On October 3, the British government withdrew the cut in the highest income tax, which would have brought the higher rate from 45 to 40 per cent, stressing that this measure had “distracted” public opinion from the true scope and effectiveness of the tax. entire budget maneuver presented on 23 September.
Chancellor of the Exchequer Kwasi Kwarteng, in fact, had proposed a plan of tax cuts of 45 billion pounds, the largest in the last fifty years, to which are added sixty billion pounds planned to limit the cost of electricity. British businesses and households over the next six months. The quick turnaround by the conservative government led by Liz Truss is mainly due to the resounding rejection of investors, who did not appreciate the idea of financing the cuts largely through debt.
For this reason, at the announcement of the maneuver, the pound had collapsed to the lowest values of the last 35 years and interest rates on gilts, British government bonds, had risen to the highest levels of 2008, jeopardizing the stability of the whole. British financial system and pushing the Bank of England to take emergency action.
Those who run a deficit are at risk
In reality, the British affair is also a wake-up call for the rest of the world. The message sent by the financial markets, observes the Wall Street Journal, is that “today the world has become a riskier place for those in deficit.” In recent years, all governments have borrowed heavily to deal with the aftermath of the pandemic, but the idea has emerged that the ability of states to raise finance is unlimited. “That world is over,” continues the US newspaper. “In many countries, inflation is too high, and it could stay that way. Even the central banks, which are raising the cost of money at the highest rates of the last forty years, understood this a little late ”.
According to the International Monetary Fund (IMF), in 2007 the debts of governments, companies and families amounted to 195 per cent of global GDP, while at the end of 2020 they had reached 256 per cent. An increasingly difficult burden to bear, commentator Hugo Dixon writes on Reuters, “because interest rates have been raised to fight inflation, while the pandemic and now the energy crisis are holding back the global economy and pushing investors to risk less. All this will cause problems especially in Europe, in China and in almost all developing countries (this is the case of Sri Lanka, Ghana, Egypt, Pakistan), negatively affecting both domestic and foreign policies ”.
In the European Union, the specter of recession is mainly linked to the crisis caused by the extraordinary rise in energy prices, a problem that could even undermine the internal unity of the area and the solidarity between its states, as demonstrated by the controversies raised in recent days. by the German government. “This coming winter Germany may be forced to cut energy exports to France and other countries to prevent problems with its electricity grid,” writes the Financial Times.
The British newspaper reports the words of Hendrik Neumann, head of technical operations of Amprion, the main operator of the German electricity grid. His words do not leave other European countries calm. Any interruption or reduction in German supplies can worsen the electricity shortage especially in France, continues the British newspaper, where nearly half of the country’s 56 nuclear power plants are currently out of service.
Neumann’s statements come shortly after the announcement on 29 September with which Berlin decided to make available a “protective shield” of two hundred billion euros to reduce the bills of German companies and families. The project of the government led by the Social Democrat Olaf Scholz has aroused harsh reactions in various European countries, especially in those most indebted and therefore with less financial possibilities, which see the principle of Union solidarity at risk. Italian prime minister Mario Draghi declared that “in the face of the common threats of our times, we cannot divide ourselves according to the space in our national budgets. In the next European councils we must show solidarity, determination, solidarity, just as we have been in supporting Ukraine ”.
For the French newspaper Le Monde, the situation recalls that of 2020 when, with the whole of Europe in difficulty due to covid-19, “Germany bought masks and vaccines without worrying about its community partners, although it later agreed to support a plan European for the recovery of the economy of the continent and the joint purchase of vaccines “.
We can actually see some glimmer of unity towards unity. On 5 October Germany said it was ready to start joint purchasing programs for gas, which it had always rejected until now. The opening, however, comes late, as most European countries have almost filled their stocks.
Another news comes from the European Commission, which in a letter sent to the heads of state and government of the European Union expressed the need to introduce a transitional ceiling on the price of gas established on the Dutch market Ttf, pending the identification of a new evaluation mechanism. Furthermore, Brussels proposes coordinated measures at the European level for the reduction of gas consumption and solidarity agreements between the countries of the Union. “Today more than ever that Europe is in dire need of unity”, comments the German daily Süddeutsche Zeitung. “The more citizens worry about their jobs and the cost of heating, the harder it will be to find a common response to Russia’s war of aggression. Germany is not the only country in the Union that is behaving in a way that is not very sympathetic. But when an accusation concerns the top of the class it weighs twice as much. Chancellor Scholz would do well to remember a sentence pronounced by his predecessor, Angela Merkel, during the pandemic: Germany is only good if Europe is good ”.