costs through the roof.
Sunak had predicted precisely these consequences during a summer-long Tory leadership contest — in which he finished a distant second place — and is now reaping the political reward.
“Our country is facing a profound economic crisis,” Sunak said, in his first major speech as PM. “I will place economic stability and confidence at the heart of this government’s agenda. This will mean difficult decisions to come.”
Sunak takes over at an intensely challenging time for the U.K. economy, with surging energy costs, mortgage rates and inflation triggering a cost-of-living crisis for millions of households and businesses. Britain also has a yawning budget deficit, and Sunak’s administration is expected to confirm a package of tax hikes and spending cuts in an emergency budget statement next week.
Key picks
In a bid to calm markets, Sunak on Tuesday confirmed he is keeping Jeremy Hunt in post as top finance minister. Hunt was brought in in the dying days of Truss’ short premiership to steady the ship, and swiftly junked much of her tax-cutting agenda.
Key Sunak ally and Cabinet veteran Dominic Raab will serve as deputy prime minister, a role he also played for Johnson.
And Sunak looks to have opted for a steady-as-she-goes approach to foreign policy, keeping in place Truss’ Foreign Secretary, James Cleverly, and her Defence Secretary Ben Wallace, who also held the role under Boris Johnson and earned plaudits for his response to the Russian invasion of Ukraine. In a remarkably swift Cabinet comeback, Suella Braverman — who left as Truss’ Home Secretary just a week ago with a blast at her boss — returns to the Home Office.
In one sign of change at the top of government, Truss ally Jacob Rees-Mogg resigned as business secretary. He had previously branded Sunak a “socialist” during the summer’s bitter leadership contest, although he recanted that view Tuesday morning. He will be replaced by leading Sunak backer Grant Shapps.
Speaking on steps of No. 10 Downing Street, the new PM insisted he was “not daunted” by the challenges ahead, adding: “I know the high office I have accepted, and I hope to live up to its demands.”
Sunak, 42, is the youngest British prime minister in modern history, and the first British-Asian to lead the country. He was formally invited to form a government by new British monarch King Charles III on Tuesday morning, having won the second Conservative leadership contest of the year the previous afternoon.
In his speech, Sunak also took a veiled swipe at his predecessor-but-one — and former boss — Johnson, who was forced to resign in July over a string of personal scandals.
“This government will have integrity, professionalism and accountability at every level,” Sunak said.
Johnson tweeted his congratulations to his bitter rival immediately after Sunak took office, insisting it was “the moment for every Conservative to give our new PM their full and wholehearted support.”
Newly-elected British PM Rishi Sunak has been formally invited to form a government by King Charles III | Pool photo by Aaron Chown/AFP via Getty Images
Truss bids farewell
In her farewell speech Tuesday, outgoing PM Truss said it had been “a huge honor” to lead the nation and showed few signs of contrition over her chaotic seven weeks in office.
“From my time as prime minister, I am more convinced than ever we need to be bold and confront the challenges that we face,” Truss said defiantly.
She even quoted the Roman philosopher Seneca, adding: “It is not because things are difficult that we do not dare. It is because we do not dare that they are difficult.”
Sunak won the latest Conservative leadership race after his rival Penny Mordaunt failed to secure the required 100 nominations from her fellow Conservative MPs to make it onto a head-to-head ballot. He also beat off a brief challenge from former PM Johnson, who decided to pull out of the contest Sunday night despite claiming — without evidence — to have secured enough private nominations to make the cut.
Sunak has only been an MP since 2015 but is well known to the British public, having served as chancellor for more than two years under Johnson before quitting in July over his former boss’ personal conduct.
Sunak had become wildly popular with the general public soon after his appointment in February 2020, having set up a multi-billion pound scheme to protect people’s salaries if their companies were struggling to keep them on during the COVID-19 pandemic.
But his approval ratings took a severe hit earlier this year after it emerged his wife Akshata Murty held a highly privileged “non-domiciled” tax status in Britain, which she later renounced. He was also criticized after it was revealed he until recently continued to hold a U.S. green card, allowing him to live and work in America — allowing opponents to suggest he might not have been fully committed to Britain.
Europe, the world’s largest economic bloc, enjoyed stable trade surpluses for a decade but the war in Ukraine and the ensuing energy crisis have tipped the Continent into a spiraling external deficit unseen since the launch of the euro.
The terms-of-trade shock maxed out in August, the latest month for which trade figures are available. And, even though energy prices have since eased, European leaders are still scrambling to shore up supplies of affordable oil and gas to replace lost Russian deliveries. A harsh winter looms.
A breakdown of the trade figures shows that the EU’s manufacturing trade surplus has nearly halved this year.
Can Europe bounce back? Or will its industrial base become hollowed out as industry moves offshore? And will the eurozone, and the EU more broadly, end up being saddled with the chronic external deficits that have long plagued the United States and, more recently, destabilized Britain? POLITICO breaks it down for you:
What’s going on?
The eurozone’s negative trade balance with the rest of the world in August stood at €50.9 billion, the highest deficit ever recorded, compared to a €2.8 billion surplus a year ago, according to the latest Eurostat numbers.
The trade deficit for the EU as a whole spiraled to €64.7 billion.
The eurozone’s current account balance — the balance of all trade in goods and services as well as international transfers of capital, such as remittances — hit a €26.32 billion deficit in August, largely driven by the trade deficit in goods, the European Central Bank reported.
Is that a bad thing?
A trade deficit occurs when a country or trading bloc’s imports exceed its exports. A trade surplus is the opposite. Trade deficits are not per se good or bad, although many countries seek a trade surplus, including by setting up tariffs and quotas to artificially boost their trade balance, a practice known as mercantilism.
Is it temporary?
The trade deficit is largely driven by high energy prices, which in August hit a record €350 per megawatt hour. Prices have come down from their peak, trading at around €150/MWh, but they are still a multiple of where they were a year ago.
“Markets have gone from pricing this energy crisis as being temporary, they are now pricing it to be a much longer-term story, albeit not as elevated as it was in August,” said Kristoffer Kjær Lomholt, chief FX analyst at Danske Bank.
“We think that it is a kind of a more long-term thing that is going to weigh on the currencies of economies that are energy importers, where the eurozone, of course, stands out to a very large extent,” he added.
Others believe that the shift, being largely energy related, could resolve itself over time, said Sam Lowe, who covers trade policy at Flint Global.
An EU official also pointed to EU-Russia trade. “The peak in energy prices has made the value of our imports from Russia increase substantially (while the volume of those imports from Russia decreased), and our exports have spiralled down because of sanctions (export controls),” the official said.
Will the EU be less competitive if energy prices remain high?
A negative trade balance and consequently a weaker currency makes imports more expensive. “Net importers will have to pay more for goods and services,” said Lomholt.
On the other hand, a weaker euro could fuel exports, said Matthias Krämer, head of external economic policy at German industry federation BDI. “If the euro currency was a little bit weaker, it could also make Europe’s position on global markets better by making exports cheaper,” he said.
But there’s another way of looking at this. Lowe argued the sustained large eurozone trade surplus was itself problematic, in that it was a function of intra-EU demand being lower than it should be. “Being overly dependent on external demand also leaves the EU quite vulnerable to both external shocks, and political coercion.”
What does that mean for the euro?
“We expect the euro to decline further in coming months as part of this adjustment,” said Robin Brooks, chief economist at the Institute of International Finance.
A negative trade balance or current account deficit puts downward pressure on the value of free-floating currencies, which move with demand of goods: less demand for a country’s exports means less demand for its currency, which in turn lowers its value relative to others. Conversely, strong foreign demand for goods strengthens a country’s currency.
“Foreign investors need to be compensated via a real depreciation of the exchange rate, and generally higher real interest rates,” said Lomholt at Danske Bank.
The Danish lender has recently downgraded its forecast for the € to $ exchange rate to $0.93 in 12 months from virtual parity now, driven in part by the energy price shock. “We have for some time been arguing that €/$ looked overvalued and not undervalued … And just given the additional push to the energy crisis that we got during summer, we saw a case that the euro/dollar [exchange rate] should actually hit even lower,” he said.
Is business freaking out?
A bit.
“The data are not so surprising considering the high energy prices, but they are worrying”, said Luisa Santos, responsible for international relations at BusinessEurope. She called on the EU to try to bring energy prices down and to boost exports by opening new market opportunities via more trade agreements.
Germany, the bloc’s export powerhouse, increased its exports by 14 percent in the first eight months of the year but imports have surged by more than 27 percent, according to national trade figures.
“We’re not performing in a segment which is highly influenced by a cost driven competition,” said Krämer at the German industry federation. “But if this situation will last longer of course some parts of our industry will be more and more under pressure.”
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LONDON — It was a revolution 11 long years in the making.
For a small but vocal band of right-wing libertarians, Liz Truss’ appointment as U.K. prime minister on September 6 seemed the triumphant end point of an epic and improbable march that led them from the fringes of British politics to Whitehall’s grandest corridors of power.
In the course of just over a decade, a group of little-known politicians, fringe think tanks and outspoken media figures had helped drag the Tory Party, and the nation it led, from David Cameron’s vision of so-called compassionate Conservatism — hugging huskies and all — to a Brexit-backing, free-market embracing, low-tax juggernaut.
It took them four Tory prime ministers, four general elections and an era-defining referendum to do it — but with Truss in charge, they were finally living their dream. The country was to be remade in their image.
It lasted 44 chaotic days, and no more.
“They felt their moment had come at last,” said Tim Bale, professor of politics at Queen Mary University London. “This would prove that Brexit hadn’t been a ghastly mistake, but a fantastic opportunity. But of course, as it was always based on fantasy, it was always bound to collide with reality.”
Truss was elected Conservative leader — and so U.K. prime minister — last month on the votes of just 81,000 party members, a group large enough to defeat her more centrist opponent, Rishi Sunak, but still small enough to fit comfortably inside Wembley stadium, home of the England football team.
This band of true-blue believers had been wooed by her heady promises of a low-tax, low-regulation state that would embrace the opportunities provided by Brexit.
But as soon as PM Truss started to put her promises into action — via a ‘mini-budget’ on September 23 which included tens of billions of pounds in unfunded tax cuts alongside a massive energy subsidy scheme — the markets began sliding into turmoil. Within days it was clear Truss had triggered an economic crisis — and one that sent the Conservative poll ratings tumbling along with the value of the pound.
Her MPs, facing electoral oblivion, were terrified.
In the weeks that followed, Truss was forced to sack her Chancellor Kwasi Kwarteng and U-turn on most of their economic program in a desperate bid to stabilize the markets. This week her home secretary, Suella Braverman, followed Kwarteng out the door. Her MPs became mutinous, some publicly demanding her head. Support rapidly drained away.
Truss was forced to sack her Chancellor Kwasi Kwarteng and U-turn on most of their economic program in a desperate bid to stabilize the markets | Jeff J Mitchell/Getty Images
Truss’ disastrous six weeks in power were an abject humiliation for the prime minister herself, of course — but also for the libertarian right of the Conservative movement that had fought its corner for years.
Winners and losers
“I’m pretty distraught about it,” said Mark Littlewood, director general of the Institute for Economic Affairs (IEA), one of the right-wing Westminster think tanks that inspired the Truss agenda. (He, like most of the interviewees for this article, was speaking after the abandonment of Truss’ economic program earlier this week, but before she finally resigned Thursday afternoon.)
“It did actually appear as if we had a new government that, in very broad terms, shared the IEA analysis of the problems with our economy, and it not being market-oriented enough.”
But Truss botched the “political execution” rather than economic thinking, Littlewood insisted, lamenting that “if the execution goes badly wrong, it has a rebound effect on the ideas.”
Indeed, Conservative libertarians explain the Truss debacle in various ways: She was not clear enough about what she was doing and the reasons for it; she made the announcements in the wrong sequence; she refused to match her tax cuts with spending restraint; and she failed to produce independent proof that her plans would work. There is certainly little sign of remorse.
“The position we’re in now is that these reforms basically have not been tried,” Littlewood insisted. “Her attempts to implement change were too hurried; too rushed; not thought through; naïve in some regard.”
Former UKIP leader Nigel Farage was another right-wing libertarian who had been advocating for low-tax, small-state ideals for decades.
“I think the hope was that the Kwarteng budget was going to mark a very significant moment,” Farage said. “That now appears to be dead. And I would have thought dead for a very, very long time. The people in the Conservative Party that I talk to, who think on my wavelength … have pretty much given up.”
But Tories opposed to the libertarian agenda are delighted at its failure — if not the disastrous fallout, for country and party alike. “The mild flirtation with Tea Party libertarianism has been strangled at birth, and I think for the general good fortune of the Tory Party that has to be seen as a good thing,” Tory backbencher Simon Hoare told the BBC.
One serving Cabinet minister added: “[The libertarians] are going to have to adjust to reality like the rest of us. They can’t buck the market.”
Former UKIP leader Nigel Farage was another right-wing libertarian who had been advocating for low-tax, small-state ideals for decades | Peter Summers/Getty Images
Nicky Morgan, a former Cabinet minister who previously co-chaired the centrist ‘One Nation’ caucus of Tory MPs, said her party must now return to its former broad-church approach.
“The task for the ‘One Nation’ wing of the party is almost to ignore the libertarian right and get on with reasserting one-nation politics, and prove to everyone from Liz Truss downward that if we want to stay in power, then being sane and sensible in the middle ground is a much stronger place to be,” she said.
The long march
For some on the conservative right, so-called Trussonomics was the inevitable end point of a march toward deregulation that began with the Brexit movement in the early 2010s. Farage was one of a number of Brexiteer thinkers who wanted the U.K. to leave the EU in a bid to drive up business competitiveness.
Bale said the libertarian strain in the Conservative Party had in fact been present for decades, but that the Brexit cause emboldened it and brought it to the fore.
The turning point came in 2011, when a number of right-wing Conservative MPs — many of them newly-elected the previous year — rebelled against then-Prime Minister David Cameron and voted in support of a referendum on EU membership. “That was the first time they realized their strength,” Bale said.
Across the country, anti-EU sentiment was rising, fueled by the eurozone crisis and soaring levels of immigration.
“There was a ‘push me, pull you’ going on,” Farage said. “The stronger UKIP got, the more emboldened the Tory Brexiteers got. 2011 was the moment when UKIP suddenly started coming second in by-elections. This group in the Tory Party, and this group outside the Tory Party — namely my group — always had very similar policy goals.”
Cameron was spooked, and the pressure from within and without his party forced him to agree a referendum on Britain’s EU membership. It was won by the Leave-supporting side in 2016, cheered on by a highly vocal section of the right-wing U.K. press which also supports low taxes and deregulation.
“The referendum allowed them all to coalesce around a single issue,” said David Yelland, a former editor of the Rupert Murdoch-owned, Brexit-backing Sun newspaper, who now speaks out against the influence of right-wing media.
“The right of the Conservative Party and their supporters in the media and the think tank world knew they had one go at this. They had to win Brexit, otherwise they were finished. And they did. And since then that has emboldened them.”
Keep pushing on
With Cameron forced from office, the group’s next battle was with his successor Theresa May, a euroskeptic Remainer who tried to negotiate a less drastic form of Brexit which would have left Britain tied to many of Brussels’ rules and regulations.
Farage said the “loose relationship” between pro-Brexit libertarians inside and outside the Tory Party maintained its hold over the new Tory leader, ultimately blocking her proposed Brexit deal in Parliament and forcing her resignation.
Theresa May was a euroskeptic Remainer who tried to negotiate a less drastic form of Brexit | WPA pool photo by Henry Nicholls/Getty Images
Boris Johnson then emerged as the next prime minister, a genuine ‘Vote Leave’ campaigner who was able to push through the hard-nosed form of Brexit the group had dreamed of. But his personal brand of domestic politics was less to their taste — a sort of high-spending boosterism which appealed to millions of Tory and pro-Brexit voters, if not to the libertarian right.
“The core Brexiteers were not ultra-libertarians,” explained former Tory MP Stewart Jackson, who lost his job as a ministerial bag carrier to vote with the pro-Brexit rebels in 2011.
“There were a few that wanted [London to become] Singapore-on-Thames … but the bulk of Brexiteer MPs and definitely Brexiteer voters were much more what I would call communitarian.”
But Jackson said the vacuum of ideas about how best to respond to Brexit, even among many Brexiteers, left space for the libertarians to fill. “They were the only game in town in terms of a new intellectual concept that the U.K. could consolidate on, being outside the European Union,” he said.
With Johnson’s departure in July following a series of personal scandals, the likes of Littlewood — as well as his brothers in arms at neighboring think tanks the Taxpayers Alliance and the Adam Smith Institute — found themselves in the ascendance.
Their ideas found favor with Truss — who despite not being a Brexiteer at the referendum, was a follower of the libertarian cause — and her Chancellor-to-be Kwarteng. The ambitious pair were among colleagues who wrote a now infamous 2012 pamphlet named “Britannia Unchained” offering radical right-wing solutions to Britain’s economic problems.
Less than two months after Johnson’s departure, their economic prospectus was finally put to the test — and exploded on impact.
The arc of history
As Truss and Kwarteng look back at the ashes of their brief Downing Street careers, the pro-Brexit right is licking its wounds and wondering where it goes next.
Shanker Singham, another libertarian thinker who is close to Truss and the IEA, insisted it was too soon to tell whether the low-tax, ultra-competition agenda is too damaged by the Trussonomics experiment to resurface in the near future.
Brexit supporters march in Fulham in the final leg of the March To Leave Rally on March 29, 2019 | Dan Kitwood/Getty Images
“It’s a very febrile atmosphere, and things have to settle down,” he said. “There’s a big arc of history here, and Liz Truss’ mini-budget does not suddenly transform the arc of history.”
Littlewood insists there will be another chance to implement libertarian policies in less than a decade, given the structural economic problems Britain faces.
“Had this [mini-budget] gone as smoothly as I had imagined it in my dreams, rather than as badly as it has gone in my living nightmare, I think we could have got quite a lot of this done now,” he said. “Unfortunately, a large amount of it is off the table now, but I think it will have to be returned to.”
Brexiteers of a different persuasion — of which there are many — are hoping for an urgent change of direction, however.
“The vision of Brexit as ‘Davos on Thames’, only ever held by 10 percent of the Conservative electorate, is dead,” wrote Matthew Goodwin, an academic who has charted the rise of the populist right. “The only way forward for the Conservative Party now is to get back to what Brexit was really about for the 90 percent, and to reconnect with their 2019 electorate.”
But Bale, of Queen Mary University, believes the libertarian strain among Conservatives will forever lurk just beneath the surface, insisting their radical solutions to the nation’s ills have still not been properly tried.
“When the spaceship doesn’t arrive,” he said, “the cultists simply say ‘we got the date wrong’, and that it will be coming in two years’ time.”
Additional reporting by Annabelle Dickson.
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LONDON — Westminster is in turmoil, the U.K. economy is floundering, and Tory MPs are about to pick their fifth prime minister in just over six years.
But in a sign of total normality in this fully-functioning Western democracy, Brits have instead spent much of the past week fixated on a livestream of a head of iceberg lettuce, wearing a wig.
Set up by tabloid the Daily Star, the paper’s newshounds bet big that a 60p supermarket lettuce would outlast Prime Minister Liz Truss, after her fledgling regime was gripped by unprecedented chaos in its first few weeks.
And they were right. Truss finally resigned Thursday, just 44 days into the job, making her the U.K.’s shortest-serving prime minister. The Daily Star broke out the Champagne, declaring: “The Lettuce Outlasted Liz Truss.”
So how did Truss put her salad days behind her, and why did she wilt under the public gaze?
Let POLITICO take you on a whirlwind tour of Truss’ 44-day premiership — but be warned, there are more than a few icebergs ahead.
Smashing the orthodoxy
September 6: It all started so well. After seeing off suave-but-dull rival Rishi Sunak in a rancorous Conservative leadership contest, Truss looked triumphant as she took the reins at No. 10 Downing Street and vowed to “transform Britain into an aspiration nation.” She had good reason to be cheerful, too, vacuuming up support from thousands of grassroots Tory members, getting the key Conservative-backing newspapers on side, and confidently brushing off the fact that the majority of her own Tory MPs had doubts about her competence. What did they know, after all? They’d only worked with Truss in Westminster for the past decade.
September 8: Upon taking office, Truss picked her close friend and neighbor Kwasi Kwarteng as her top finance minister, and immediately tasked him with taking on the stale “orthodoxy” at the Treasury. In a savvy first move, Kwarteng immediately sacked the most senior civil servant in the ministry — a man so clever his name is literally Tom Scholar — and so ensured that outmoded, orthodox qualities like “experience,” “credibility” and “economic literacy” were expunged at just the right time … amid a global economic crisis.
Also September 8: A busy day this one, what with Britain’s longest-reigning monarch dying that same afternoon. As the country mourned Queen Elizabeth II, Truss faced her first big communications test on the job: How to capture the nation’s deep sense of grief? She duly rose to the occasion, ripping up lines painstakingly prepared by career officials to deliver a heartfelt tribute with all the enthusiasm of a Q4 sales report. The country wept, for at least one Liz.
September 23: The queen’s death put normal politics on ice for a couple of weeks. But the pause allowed Team Truss to put the finishing touches on their very own Mona Lisa: the mini-budget. A sleeker, more aerodynamic budget than the normal kind, this mini version did away with tired conventions like “independent fiscal scrutiny by the government’s own watchdog,” and “making the sums add up.” Instead, Truss and Kwarteng pressed ahead with debt-funded tax cuts and a multi-billion pound plan to subsidize energy bills. Kwarteng also showed he retained a populist touch with crowd-pleasing measures such as cutting taxes for the U.K.’s super-rich and removing a cap on bankers’ bonuses, all in the middle of a cost-of-living crisis — before heading off to a Champagne reception with hedge fund bosses to party the night away. Cheers!
Woke markets cancel Truss
September 26: Eek. Then came the backlash. Financial markets — famously stuffed with tofu-munching lefties who hate conservatism and everything it stands for — failed to understand the mini-budget’s genius, while the unruly pound, which probably voted to Remain in the EU, crashed to its lowest-ever level against the U.S. dollar. Kwarteng, sounding a little shaken, promised he would publish all his fully-worked-out sums in, oooh, November? That sound OK?
September 28: The pound’s reign of terror continued, and, as U.K. borrowing costs soared and British pension funds teetered on the brink of collapse, those radical communists at the Bank of England were forced to step in with an unprecedented emergency bond-buying program “to restore market functioning.” Their hippie best mates at the International Monetary Fund also got in on the act, saying Kwarteng’s plans would “likely increase inequality” and urging the government to “re-evaluate” its tax measures. Chill out, guys!
Prime Minister Liz Truss is seen returning to Downing Street | Rob Pinney/Getty Images
October 3: Phew — she made it through to the Tory party conference. Political party conferences, after all, are normally a glorious victory lap for newly-crowned leaders, but Truss again decided to smash the status quo by turning hers into a deeply embarrassing few days of U-turns, backpedaling and noisy Tory infighting. Less than 24 hours after insisting she was sticking by her economic plan, Truss suddenly junked her centerpiece proposal to cut taxes for the rich. Kwarteng admitted the idea had “become a distraction” from the government’s “overriding mission.”
October 4: Indeed, the U-turn allowed the real “overriding mission” of the government — to needlessly piss off its own MPs — to shine through. No sooner had the tax cut been ditched than Truss’ ever-loyal Cabinet ministers were onto their next target, publicly pressuring the PM not to impose a real-terms cut to social security payments. One minister even capped off the day by telling a room full of drunk communications professionals that the government’s own comms strategy was “shit.” And who could argue?
October 10-11: A week after ditching their flagship policy, Truss’ government had another go at calming the still-spooked markets. Kwarteng’s new idea? Bringing forward the publication of his next fiscal plan to a date in no way guaranteed to be, erm, spooky: October 31. The Bank of England loved the cut of his jib, again stepping in with a major market intervention to prevent what it called a “fire sale” of U.K. government bonds. Which sounded worrying.
Actually, we really love the orthodoxy, please come back
October 14: After weeks of economic turmoil, Kwarteng was dragged home from a trip to Washington D.C. so that he could be sacked on the spot while still jet-lagged — a bad day at the office by anyone’s standards. Finally free of a chancellor who had repeatedly defied her by *checks notes* implementing her exact policy wishes to the letter, the PM then ripped up her long-standing pledge to ease taxes on big business, admitting in an epic eight-minute-long press conference that she’d gone “further and faster than markets were expecting.” We’ve all been there. Reaching out to the center of the Tory party, Truss appointed former Health Secretary Jeremy Hunt as her new chancellor, shoring up her faltering premiership for a full 36 hours.
October 16: Team Truss’ strenuous efforts to build bridges with her now-mutinous party ramped up another notch over the weekend, as a No. 10 insider branded her former leadership rival and ex-Cabinet colleague Sajid Javid — who had reportedly just been sounded out by Truss’ team itself about the chancellor job — “shit.” It didn’t go down too well with him, or his mates.
October 17: A biggie, as Hunt put a bullet in the entire Truss agenda, live on TV. In an astonishing move, the new finance minister issued a televised statement in which — by his own admission — he ripped up “almost all” the mini-budget pledges the Truss government had announced just a few weeks earlier. Even the energy support plan, clung to by Truss supporters as one of the few remaining positives of her premiership, was to be significantly pared back — although hard-pressed voters should be able to warm themselves this winter by standing near the giant “dumpster fire” that’s been Westminster the past six years. Truss capped another glorious day by avoiding an urgent question in the House of Commons and sending a junior Cabinet minister to reassure angry MPs that the British prime minister was not, in fact, “hiding under a desk.”
October 19: Very much the End Times. A rollercoaster of a day — if rollercoasters only went downhill — as an under-pressure Truss first offered up yet another U-turn, this time on pension payments; then a senior Truss aide was suspended as that clever “shit” quote to the Sunday newspapers got investigated by No. 10; then her home secretary was sacked and posted what was essentially an extended anti-Truss sub-tweet as a resignation letter; and then the government somehow turned a really boring House of Commons vote into a bitter row about “manhandling” its own MPs, as one of them literally cried on live TV. For those watching from abroad — this is why people in the U.K. drink a lot.
October 20: With the game finally up and her authority shot to pieces, Truss bowed to the inevitable and resigned Thursday, reeling off all her achievements in an 89-second statement on the Downing Street steps. Yet all is not lost. Tucked away in a newsroom in London, there’s one little lettuce who never lost hope. And in its still-crisp and delicious center lies the promise of national renewal. We can but dream.
The EU’s energy crisis response is getting bigger, slowly. But so, too, is the threat posed by Russia’s freeze on Europe’s gas supply.
A new package of measures to bring down the price of gas and protect consumers this winter and beyond — including plans to fully leverage the EU’s collective buying power — will be formally proposed by the European Commission next week.
But there remains uncertainty about key aspects of the package — including whether the preferred intervention of many countries, an EU-wide cap on gas prices, will be part of it, and if so, in what form. It could also take until November to get next week’s proposals fully signed off and operational, officials said.
Even as energy ministers deliberated over the measures in Prague on Wednesday, Russia issued new, veiled warnings about the depths of Europe’s vulnerability.
Speaking at an energy conference in Moscow, the head of Gazprom Alexey Miller warned European homes could still freeze this winter even though EU countries have nearly filled their gas storage capacity.
At the same event, Vladimir Putin discussed the sabotage of the Nord Stream pipelines — an act that many Western governments suspect was the work of Russia. Then he added pointedly that the incident had shown how “any critical infrastructure in transport, energy or communication infrastructure is under threat — regardless of what part of the world it is located, by whom it is controlled, laid on the seabed or on land.”
Noting that one of the pipelines is still potentially operational after the attack, Putin insisted Russia was ready to send gas through it to ease Europe’s pain this winter — bringing his overarching strategy of gas blackmail against Europe right up to date.
“The ball, as they say, is on the side of the European Union. If they want it, let them just open the tap,” Putin said. “We are ready to supply additional volumes in the autumn-winter period.”
Putin may still be hoping that when the reality of winter without Russian gas begins to bite, European governments will be more open to such overtures — and more willing to rein in support for Ukraine in exchange for an energy lifeline.
For the EU’s part, Energy Commissioner Kadri Simson was clear that while the bloc faced “difficult times,” countries would withstand the challenges ahead if they “act together, decisively and in solidarity.”
Speaking at the close of an informal summit of EU energy ministers on Wednesday, she added that the next crisis package will also contain a proposal for a new benchmark price for gas and further measures to reduce demand across the bloc.
But while a row over capping the price of gas has dominated the debate in recent weeks, momentum has shifted to the idea of joint purchasing on the international market. It is hoped that through this measure the bloc can avoid the situation seen this year when member states outbid one another for supplies when filling gas storage facilities — driving up the price for all.
European Commissioner for Energy Kadri Simson | John Thys/AFP via Getty Images
In an informal policy paper issued on Wednesday, Germany and the Netherlands set how such a measure could work, by beefing up the existing EU Energy Platform, which was established months ago but then barely used. Efforts to buy gas jointly should be coupled with better EU-wide coordination of gas storage next year, the German and Dutch paper said.
The proposals point to the extent to which the EU is no longer simply planning how to survive this winter without rolling blackouts. It’s now firmly planning for a crisis next winter too.
Executive Director of the International Energy Agency Fatih Birol, who also attended Wednesday’s summit in Prague, warned ministers that “the next winter may well be even more difficult.”
That message was echoed in a sobering briefing from the EU Agency for the Cooperation of Energy Regulators, which outlined how challenging 2023 and potentially 2024 could be for the bloc’s energy supply. Amid an expected surge in demand in Asia for liquefied natural gas (LNG), the EU will face greater competition for limited LNG supplies from sources such as the U.S. and Qatar.
In short, every molecule of gas that remains in European storage after this winter might be vital — and Vladimir Putin knows it.
Victor Jack and America Hernandez provided additional reporting.
BIRMINGHAM, England — So in the end, Liz Truss was for turning. But the damage to her faltering administration may already have been done.
On Monday, Truss’ Chancellor Kwasi Kwarteng bowed to pressure from Conservative Party colleagues and dumped his flagship cut to the top rate of tax from 45p to 40p — a central component of last month’s so-called mini-budget.
Later it emerged he will also bring forward an announcement on how the tax cuts will be funded, having initially insisted the public — and the markets — must wait until November 23.
A parliamentary insurrection, which was rapidly gaining pace as MPs met for their annual party conference in Birmingham on Sunday, appears to have been quelled, for now.
Asked if he would now support the mini-budget in parliament following the abandonment of its most controversial measure, rebel ringleader Michael Gove said: “Yeah I think so, on the basis of everything that I know. There were lots of good things that they announced … The debate over the 45p tax increase obscured that.”
The market reaction was also mildly positive, with the bond and currency markets rallying somewhat following the announcement.
But most MPs and delegates in Birmingham believe it will take significantly more than a single U-turn to rebuild the political and fiscal credibility of the fledgling Truss administration, with some MPs fearful a revival is already out of reach.
“She started very poorly, and in my experience, what you see is what you get. People aren’t mysteriously really shit, and then become really good,” one senior Tory MP said.
Pissed-off
While a Tory rebellion appears to have been averted for now, few MPs believe it will be the last Truss faces in the difficult weeks and months ahead.
Even before Kwarteng’s now-infamous ‘fiscal event,’ Truss had plenty of detractors on Conservative benches. Only around a third of her own MPs backed her in the leadership contest, and after taking office she almost exclusively chose loyalists for her ministerial ranks. Those who backed her opponent Rishi Sunak were left out in the cold.
“Her party management has pissed people off,” the senior Tory MP quoted above said, with many of what they described as talented MPs questioning whether it was even worth backing the government in the long-term.
But while the “lightning rod” of the 45p tax rate had now been “neutralized,” according to one minister, backbenchers could soon find another hot topic and “push on that next.”
Chancellor Kwasi Kwarteng | Ian Forsyth/Getty Images
Two potential major flashpoints will be the new government’s approach to welfare payments, and funding public services. Ministers are currently undecided over whether to uprate benefits in line with inflation — as pledged by Boris Johnson’s administration — while also dropping heavy hints that cuts to the state are on their way.
The opposition Labour Party, now surging ahead in the polls, see political capital too in Truss’ stated plans to lift the cap on bankers’ bonuses and abandon a hike to corporation tax.
“They’ve still got a totally unfunded £17 billion [corporation] tax giveaway for the wealthiest businesses at a time when people and businesses are struggling with the cost of living.” one Labour official said, in a taste of the messaging Tory MPs will likely be up against at the next election.
Few Tory MPs are optimistic Truss can turn things around.
“Politics works as a pendulum. If it swings towards the middle it’s possible to pull it back. But if it swings too far it can become irreversible,” the minister quoted above said.
Writing for POLITICO, Boris Johnson’s former No. 10 comms chief Lee Cain said it was “unlikely” Truss’ reputation would ever recover.
“It didn’t need to be this way,” he wrote. “Many of the unforced errors could have been avoided if the PM had understood how to talk to the audience that matters most — the electorate.:
Benefit of the doubt
But voters may yet be more forgiving than some of Truss’ critics in the party, according to pollsters and focus group experts keeping a close eye on public opinion.
“We consistently find voters don’t mind a U-turn on an unpopular policy,” said Luke Tryl, director of the More in Common consultancy, which regularly hosts focus groups across the country.
“In fact one of the things we found during the leadership contest was that people quite liked the fact that Liz Truss changed her mind, because they felt that’s what normal people do,” he said.
But he cautioned that while voters don’t mind U-turns as one-offs, “a series of them starts to look chaotic and will worry voters about whether the government knows what it is doing to see the country through the turmoil.”
Fiscal credibility
Crucially, reversing just £2 billion of the proposed £45 billion of unfunded tax cuts seems insufficient, in isolation, to restore trust in the U.K. economy and bring down spiraling interest rates.
“When market trust has been shattered, as we saw last week, the uphill task of restoring credibility is extremely hard and even harder when strategies shift,” Charles Hepworth, investment director at GAM, said.
“The market currently has little faith that the prime minister and chancellor can restore credibility in the short term, and this puts further renewed pressure on U.K. risk assets.”
Neil Birrell, chief investment officer at Premier Miton Investors, agreed the U-turn would not solve the turmoil in financial markets.
“High inflation and high interest rates are not going away quickly, and economic growth is under severe threat,” he said.
“Markets still need to hear how the package will be funded,” added Iain Anderson, executive chairman at H/Advisers Cicero, who said the next fiscal statement planned for November 23 must be brought forward as a matter of urgency.
The first senior Tory MP quoted above lamented that the market turmoil following the mini-budget meant the Tory party would now “own interest rate rises — a lot of which were going to happen anyway.”
“I cannot remember in my life when any politician has recovered from such a savage self-inflicted wound,” Giles Wilkes, a senior fellow at the Institute for Government and partner at Flint Global, said.
“Gordon Brown recovered somewhat from the multiple slip-ups of 2007-08 with his commanding response to the global financial crisis, but even that wasn’t enough.”
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Annabelle Dickson, Esther Webber and Emilio Casalicchio
European far-right politicians just stormed to victory in Italy, after achieving historic results in France and Sweden.
“Everywhere in Europe, people aspire to take their destiny back into their own hands!” said Marine Le Pen, the leader of France’s far-right National Rally Party.
But if you think there is a new wave of right-wing radicalism sweeping Europe, you’d be wrong. Something else is going on.
Analysis by POLITICO’s Poll of Polls suggests far-right parties in the region on average did not increase their support by even one percentage point between the start of Russia’s invasion in Ukraine in February and today.
POLITICO looked at the median and average increase of all parties organized in right-wing European Parliament groups of Identity and Democracy, the European Conservatives and Reformists or unaffiliated parties with political far-right positions.
Overall, the results indicate that if an increase in support occurred for far-right parties, it happened several years ago.
The Sweden Democrats’ first surge happened after the 2014 election, when the party grew from around 10 percent to 20 percent, the same one-fifth share of the vote they received in this year’s election. The far-right Alternative for Germany AfD in Germany grew fast in 2015 and 2016 reaching 14 percent in POLITICO’s polling tracker. In Italy, the Northern League overtook Forza Italia for the first time in early 2015, and peaked in 2019 at 37 percent before starting a downward trend ending on 9 percent in last month’s election. In the Italian election, voters mostly switched between rival right-wing camps.
The far-right has moved from the fringes of politics into the mainstream, not only influencing the political center but also entering the arena of power.
“There is a normalization of far-right parties as an integral part of the political landscape,” said Cathrine Thorleifsson, who researches extremism at the University of Oslo. “They have been accepted by the electorate and also by other, conventional parties.”
Cooperation between the center-right and the extreme-right has become less taboo.
“The rise of far-right parties is only part of the story. The facilitating and mainstreaming of far-right parties as well as the adoption of far-right frames and positions by other parties is at least as important,” tweeted Cas Mudde, a leading scholar on the issue.
This may risk destabilizing Europe even more than winning a couple of percentage points in the polls.
Italy’s far-right firebrand Giorgia Meloni is a clear-cut example. While her party draws its origin from groups founded by former fascists, she’ll now lead the EU’s third-largest economy.
Leader of Italian far-right party “Fratelli d’Italia” (Brothers of Italy), Giorgia Meloni | Pitro Cruciatti/AFP via Getty Images
In Sweden, the center-right party has started coalition talks for a minority government which would have to draw on opposition support, most likely from the far-right Swedish Democrats. Far-right parties have also entered governments in Austria, Finland, Estonia and Italy. Other countries are likely to follow.
George Simion, the leader of Romania’s far-right party, Alliance for the Union of Romanians (AUR), celebrated Meloni’s win in Italy, saying his party is likely to follow in their footsteps.
Spain heads to the ballot box next year and socialist Prime Minister Pedro Sánchez may have a tough time winning re-election. The conservative People’s Party is between five and seven points ahead of the Spanish socialists in all the published polls, but it is unlikely to garner enough votes to secure a governing majority outright.
That means it may have to come to an agreement with far-right party Vox, whose leader, Santiago Abascal, is an ally of Meloni’s. While the People’s Party previously refused to govern with Vox, last spring its newly elected leader, Alberto Núnez-Feijóo, greenlit a coalition agreement with the ultranationalist group in Spain’s central Castilla y León region.
Tom Van Grieken, the right-wing Belgian politician, also pointed to Spain as the next likely example, especially because of the possible cooperation with the PP. “All over Europe, we see conservative parties who are considering breaking the cordon sanitaire,” he said, referring to the refusal of other parties to work with the far-right. “They are tired of compromising with their ideological counterparts, the parties at the left end of the spectrum.”
Chairman of Vlaams Belang party Tom Van Grieken | Stephanie Le Coqc/EFE via EPA
This didn’t happen overnight. The far-right worked hard to shrug off their extremist, neo-Nazi image.
“In some of the reporting on the Swedish Democrats, you’d think they’ll deport people on trains as soon as they’re in power. Come on, these parties have changed,” said one EU official with right-wing affiliations.
The far-right invested in “image adjustment and trying to tread carefully with some issues, while unashamedly catering to others,” said Nina Wiesehomeier, a political scientist at the IE University of Madrid. “This is particularly obvious in Italy right now, with Meloni sticking to the slogan of ‘God, homeland, family,’ as a continuation, while having tried to purge the party from more radical elements.”
In Belgium’s northern region of Flanders, the right-wing Vlaams Belang (Flemish Interest) explicitly dismisses the label “extreme-right.” Just like his counterparts in Italy, Sweden and France, Van Grieken, the party’s president, denounced the more extremist positions of his group’s founding fathers and moderated his political message to make voting for the far-right socially acceptable.
Overt racism is taboo. Instead, the rhetoric changes to criticizing an open-door migration policy. By carefully catering to centrist voters, the far-right aims for a bigger slice of the cake, while still riding on the anti-establishment discontent.
“There is a clear fault line between the winners of globalization and the nationalists,” Van Grieken told POLITICO. “This comes on top on the concerns about mass migration, whether it’s in Malmö, Rome or other European cities.”
Perfect storm
Now, the time is right to capitalize on that transformation.
As Europe is battling record inflation and Europeans fear exorbitant heating bills, governments warn about the political implications of a “winter of discontent.”
“It’s a massive drainage of European prosperity,” Belgian Prime Minister Alexander De Croo told POLITICO recently. “In the current situation, it’s hard to believe in progress, it’s very hard to make progress. So there’s a very pessimistic feeling.”
The current war in Ukraine is the latest in a succession of crises — in global finance, migration and the pandemic. Experts argue that this is key to understanding the rising support for the far-right.
“Such existential crises have a destabilizing effect and lead to fear,” said Carl Devos, a professor in political science at Ghent University. “Fear is the breeding ground for the far-right. People tend to translate that fear and outrage into radical voting behaviour.”
Migration and identity politics are less prominent in the media because of the Ukraine war and rising energy prices, but they’re still key issues in right-wing debate.
In Austria, the coalition parties fought over whether or not asylum seekers should receive climate bonuses. In the Netherlands, the death of a baby at the asylum center Ter Apel led to a renewed debate over the overcrowded migration centers.
The combination of those issues is likely to feed into more right-wing wins across the continent. “The far-right offers nationalist, protectionist solutions to the globalized crises, said Thorleifsson. “We see how the migration issue was momentarily off the agenda during the pandemic, but now it’s back.”
Aitor Hernández-Morales, Camille Gijs and Ana Fota contributed reporting.
Austin Pets Are in Crisis. Supporting Families Through Partnership Is the Answer. We must work together to keep pets with people and out of the shelter.
Here in Austin, 38,000 pets could be displaced by evictions in the coming months. Nationally, that number could be as high as eight million.
After speaking with American Pets Alive! and Human Animal Support Services project director Kristen Hassen, NBC shared this story about how the looming eviction crisis could impact overcrowded shelters by displacing the pets of families who lose their homes.
Austin Pets Alive!, the parent organization to AmPA! and AmPA!’s HASS project, is already seeing the effects of the financial strain so many families have faced during the pandemic. Our APA! Positive Alternatives to Shelter Surrender Facebook page is currently receiving around 1,000 requests for help each month, with countless owners faced with the possibility of having to give up their pets.
We help as many of these families as we can. But the situation for our community’s pet owners is growing increasingly dire. It will get much worse as more families are evicted.
APA! is currently working with the City of Austin to renegotiate our partnership agreement so we can focus even more of our efforts on innovation and progress to support families and shelters in crisis. We want to ensure Austin Pets Alive! and Austin Animal Center can, with our complementary roles, develop our partnership to protect our city’s animals and families.
We come to this partnership with deep experience. AmPA!’s Human Animal Support Services program leads nationwide efforts to develop and implement community-centered animal services programs to keep pets with people, and out of shelters.
What we have learned while bringing this model to hundreds of communities across the country, is this is never a solo effort. Success requires government shelters to partner with other organizations.
That means we and Austin Animal Center must work together, and be based together here in Austin, to ensure that the eviction crisis does not overwhelm AAC and lead to pets needlessly losing their homes, and even their lives.
For a decade now, Austin has been looked to as a model for how to save animals. We are the country’s largest no kill city, and this is largely thanks to the longstanding partnership between Austin Animal Center and Austin Pets Alive!
Other communities look to us for guidance, and inspiration. This is, as it should be, a source of pride for our residents.
Now we need that partnership to sustain and evolve, to meet the tremendous challenges we face together, today, as animal welfare organizations and as a city.
Thirty-eight thousand Austin pets are in danger of losing their homes to eviction, in the coming months. Working together, in our shared city, we can face this.
We are proud to be the leader in animal welfare innovation and now we need a true partnership with our city, so together we can keep Austin pets with their families.
You are likely well aware of the economic impacts of the COVID-19 pandemic, including the emerging eviction crisis, which threatens to displace millions of Americans from their homes.
Evictions are on track to be the number one reason cats and dogs enter the public shelter in Austin. Based on our Pet Eviction Calculator, in Travis County alone a whopping 37,340 pets are at high risk of eviction.
If these evictions span the course of 60-90 days, as is expected, our shelters will be overwhelmed. The shelters are not able to absorb even a fraction of this number of displaced pets, without invoking mass euthanasia. We need your help to prevent the senseless loss of animals’ lives.
There are two actions we are asking of Austinites today:
Call and email the council members and the city manager to ensure that animal welfare leadership is at the table while solutions to mass evictions are being discussed. It is critical that our government, especially here in Austin, doesn’t forget how much pets mean to our residents. To keep human-animal families together, we must plan now. This means ensuring transitional housing is pet inclusive, identifying temporary boarding options at Austin Animal Center for people being evicted, and providing resources and support to pet owners to help them keep their beloved family members.
When you reach out, please say or write that we need real solutions for the whole family, including pets, and animal welfare leadership must play a key role in the city’s eviction response.
Get involved. If you want to help a pet owner facing eviction or other financial crisis, join our efforts on the Austin Pets Alive! Positive Alternatives to Shelter Surrender (P.A.S.S.) Facebook page. This page is set up to help pet owners who need help paying pet rent deposits or medical bills, who wish to rehome their pet without shelter surrender, and who need temporary safety net foster caregivers. We need good Samaritans to join as we prepare for many more people in need. Another way you can get involved is to stay tuned to your Nextdoor app and offer to help a neighbor in need—you can proactively put the message out or you can wait until someone posts about a need.
You may have heard Austin Pets Alive! championing the Human Animal Support Services (HASS) model that turns industry-facing, shelter-based Animal Services into outward-facing, community-centered Human Animal Support Services.
This fundamental reimagining of Animal Services addresses the root causes of animal shelter intake, in order to serve more pets in their communities and homes and to reduce the number of pets entering the shelter system. HASS partner shelters across the country are preparing for the eviction crisis by expanding community-based sheltering options, like temporary safety net fostering programs, right now. You can read more about HASS’s tools and resources for keeping families together through the eviction crisis here.
We have two choices in the face of this catastrophic looming eviction crisis: let it happen and bemoan the senseless waste of pet life, or do something about it. I hope you will join APA! and do something about it, starting today.
State Controller Betty Yee, City Controller Ron Galperin, Captain Larry Vasquez, USN (Ret.) Director, Military Veterans Affairs City of Los Angeles Office of the Mayor, Chaplain Randy McConnell, California State Guard Chaplain and Rev. Andy Bales, CEO Union Rescue Mission will be in attendance.
Press Release –
updated: May 22, 2019
LOS ANGELES, May 22, 2019 (Newswire.com)
– May is Military Appreciate Month, with Memorial Day around the corner.
“Support our veterans” has become a mantra in American society. It’s on the lips of politicians, community leaders and people on the street, but unfortunately, when it comes to “disabled” veterans, many are homeless, overlooked and forgotten.
On Thursday, May 30 Operation Confidence will host a presentation/panel discussion, the “Invisible Heroes,” held at the City Club, 555 South Flower Street, 90071, 51st Penthouse Floor, Santa Monica Room from 6-9 p.m.
The event will create social awareness about homelessness among “disabled veterans” living out of their wheelchairs on the streets of Los Angeles and the urgent need to provide stable housing for this forgotten population of heroes who are responsible for our freedom.
State Controller Betty Yee, City Controller Ron Galperin, Captain Larry Vasquez, USN (Ret.) Director, Military Veterans Affairs City of Los Angles Office of the Mayor, Chaplain Brenda Threatt, Exec. Dir. U.S. Vets-Long Beach and Rev. Andy Bales, CEO Union Rescue Mission will be in attendance.
The Invisible Heroes will be a historical event for Operation Confidence as well; after years of facing many challenges, an angel has come forth to offer his support — Mr. Norberto Nardi, world-renowned architect. Mr. Nardi has offered to build a network of houses for Operation Confidence Turning Point Housing Program once land or distressed properties have been donated to the organization. https://www.nardi-associates.com/
Additional supporters participating will be, Marlene Granderson, a member of the City Club Board of Governors as Mistress of Ceremony, former Councilman Tom LaBonge as the mediator, Jorge Rabasso, President Hispanic Business Network as a facilitator and the East Los Angeles High School JROTC just to name a few.
A $25.00 ticket includes buffet dinner: Click below
