Britain is still the world's most indebted country head-to-head with Japan. This is supported by the latest report, hot off the press, by the McKinsey Global Institute (www.mckinsey.com) dedicated to the tiring, slow (too slow) awakening from the debt hangover (deleveraging in technical jargon). Yes, indeed, perfidious Albion not pleasure-loving Italy. Yet the United Kingdom is the only one, together with Germany, to enjoy the triple A granted by Standard & Poor's. The Italian Republic is seven steps lower. Double standards, political prejudice, socio-economic ignorance? Let the magistrates do their job and find out if the American rating agency has distorted or even manipulated Piazza Affari, spreading news while stock exchanges are open. Of course, one has to wonder how those blessed guys do the calculations.
Not only, Britain is entering a recession, has double inflation compared to Italy, unemployment (to 8,4%) is rising, the public deficit is at 9%, the worst in Europe, the banking system is still unstable despite public intervention, the City license, in the last ten years it has lost share on the world market, much more than Italy. But London remains a safe haven for inflowing capital and public bonds have no problem being sold at 2%. Does all this make sense?
Meanwhile, let's start with debt. McKinsey calculates a country's total domestic debt, combining government, households, financial and non-financial firms. Thus, while the Rising Sun reaches 512 per cent of the gross product and has returned to rise by 39 points after 2008, the United Kingdom is at 507, having grown by 20 points in the last three years. The state debt is 81%, therefore more or less like Germany, but the financial institutions reach 219, the highest in the world, even double compared to Japan and triple compared to Italy. British industry and services are also worsened much more than the Italian ones (109 against 82), let's not talk about families (98 against 45). If these figures are correct, the Italian economy and society as a whole show a much greater capacity to meet their global debt exposure than the British one. And yet, we have three B's and they have three As's.
Is it the fault of political and institutional instability? The technical government is a parenthesis: what will happen next? The League beats the drum of secession again: will the country be divided? Legitimate concerns that do not only concern Italy, let's think of Belgium or Great Britain itself. Scottish nationalists want to leave, there will be a referendum, maybe the Kingdom will be dis-united, with the loss of a vital, dynamic area that causes great social problems, not just organizational ones.
All this seems to not count for much to S&P technicians. It doesn't matter that the banking crisis erupted in 2007 not in the United States as everyone believes (and despite the subprime), but in England with the assault on the branches of Northern Rock then nationalized by the Labor government. The most dangerous outbreaks of infection are not in the sleepy Italian banks (which also have their worrying weaknesses), but in the dynamic and competitive English system, where finance is the country's main industry.
It could go on indefinitely. Just take the latest analysis from the International Monetary Fund or consult the rich online Guardian to fill your eyes with charts and tables on structural and cyclical weaknesses of Britannia infelix. And yet, the agencies all give an excellent rating and there are no problems with financing the immense debt today.
One explanation lies in the fact that Great Britain is outside the eurozone. The pound has maintained its status as an international currency (as a reserve currency and means of payment in world trade) and is protected by a central bank which prints unlimited money when necessary.
On the very clear and pleasant site of the Old Lady (www.bankofengland.co.uk) there is an animated demonstration understandable to all, of how quantitative easing works, what are its effects on the real economy and its risks, for example inflation. So, the knowledge that the Bank of England will carry out its function as lender of last resort for banks and the government to the full, reassures investors who buy British bonds and snub the BTPs.
Yet even this is an illusion, because if the euro fails no one will be saved. Moreover, in 1992 the collapse of the EMS (European monetary system) led to the collapse of the pound before the lira, and the Bank of England gave up the exchange rate before the Bank of Italy. Maybe she did well, she was cynical and realistic, but whoever had pounds lost their necks (with the exception of George Soros who led the attack).
In the press release announcing the downgrading of France, Italy and half of Europe, S&P explains that the real alarm comes from a wrong management of the crisis based on an equally wrong analysis of its causes: they do not reside in gluttony peripheral countries, but in the growing imbalances of competitiveness that distance Germany, Holland and a few others from the rest of the continent. A well-founded consideration that leads to equally correct conclusions: rigor without growth creates a vicious circle that condemns to long stagnation. Well, cheers. But then what about that triple A to Britain whose fundamentals are worse than the euro countries, and Germany whose mercantilist policy with a Chinese-style balance of payments surplus condemns everyone else to begging? Is there a logic to this madness?
