It is more than six years now since Boris Johnson won the Brexit referendum vote. Yet the hurt still runs deep in Europe. Predictably, European commentary on the recent turmoil in British financial markets has been linked with Brexit. 

Bild gloated, ‘the Brexit British currently have a nasty money problem’. ‘Similarly, El Espanol lectured, ‘It should be remembered that the British voted in favour of ‘Brexit’… they have not right or access to aid from the 27.’ Remainer opinion in the UK also blames Brexit. The anti-Brexit Financial Times, noted that the right wing Brexiteer’s ‘low-tax, low-regulation economy… is disappearing in front of its eyes.’ 

The other trope trotted out is that Truss failed because she was pursuing Thatcherite ‘low tax’ dogmas; thus Foreign Affairs magazine portentously notes that Truss is a ‘diehard Thatcher fan’ who ‘might even imagine it (her tax reforms) could be her Falklands War moment.’ 

There are basic errors with these narratives. In the last few weeks of turmoil in the UK gilt (government bond) markets, Britain has not sought ‘the protection of Brussels’. Secondly new Prime Minister Liz Truss who led the disastrously implemented ‘low tax’ policies was a ‘Remainer’, not a ‘Brexiteer’. It was Truss’s opponent in the recent leadership campaign, former Chancellor Rishi Sunak, who was a Brexiteer and a fiscal conservative. Thirdly Prime Minister Margaret Thatcher was a pragmatic fiscal conservative who always put budgetary discipline before tax cuts. 

There is another important point overlooked by Anglophobe commentators. The parliamentary chaos that was evident in the Brexit process and during the recent financial crisis is a sign of strength not weakness. Democratic processes are chaotic. These episodes bring resolution and change. It should be noted that after last Monday’s reversal of Truss’s tax policies by new Chancellor Jeremy Hunt, the pound and gilts have recovered. 

Compare that to Europe where the EU commissioners, constitutionally both legislative and executive, are irremovable no matter how inept their policies. The EU may appear stable but its ossified oligarchic structure is not democratic or desirable… and it certainly does not protect Europe from financial crises – note the Euro-crisis of 2009. 

Europe’s schadenfreude vis-à-vis Britain may be premature. The widening spread of interest rate between German and Italian ten-year bonds, which have risen by 150 basis points over the last year, suggests that there might be an incipient financial/currency crisis brewing in the EU. From a historical viewpoint, crises in the more open Anglo-Saxon capital markets often tend to be harbingers of bad things for Europe.

Although the 38-day experiment in Trussonomics will not sink Britain there are systemic economic problems. Outside of the EU Britain seems to have become a less attractive destination for FDI (Foreign Direct Investment). Although it is early days, and patterns are difficult to ascertain given the double header of ‘Black Swan’ events, Covid and Ukraine, it does seem that FDI into France has overtaken FDI into Britain. But on the plus side it should be noted that British debt as a percentage of GDP is much lower than France, Italy, Spain and Belgium. Britain is not in a doom spiral.

Former Prime Minister Boris Johnson may have seen Britain and Switzerland as brothers-in-arms, but he never set out a strategy that would lead to Swiss levels of prosperity. Instead of small government and global neutrality, Boris threw money at every problem at home and overseas. An aircraft carrier fleet was sent to Asia. Meanwhile spending on Ukraine, as a percentage of GDP, has been triple that of Germany. Why? As we have seen in the past three weeks, the EU will not thank the British for this generosity.  

Sadly, the main effect of the financial shenanigans of the past few weeks is that it will likely make the Conservative Party unelectable in two years-time. The return of socialism, not the brief aberration of Trussonomics, is the real threat to Britain’s future prosperity.