Political uncertainty may hurt U.K.

Stephen Beard May 3, 2010

Political uncertainty may hurt U.K.

Stephen Beard May 3, 2010


Kai Ryssdal: The most unusual British election campaign in a generation ends on Thursday. As of right now the three main parties are all fairly close in the polls. Nobody is likely to win a majority in parliament. That should make for some excitement on election night. But come Friday morning, when the financial markets open, there may well be more anxiety than excitement. The last thing traders worried about the U.K.’s huge budget deficit want to see is anything remotely resembling political uncertainty.

From London, Marketplace’s Stephen Beard reports.

STEPHEN BEARD: The campaign has been full of foreboding.

Take this election ad paid for by the Opposition Conservative Party…

Ad: A drop in confidence could lead to a run on the pound, and a disastrous increase in interest rates.

With a hangman’s noose dangling over his head, a man warns of the danger of a so-called hung parliament.

Ad: A vote for a hung parliament risks killing economic recovery.

A parliament is hung when no single party wins an overall majority. Parties then have to form a coalition or other kind of alliance.

A recipe for paralysis, says the Conservative leader David Cameron.

DAVID CAMERON: I fear in a hung parliament it will be bickering, arguing, drift, dither.

And he says it would make it harder to solve Britain’s biggest problem: the budget deficit. At 11.6 percent of GDP, it’s almost as bad as that of Greece.

Ken Clarke is a spokesman on economic affairs for the Conservatives. He says that with a hung parliament Britain could face default and be forced to seek a bailout from the International Monetary Fund.

KEN CLARKE: If the British don’t decide to put in a government with a working majority, and the markets think that we can’t tackle our debt and deficit problems, then the IMF will have to do it for us.

To repair its public finances, Britain will have to make some savage cuts in public spending. Not that you’d think so listening to the party leaders.

TV DEBATE: Tonight, who do you want to be your next prime minister?

The recent series of American-style televised debates — the first of their kind in Britain — galvanized the campaign, but did not shed much light on the scale and depth of the spending cuts required.

Here’s Prime Minister Gordon Brown of the Labour Party.

GORDON BROWN: We have devised a plan, and it is a plan that we will reduce the deficit without reducing our frontline services.

His main rival David Cameron was also keen to stress what he wouldn’t cut.

CAMERON: I will do everything I can to protect the frontline services. I want to see the police officers on the beat, the money go into our children’s state schools, the money on the ward in the hospital.

And the voters on the street? They’re not entirely surprised by the politicians’ reticence about the tough medicine to come.

WOMAN: I don’t think they know how to be straight to be honest. No, I think that’s something we’ll have to come to terms with after the election.

MAN: I think if even one of them had actually been up front and said: This is what the situation really is, and this is what’s going to happen, that might have gleaned more respect.

But the truth could lose votes. Some analysts say the next government will have to cut all public sector pay, stop building schools, cut road maintenance projects by half, and scrap a wide range of welfare benefits.

Economist John Philpott says more than half million public-sector jobs will have to go.

JOHN PHILPOTT: That’s going to be painful for people in those jobs, it’s going to be painful for people who rely on some public services. And it may well cause some degree of social unrest.

The head of Britain’s central bank was quoted as saying the party that wins the election may have to take such unpopular action. It could then find itself out of office for decades. Perhaps it would be better for the parties to share the blame, to have a hung parliament. As Benjamin Franklin observed at the signing of the Declaration of Independence, “we must hang together, or assuredly we shall hang separately.”

In London, this is Stephen Beard for Marketplace.

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