“Welcome to Britaly”the Economist ruled, and the cartoon says it all: the (now former) British premier Liz Truss, protagonist of one of the most sensational flops in the history of governments made in the UK, she is depicted as a proud Roman soldier, complete with a pizza as a shield and an immense fork displaying triumphant spaghetti, these, made in Italy. Welcome to Britalyor to the now Italian United Kingdom: “A country of political instability, low growth, submissive to the bond markets”.
Like Italy, the magazine points out. Liz Truss, besieged by criticism, will probably not have stood the blow. And today, Thursday 20 October 2022, announced his resignation, ending the shortest government in all of UK history. With his article the Economist was relentless against the United Kingdom which has dared to become the most embarrassing yardstick: or – as the Telegraph also wrote -, in a sort of new Italy of Europe. Heaven open: in reading the article by The Economist that has compared the UK to Italy, anger has exploded among both the British and the Italians.
In Italy many have sent a very clear message: And no, we are ashamed of being compared to you. And so, he also went on stage the doubt about who was ashamed of whom.
The Economist started back in 2012, when the now former UK Prime Minister Liz Truss and the former Chancellor at the Exchequer Kwasi Kwarteng (they, the architects of the maxi shock plan of tax cuts which shook markets around the world, before being written off practically in full), had written the pamphlet “Britannia Unchained”, referring precisely to Italy in sounding the growth alarm in the United Kingdom.
Italy, the Economist recalled, was defined as a country characterized by “Low growth and low productivity” and Truss and Kwarteng – the latter ousted last Friday and replaced by Jeremy Hunt –warned in 2012 that these problems were also present in the UK. “Ten years later, in their botched attempt to create a different pathMs Truss and Mr Kwarteng made the comparison (between UK and Italy) unavoidable. The UK continues to experience disappointing growth and inequality across regions. But he is also crippled by a chronic instability and put in check by the bond markets“. Consequentially, “Welcome to Britaly”.
Even taking into consideration only the way in which the announcement of the shock plan of the Kwarteng tax cuts it shattered the value of the Gilts, triggering a dangerous hike in rates , the comparison between the United Kingdom and Italy is not so absurd. BTPs, as well as Gilts in recent weeks, have often discounted (always) political uncertainty until recently all Italian, as well as the risk of a tricolor debt-deficit destined to increase. “Markets are now treating UK bonds like Greek and Italian debt”that is to say “Markets now regard UK bonds as Greek and Italian government bonds”, he wrote Julia Horowitz on CNN Businesscommenting on the Gilt collapse triggered by the announcement of the Truss government measures, about a month ago.
“At the beginning of August, UK 5-year Gilt rates were around 1.55%. On Tuesday (September 27) they jumped al 4,27%. A huge movement, in a market where changes usually occur in small fractions of a percentage point“.
In those hours of wild selling that hit UK government bonds, British five-year bond yields were even flying. above the yields of Greek bonds and five-year BTPs, “Two countries known to be among the riskiest bets of investors, due to high levels of debt”.
Horowitz referred to the report debt-GDP of Greece, which in March was equal to 189%, compared to almost 153% of Italy’s debt-to-GDP ratio and to the UK ratio, equal to almost 100% (but according to several economists to jump to much higher levels in the coming years ). All markets globally sank, first and foremost (obviously) Gilt and sterling.
With his article “Welcome to Britaly”, The Economist did not make a comparison between Italy and Liz Truss’s United Kingdom referring ‘only’ to the trend of government bonds. The comparison was also made in reference to the political instability that is characterizing both countries, and not just recently.
“The political instability that used to brand Italy has now fully infected the UK. Since the end of the coalition government in May 2015, the UK has had four prime ministers (David Cameron, Theresa May, Boris Johnson and Liz Truss), as has happened in Italy., As a result, two countries are expected to likely get stuck in deadlocks in the short term “.
The Economist highlighted how the Conservatives, the Tories, “Have spent the last six years chasing the dream of strengthening British sovereignty, and instead losing control “.
And again, another comparison with Italy: “Silvio Berlusconi was removed from power in Italy in 2011 after the tensions exploded with Brussels and Berlin. Mr Kwarteng (former finance minister) was defenestrated from the office of Chancellor of the Exchequer because of the market reaction to its uncovered tax cut plan ”.
The Economist (the article was published before the announcement of the resignation of the British premier) recalled that “In Italy, governments have a hard time getting anything done; the same is true of the short-lived governments that have succeeded one another in the UK. And every time the possibility of new governments and leaders arose around the corner, pantomime and worship of the person they replace politics ”.
Not for nothing “former British Prime Minister Boris Johnson was called by someone ‘Borisconi.
“Returning to the vote did not solve Italy’s problems – sentenced the article of the Economist – But there is reason to have greater hopes for the UK, where political instability is a disease that has affected only one party. The Tories have become almost ungovernable, due to the corrosion that has come from Brexit and the absolute exhaustion caused by the 12 years they have been in power ”.
“Truss – concluded the magazine – he is right to identify growth as the UK’s biggest problem. But growth does not depend on imaginative or big bang-style plans, but on stable governments, reasoned politics and political unity. Which, in their present form, the Tories are no longer able to provide“. Returning to the Britaly case, in recent days the comparisons with Italy have been wasted. Among these, that of ex vice governatore della Bank of England, Charles Beanwho made it clear that the UK could no longer be compared to the economies of the US and Germany and added that, in his view, now creditors see the British economy more similar to those of Greece and Italy, “Thanks to the chaos unleashed by Liz Truss”, with those easy promises of tax cuts that are too important to be true. “Now the transformation of Great Britain towards the new Italy is almost complete”wrote a few days ago in the Telegrah Matthew Lynn: “Becoming like Italy now is, in truth, a gloomy prospect. Of all the G20 countries, it is undoubtedly the one that is least wanted to be imitated. E‘ (a country) that has blocked growth, there are few new companies that we have heard of“, And it is a country, too, “Which has few ambitions beyond that of keeping debts under control”. So much so that, in Italy “The best and brightest young people are increasingly choosing to make their careers elsewhere”. “Shocking” that, “Over the last decade, 182,000 graduates have left the country”: e “The number is accelerating”.