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.
— Lawrence H. Summers (@LHSummers) September 27, 2022
A strong tendency for long rates to go up as the currency goes down is a hallmark of situations where credibility has been lost.
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 said, “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 is also likely to be welcome news for many international students whose tuition fees are due at this time of year.
