It has been quite puzzling that the Sterling and the bond market in the United Kingdom have not completely given way given the outlandish spending and painfully serious fiscal crisis on the big island. The Wall Street Journal's Simon Nixon thinks he knows why.
The market has, according to the Journal, effectively concluded that Gordon Brown is finished and that a conservative government is around the corner. While MP expense scandal represents a large part of Nixon's argument, the reality is that the conservative revival in the UK has far less to do with expensing call girls and the like (long a tradition in British politics) and far more to do with the outright raid of the Treasury.
Nixon opines on Gordon Brown's impending loss to the Tory, Mr. Cameron, due by June, 2010:
That's the most likely outcome, judging by opinion polls. And it helps that so far during the current scandal, Mr. Cameron has enhanced his authority, showing a keen appreciation of the febrile public mood and acting decisively against his own MPs to confront the worst abuses. But the process of purging the old system and restoring public confidence has only just begun. There could be more political battles to come.
And while money wrongly claimed has been repaid, those who claimed it remain in their jobs, their authority diminished. Support for fringe parties is on the rise, suggesting a backlash against mainstream politicians. Against this backdrop, the next government must persuade the public to accept savage public-spending cuts and painful tax hikes. The market is betting the political class can regain sufficient credibility to drive through this agenda. The stakes were high enough already.
One wonders what fate the market is pricing for Democrats.
U.K. Political Scandal Poses Economic Risk [The Wall Street Journal]