Sunday, 9 May 2010

UK election result: no good outcomes, here's one of the worst

The UK election has produced a very unfortunate situation for the near term direction of vital fiscal/monetary policy for those troubled rainy islands in the North Atlantic.

Current discussions between the Liberal Democrats and Conservatives over some form of cooperation are beset by major hurdles and gotchas. Even if the leadership can strike a deal there will be deep misgivings about a Lib/Con alliance at the grass roots level.

While some favor a coalition in which Lib Dems would get Cabinet seats and have quite a list of red lines which David Cameron would have to respect, in order to count on the continued support of legislation as it goes through Parliament, it would seem that there is a strong chance that it may not be possible to structure a coalition pact. In this case the most likely outcome from the mess would be a minority government headed by David Cameron with the need to get assistance from other parties on an ad hoc basis.

Under the peculiarly anachronistic, unwritten constitution of the UK there are really no simple rules for determining which individual has the right to the top job where there is effectively no single party which has an outright majority of 326 seats in the House of Commons. It would seem that, amidst all of the many kinds of electoral/political reform required for the UK, something like a separate ballot for the leadership - along the lines of the US presidential vote, would at least provide a single candidate with more votes than any other. At the moment while it seems that Gordon Brown's days as PM are over, there is a clear question mark over how survivable and stable a government under Cameron would be.

Here is a worst case scenario.

  • No coalition or long term deal can be struck between Clegg and Cameron but the Lib Dems decide to support Cameron with an emergency budget in order to placate the markets.
  • The markets sense that Cameron's tenure is likely to be unstable and there is a sterling and/or gilts crisis.
  • Cameron has to propose draconian fiscal measures to avoid a Club Med scenario for the UK capital markets
  • Eventually - perhaps in as short as a year - there is another election and Cameron will be held up as the person who failed to tell the truth to the electorate during the May 2010 election campaign. (Never mind the fact that neither of the other leaders addressed the severity of the deficit issues in that campaign either).
  • With Gordon Brown gone and replaced by a new Labour leader - who would then be smart to include fundamental electoral reform as a cornerstone of a second election manifesto - there is a strong likelihood that a Labour/Liberal Democrat coalition would be viable following that subsequent election, even if Labour were still unable to have an overall majority
  • Meanwhile for the Conservatives they could, even more abruptly than was contemplated by Mervyn King's recent remarks - having accepted the poisoned chalice of the dreadful state of the public finances - find themselves back in the wilderness of being regarded once again as the "nasty" party of British politics.

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