Campaign diary: Crisis spreads from Athens to Greece

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April 30, 2010 | 13:12

Will Britain be the next Greece? David Scamell, head of European credit markets at Schroders, raised the question this week at a conference organized by the asset manager in London to discuss market conditions ahead of the UK election. The question reflects the emergence of the Greek crisis in the campaign. The Conservatives have warned that without a clear parliamentary majority, markets will go wild, investors will stop lending to the British government and the International Monetary Fund will have to step in to rescue it. On the surface, Britain’s fiscal situation is similar to Greece’s, with a public deficit of about 12% of GDP, but markets have made it clear that Britain is not Greece. Scamell said that the yield on Britain’s 30-year government bonds has remained between 4% and 5% for the past decade. Although the pound has fallen against the euro and the dollar since 2007, this seems to be more the result of the Bank of England’s massive actions to put new money into circulation than due to concerns about the country’s economic problems. Alistair Newton, an analyst at Nomura, further explained that “the amortization period for British public debt is much longer than in the case of Greece”, and Keith Wade, an economist at Schroders, believes that the amortization period for British public debt will be even longer. There is uncertainty between the election on May 6 and the formation of the government, which may be postponed to May 25. These three weeks may bring more than one panic to the British market due to the nervousness of the market. The Conservatives are the ones who benefit the most from the Greek crisis. Not only because it helps to support his idea of reducing the fiscal deficit as quickly as possible in the face of the indifference of the Labour Party. In addition, because it can attack the leader of the Liberal Democrats, Nick Clegg, who is in favor of joining the UK into the eurozone when economic conditions allow. Conservative leader David Cameron hit Clegg in yesterday’s televised leaders’ debate: “If the UK joins the eurozone as Clegg proposes, British taxpayers’ money will not go to schools and hospitals, but to bail out Greece” If this information works, Greece can give Cameron a victory.