‘The jewel has lost its shine’: how the world
reacted to the UK’s pound crisis
The turmoil stirred condemnation in the US, bitter
memories in Greece and interest among holidaymakers in Singapore
Tue 27 Sep
2022 16.13 BST
International
reaction to the turmoil in the financial markets which saw the pound fall to
its lowest level ever against the dollar is devastating in its condemnation of
the new government’s policies, and the astonishment and shock focused in
particular on the chancellor’s willingness to experiment with one of the
world’s most stable economies.
In the US,
criticism was led by the former US treasury secretary Larry Summers, who took
to Twitter to attack what he called the “utterly irresponsible UK policy”,
expressing at the same time his surprise that the markets had reacted so
quickly and harshly. He said this in itself indicated a loss of credibility.
I was very
pessimistic about the consequences of utterly irresponsible UK policy on
Friday. But, I did not expect markets to get so bad so fast.
A strong tendency for long rates to go up as the
currency goes down is a hallmark of situations where credibility has been lost.
— Lawrence
H. Summers (@LHSummers) September 27, 2022
His long
thread concluded with the gloomy prediction that the financial crisis in
Britain would not only have an effect on “London’s viability as a global
financial centre”, but “could well have global consequences”.
In the New
Yorker, John Cassidy wrote that the crisis was all the more disturbing for
Britain as it came so soon after the death of Queen Elizabeth II, “their last
remaining link to a time when their schoolbook maps showed great swaths of the
earth’s surface coloured imperial red”. Now, he said, “they face a humiliating
currency crisis”.
He said
that the prime minister, Liz Truss, and her chancellor, Kwasi Kwarteng, had
plunged Britain into a “fine economic mess”.
“The
tragedy,” Cassidy insisted, “is that all this is unnecessary. Although Britain
has been through many tribulations in recent years, it is the world’s
sixth-largest economy, it has a stable political system, and London is one of
the world’s biggest financial centres. If its government were even reasonably
competent, the risk of a financial blowup would be minimal. Unfortunately, that
basic civic requirement isn’t being met.”
In Ireland,
commentators said that the “British blowout” had clearly backfired, and urged
the Irish government, which is to unveil its own budget on Tuesday, to heed the
lesson. “Ministers Paschal Donohoe and Michael McGrath have been delivered a
real-time exhibition in exactly how not to do it,” the Irish Independent said
in an editorial. “Despite the considerable weight of expectations, Budget 2023
must be grounded.”
Additional
spending and tax measures to cushion Irish households and businesses from
rising prices are expected to cost around €11bn (£10bn) – but unlike its
neighbour, Dublin has a fiscal surplus.
The Irish
Times said that, learning from the London experience, “the message sent out by
the budget needs to be one of stability and involving a credible plan for
public finances. There should be enough resources in place to respond to the
immediate crisis – and to leave scope to adjust to circumstances next year if
needed.”
In Germany
the London-based economic correspondent of the daily Frankfurter Allgemeine
Zeitung, Philip Plickert, told readers that as a “financial and economic
historian, Kwarteng should consult the history books once again to see how
dangerous an escalating twin deficit can be. Prime Minister Truss cannot afford
a balance of payments crisis.”
Germany’s
finance minister, Christian Lindner, meanwhile, told the same paper at an event
it hosted on Monday evening that he would wait to draw the lessons from what he
referred to as the “major experiment” Britain had embarked upon by, he said,
“putting its foot on the gas while the central bank steps on the brakes”.
The
Munich-based Süddeutsche Zeitung called the new policy a “reckless gamble”.
“Such
unrest is more familiar in the emerging markets, but not in a highly developed
economy like the British one. Following the end of the government of Boris
Johnson an economic change of direction was expected, but one so radical? Liz
Truss has said goodbye with one fell swoop to one of the keystones of
conservative policy: she does not give a damn about solid state finances.”
Ulrik
Harald Bie, writing for Denmark’s Berlingske, called the market reaction “swift
punishment for a botched policy”.
In Greece,
the sterling crisis has stirred memories of the 2010 financial emergency, when
rising borrowing costs raised the spectre of a Greek economic collapse as lack
of confidence in the economy mounted.
Government
insiders told the Guardian the tax cuts outlined by the British chancellor were
not only “nonsensical” but reminiscent of the populist policies pursued by
Syriza, the firebrand leftists voted into office at the height of the crisis.
“They make
no sense either politically or economically,” said one well-placed official
expressing disbelief that Kwarteng had decided to ignore budget forecasts.
“It’s as if there is an element of the populism, unpredictability and
unprofessionalism that we saw in Syriza about the Liz Truss government.”
Greece came
close to default and ejection from the eurozone. But as in those rollercoaster
days – and with more than two years to go before general elections in the UK –
Greek analysts said it would be hard to predict what the endgame would be.
“Clearly Labour is on course for a landslide,” said the official, requesting
anonymity because he did not wish to speak impolitely of a government of a
country Greece traditionally has such strong ties with. “But if there are two
more years of this Britain will have to go through a bungee jump, there’ll be
rollercoaster days before it gets there.”
In France
the run on the pound was a leading story in economic bulletins, with the
broadcaster France 24 referring to the Truss government’s mini-budget as “a
stock market killing game”, while the newspaper La Croix wrote: “The
non-financed spending of Liz Truss makes the pound plunge … the jewel in the
crown, the British pound, has lost its shine.”
The
magazine Le Point accused Truss of “having lost control of the economy” and of
making way for a Labour government, while the financial website Capital, speculated
about: “How long [will] the fall, which has been dizzying in recent days,
continue?”
Across much
of Africa, the problems of the UK government and the pound have been relegated
to specialist websites and business pages, though in South Africa the South
African Broadcasting Corporation led its daily market update with the news of
the pound’s fall.
There was
some positive coverage of the UK’s prospects however, with one newspaper in
Nigeria saying it continued to be a destination for aspirant emigrants. The
Vanguard called the UK “a friendly and safe place to live”, due to its ban on
allowing citizens to arm themselves, which was “strictly heeded by its
occupiers” and a “very stable economy”.
From the
perspective of south-east Asia the crisis could be viewed as positive by those
wanting to holiday, shop, buy property or pay student fees in the UK, wrote the
Straits Times in Singapore. This could now be a good time to visit the UK, the
paper said, quoting the travel agency EU Holidays, which said it had seen
inquiries about holidays to Britain rise by almost a third.
“It’s the
best time for people to go on holiday to the UK because this is the cheapest
rate ever – I’ve never seen the rate drop so low before,” said Mohamed Rafeeq,
the owner of Clifford Gems and Money Exchange in Raffles City shopping centre.
The drop in
the value of the pound was also likely to be welcome news for many
international students whose tuition fees are due at this time of year, the
paper said.
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