Britain Could Use another Churchill Right Now, or Even a Thatcher

Britain wakes up Friday morning to a cup of tea, bad breakfast and the stalemate of a hung Parliament. While final results aren’t in, it’s clear that for the first time since 1974, no British party will emerge with the necessary 326 parliamentary seats needed to form government. The debt ridden country now faces days of squabbling over conditions for leadership and coalitions.

Despite the fact his reigning Labour Party now holds 47 seats less than the Conservatives; Prime Minister Gordon Brown has made it clear he won’t be stepping down without a fight. His opponent is David Cameron, whose Tories now hold the most seats at 306 and are negotiating a coalition with the Liberal Democrats.

While everyone lost in this election, the real loser is the British economy. Britain has never been in a worse position to have its partisan captains squabble over the wheel rather than actually get things done. Britain’s debt is at a rank 11% of its GDP (the largest of the G7), unemployment is at a fifteen year high, the country suffered one of the worst recessions in the western world, will have an estimated deficit of $255 billion this year (the highest level since World War II) and is recovering from the financial crisis much slower than the US, Canada and swaths of Europe. Amidst what looks like dry rot crossed with a financial hurricane, the country needs a firm government with the ability to cut budgets, run a lean, efficient economy and reign in its finances. The call is Churchillian and doesn’t seem likely in country not at all used to coalitions.

Greece has shown the world that the Euro Zone is flawed and dysfunctional. It made everyone aware of what kind of tanking markets will take on the subject of sovereign debt default. We’re in a period where countries that once seemed rock solid are crumbling. Make no mistake; Britain’s stagnant economy and enormous debt levels leave the Empire in the same leaky boat as Greece. If something isn’t done by those that govern, more crashes are on the way and another bailout in Europe might be necessary.

The market has reacted as predicted. The pound fell over 2.4% against the dollar, 10-year gilts (bonds issued by the British government) are up by 7 basis points to 3.87 percent and analysts are maintaining a negative outlook on the pound. The bright side is that Moody’s Investors Service stated that election results are not a direct threat to the nation’s AAA rating. Look for slight gains when David Cameron and Liberal Democrat leader Nick Clegg announce their coalition plans Friday afternoon.