Britain's Winter of Discontent
Less than three months have passed since that halcyon day when Gordon Brown, not previously known as a gaffe-prone politician, provoked howls of mirth in the House of Commons after claiming that his government's prompt response to the credit crunch had "saved the world." George W. Bush was still in the White House, and the contrast between the British prime minister's bold plan to partly nationalize failing banks--making billions of pounds of fresh capital and government loan guarantees available in return for preferred shares--and Henry Paulson's dithering made Brown's boast, though unintended, almost plausible. (He'd meant to say "saved the banks"--a confusion that tells its own story.) But no one's laughing now.
On February 4 Brown told Parliament that a combination of fiscal and monetary stimulus was needed "to take the world out of depression." Though he tried to pass off his use of the D-word as another slip of the tongue, Brown's inadvertent candor was only the latest sign that this really is the winter of Britain's discontent:
§ On January 28 the International Monetary Fund predicted the global economic crisis will hit Britain harder than any other developed country, with the economy expected to shrink by 2.8 percent this year. (The projected downturn in the United States is 1.6 percent.)
§ Just as Britons dug out from the heaviest snowfall in decades, a wave of wildcat strikes at power plants and oil refineries over the use of foreign labor threatened the country's energy supplies. Echoing Brown's 2007 slogan of "British jobs for British workers," the protests were a reminder of the dangers to domestic peace posed by a long-term slump.
§ To compound Brown's worries, the most recent poll by the Guardian showed that nearly two-thirds of British voters thought the government's efforts to contain the crisis were doomed. Overall, the Tories, flat-lining since the economy turned sour, now lead Labour by 44 percent to 32 percent.
§ On February 10 cabinet minister Ed Balls, Brown's closest ally, warned that the crisis is "more extreme and serious than that of the 1930s."
Like the Groundhog Day blizzard that brought Britain to a standstill, not all the country's economic troubles are the government's fault. Wall Street bankers were no better at pricing risk than their counterparts in the City of London; the temptation to ride the debt-inflated housing bubble no easier to resist in Dubai, Dublin or Dallas. And just as Bush inherited the laissez-faire ideology of Ronald Reagan, so the tide of deregulation here runs back to Margaret Thatcher. The difference is that Britain's Faustian bargain with the money markets was sealed by a politician who describes himself as a socialist.
It was Gordon Brown who put out the welcome mat to flight capital from around the globe; Gordon Brown who, in exchange for a little stealthy redistribution around the edges (more money for schools and hospitals, a minimum wage), promised to keep taxes low and lionized speculators. And it was Gordon Brown who arranged for "Fred the Shred" Goodwin, the slash-and-burn chair of the Royal Bank of Scotland (RBS), to become "Sir Fred." During his ten years as Tony Blair's Chancellor of the Exchequer, Brown was only too happy to take the credit as British bankers, encouraged by New Labour's "light touch" approach to financial regulation, stuffed their pockets with cash, bidding up the price of everything from vintage Bollinger to the gas-guzzling SUVs known here as Chelsea tractors. Speaking to an audience of fund managers in June 2007, Brown was in typically flattering mode, saluting their "remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London."
Now that the party is over, the flight capital has fled and Goodwin has resigned in disgrace (the taxpayers have had to stump up £20 billion to keep RBS afloat), it is hardly surprising that an increasingly desperate public blames Brown for its troubles. The Bank of England, which cut interest rates to 1 percent in early February--the lowest level in more than 300 years--may prefer to say that the economy "is in the throes of a severe and synchronized downturn." But with monetary policy running out of runway, the pound trading at record lows against the yen and the dollar, and unemployment above 6 percent and rising fast, the controversy over what to call the country's financial crisis has become less interesting, and less frightening, than another far more stark question: is Britain too big to fail?
Crispin Odey, a hedge-fund boss whose prescience about the weakness of British banks brought him a £28 million bonus last year, observed that Britain risks "being exposed as a small country with debt it cannot repay." Investment guru Jim Rogers, former partner of George Soros, was even more blunt. "Sell any sterling you might have," Rogers told Bloomberg. "It's finished. I hate to say it, but I would not put any money in the UK."