Friday, 7 May 2010

Election Blog: The Wisdom of Piers

The most sensible comment I heard last night was from a Britain's Got Talent judge at about 10.30pm once the BBC/Mori exit poll came in. Piers Morgan being interviewed on a boat on the Thames by Andrew Neil (why a boat on The Thames? I’ve no idea) said and I quote: “I think we could look back in a week’s time and say that the big story of May 6th was the financial crisis that is heading towards us.” Andrew Neil former editor of The Economist concurred.

The financial crisis in Greece has all the capacity to seriously derail this country and the international markets are very worried. Yesterday, the Dow Jones Index in New York fell 3 per cent over fears that Government debt in Spain and Portugal was unsustainable. The Nikkei Index in Japan fell 4 per cent in early trading.

Moody’s Investor Service summed it up yesterday. “As shown by the recent downgrade of Greek banks as a result of sovereign weakness, the potential contagion of sovereign risks to banking systems could spread to other countries such as Portugal, Spain, Italy, as well as Ireland and the U.K."

Why are the markets reacting in this way? Because there are real concerns that Governments will not be able to reduce their debt levels or could even default without drastic action of the kind that was not talked about by any of the major parties during the election campaign.

My feelings all along have been that severe cuts are coming (no surprise there) but also that interest rates in this country will probably have to rise sharply in order to support UK Government Bonds – both of which are going to be painful. Bond markets in the UK, which started trading at 1.00am this morning have reacted badly to the idea of a hung parliament when they want stability and firm action.

Where do we go from here? My view on last night, is that the country has given a thumbs down to all parties. If I was in Cameron’s position, in a rapidly deteriorating financial situation, I would be very wary of trying to form and run a minority Government, especially with George Osborne as Chancellor who is neither liked nor respected in the Square Mile. That is just a fact, not opinion, and was said again by a spokesman for RBC Bank on radio this morning.

If I was in the Conservative Leader’s shoes I would seriously consider forming some kind of “Government of all the Talents” to get us through the next twelve months at least, which will probably include Ken Clarke as Chancellor and Vince Cable in the Cabinet. He needs to be far-sighted and statesman-like now. A quick grab for power on his own may make him feel good in the short term, but also leaves him in a position where he takes all the blame for the pain that is coming.


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