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BBC: Britain in Crisis


Just a week ago, Britain was considered a developed economy, the pound a solid currency, and the new government of Liz Truss had a fresh two-year mandate to govern the country. A week passed - and Britain found itself in a political and financial crisis. Liz Truss tried to blame everything on Putin, but failed. Everyone turned against her: voters, markets, economists, international financial institutions, allies in the US and Europe, her own party, and even ministers from her government, assembled less than a month ago.

Blame it on a plan for sweeping economic reforms and a whopping quarter-trillion-pound extra budget spending, backed by no new revenue, no mandate from the electorate, or even independent assessment of its feasibility.

The bold plan was unveiled a week ago. He immediately brought down to unprecedented depths, first the public debt market and the pound, and then the ratings of the ruling Conservative Party. The pension system was on the verge of collapse, and the central bank had to turn on the printing press at full capacity in order to prevent a systemic crisis, bail out the government and save pension funds. Overnight, many Britons faced the threat of losing their homes and jobs, losing part of their pensions and access to free healthcare. And financiers around the world rushed to get rid of the once high-class British assets, and their prices fell to the level of troubled countries like Greece and Italy.

The government's plans to actively borrow in the face of rising rates and forego income in the hope of accelerating economic growth through tax cuts and deregulation raise doubts among economists and financiers about the future of the British economy. These doubts could be dispelled by an independent OBR auditor. It traditionally accompanies any government budget initiatives with a forecast of their consequences. However, this time Minister Kwarteng banned the publication.

The public debt market suffered a historic drop, which forced the central bank to intervene and print 65 billion pounds to buy government bonds that suddenly became worthless. The pound has collapsed to near parity with the dollar, down from $1.14 the week before, $1.35 last winter and $1.50 before the 2016 EU referendum.

"The only type of leader for Britain more dangerous than the previous crazy (Johnson) is the current fanatic. The dominant characteristic of the fanatic is the conviction that reality should adapt to their desires, and not vice versa," wrote one of the world's leading financial journalists Martin Wolf in the main business newspaper of the West Financial Times. "These are bad and dangerous people. They are not themselves, they must go," Wolf proclaimed.

When Truss became prime minister less than a month ago, she told the BBC she was ready to be unpopular. She did it. Truss' ratings plummeted to minus 59 in the early days of October - not only deeper than the bottom of Boris Johnson's career (minus 53 in July before resigning), but even worse than the worst rating of the extremely unpopular previous opposition leader Jeremy Corbyn (minus 55).

Therefore, in order not to ruin the country, Truss will have to choose. Or commit political suicide and abandon the reforms just announced with pomp. Or cut social spending and prepare for political death at the hands of angry voters. She won't keep you waiting long. Britain's real incomes have not risen since the last crisis more than a decade ago. And they are not going to grow: according to the forecast of the Bank of England, citizens are facing the largest drop in living standards in the entire 60-year history of such calculations. This is because the country has low labor productivity, the fastest inflation and the slowest growth among competitors. The volume of the British economy is still 0.2% lower than it was before covid, while in the eurozone it is 1.8% higher, and the US even recovered last winter.

Truss recognized these problems and began to treat the "sick man of Europe." The treatment was not to my liking. On Wednesday Truss said it was helpful and she would continue. A word for the patient.


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