* (sometimesophie) wrote in ontd_political,
*
sometimesophie
ontd_political

Ugh the TENSION

As I have said so often that you're bored with hearing it, investors want a stable government perceived to be tackling the record public-sector deficit in a serious, substantial way.

Only in those conditions will they continue to lend cheap money to the state.

What investors have heard this afternoon may make them fear that a fiscally credible government is looking a more remote prospect - so I wouldn't be surprised if the price of gilts were to fall further (a fall in the price of gilts or government bonds is the corollary of borrowing becoming more expensive for the government).

Here's the impasse.

The Liberal Democrats hold the balance of power. And senior Lib Dems tell me that there are two non-negotiable conditions for them to prop up a government:

1) There would have to be an unbreakable pledge to hold a referendum on reforming the voting system;

2) Gordon Brown must cease to be prime minister.

The implication of this afternoon's statements by David Cameron and Brown is that only Labour can or will deliver voting reform (Cameron's promise of an enquiry on the issue won't satisfy Lib Dems).

But Brown's colleagues tell me its inconceivable he would give up office as the price of forming a Lib-Lab pact (and anyway, some would say that it would be utterly unacceptable, in a democratic sense, for Labour a second time to pick a prime minister from its own ranks who hadn't led the party though an election).


Or to put it another way, there are reasons why it looks impossible for the Lib Dems to form a coalition or even a loose informal pact with either party.

Of course, where there's a hunger for power, the impossible may suddenly become possible.

Here's the big question.

Will it take a collapse in the price of gilts and the pound - will there need to be almost a full scale sterling crisis - to persuade the party leaders that there's no alternative to some kind of entente that allows the public finances to be fixed?

The smart solution would be to somehow depoliticise what's known as fiscal consolidation, or the process of cutting spending and raising taxes such that the public sector can again live within its means.


Quite how decisions that have a differential impact on different parts of the population can be depoliticised is beyond me.

Which is why senior bankers and investors tell me they fear that the pound and gilts are in for a hairy few days, and possibly something even worse and more enduring.

Source.
Tags: economics, elections
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