Cameron & Clegg Form a Coalition Government
Cameron & Clegg
Of course, as former British Prime Minister Harold Wilson famously used to say, a week in politics is a long time, and at Downing Street yesterday two of the losers had become winners, as they presented themselves as the new Prime Minister and Deputy Prime Minister. The Downing Street lawn, unlikely afternoon sun, youthful good looks, adolescent good humour and enthusiasm had taken over, and the only casualty was reality. Refreshing and vibrant, it was, with Prime Minister Cameron talking of Big Societies, New Politics and Seismic Shifts, and hailing compromise as a quality of the strong. He undoubtedly set the tone of the day, which was echoed by his new Deputy PM, Nick Clegg. Cameron is ushering in an era where National Interest supersedes Party Interest, which probably means that the Conservative manifestos, with political reform concessions to the Liberal Democrats, i.e. a referendum on the Alternate Vote System as well as, God help us, fixed term Parliaments, is now the National Interest.
Clegg said that this was a coalition that would last, and if they introduce legislation that will prevent a new election before 2015, then clearly something will have to last. However, many voters, including me, want a way out of this situation if the coalition of Conservatives and Progressives does not manage to survive, and history (but not necessarily British history) is replete with failed coalitions. So, please, let’s have fixed term elections if we move to a Presidential system, otherwise let’s wait until we have a new electoral system and think about this in that context.
The exuberance of the occasion was lost on neither the media nor the country, and often hard-headed and rational people were caught up in the contrast with the embattled, dour but dedicated Scotsman who had recently left the job, and were more than willing to give the boys a chance.
Day 2. A misunderstanding has emerged between the Liberal Democrat’s economic and financial expert, and member of the cabinet, Vince Cable, and the new Conservative Chancellor of the Exchequer, George Osborne. It would appear that Mr. Cable thought he would have responsibility for reform of the UK’s financial sector; which could include the breaking-up of present banks into Investment and Commercial banks, but apparently not. The Treasury will be responsible for the issue. Good job it was nothing important.
Serra and Banco Central
Banco Central Debate
The question of the degree of independence to be accorded to the administrators of Banco Central do Brasil became an issue for discussion in the Presidential campaign this week. This was a question raised as a result of comments made by Jose Serra, the PSDB’s pre-candidate for the Brazilian Presidency this year, in an interview on Monday with Radio CBN, where Serra raised the issue that at the beginning of the world economic crisis, Banco Central reacted slowly to reduce interest rates, indeed slower than most if not all of the major industrial countries. He also made reference to Brazil having an effective rate of interest that was the highest in the world.
Serra continued by saying that Banco Central could not be independent of the Government and its economic and fiscal policy, which BC was obliged to administer operationally.
The candidate of the PT, Dilma Rousseff was quick to react stating that Banco Central had taken many measures during the crisis, and was successful with the monetary policy it developed to confront the crisis.
Thus, we have a disagreement about the actions of Banco Central in late 2008, early 2009, but the debate does not seem to go very far when discussing the independence of Banco Central, as neither Dilma, nor Serra will argue that Banco Central should have the autonomy to adopt policies that are not in the Government’s interest.
In his interview, Serra also affirmed his support in the floating exchange rate, fiscal responsibility and a system of goals to control inflation, which has been the policy of President Lula`s government, as well as its predecessor.
The debate now about high interest rates should perhaps be directed towards the effects of the current imbalance in the present Government`s public accounts on interest rates, and what could be done to reduce Government spending and interest rates as a consequence.
Jose Serra, Critic of Banco Central
Political Instability in the UK
Nick Clegg - Kingmaker
This subject is not the usual fodder for the brazilnewsblog, but we thought it both interesting and important enough in the context of the financial crisis emanating from Europe to take a closer look.
None of the leaders of the three major political parties in the UK are happy today. Gordon Brown, the Prime Minister, is the leader of the Labour Party that has 91 less seats in the House of Commons than he had yesterday. David Cameron, the leader of the Conservative Party was expected to win the election (i.e. a majority of the seats in the House of Commons) handily yesterday after the country had signaled fatigue with the Labour Party after 13 years, and worse, with a Prime Minister, Gordon Brown who even before he called a voter a bigot behind her back last week was widely unpopular. Cameron has 307 seats when he needed 326 for a majority. And Nick Clegg, the leader of the Liberal Democrats, who after the first debate was being touted as a potential Prime Minister and after the last debate, was at least equal with Labour, found himself the leader of a much reduced party in Parliament with only 57 seats, losing 7 to the Conservatives.
The UK is a country where bargaining to form coalitions is not a usual pastime. The electoral system works to the advantage of the larger parties to exaggerate their vote getting into much larger percentages of seats in the legislature. Thus, Cameron, Clegg and Brown have been flung into a position of bargaining for which there is some, but little precedent. What are the options open to the parties at this stage?
The “Constitutional” position is the Gordon Brown can continue being Prime Minister until such time as he loses a vote of confidence in Parliament. It is also perceived that the incumbent Prime Minister has the right to try and present to the Queen a solution i.e. coalition, to the “lack of a majority in Parliament” problem prior to other solutions being considered. However, the carpet has been taken out from under his efforts by Nick Clegg saying (as he said during the election campaign) that he feels it his duty to commence negotiations with the Party that has most seats in Parliament i.e. the Conservatives. Other considerations by Clegg could have been that the sum of the Labour and Liberal representatives does not reach a majority, which implies a broader, and by definition a weaker coalition, including both Welsh and Scottish Nationalists.
The problem from Clegg’s point of view is that the price of the support of the Liberals in the past has been electoral reform, or Proportional Representation, as it is more specifically known. This, however, has always been anathema to the Conservatives who have strongly supported the existing “first-past-the-post” system. In 1974, under similar circumstances, the then Conservative Leader, Prime Minister Edward Heath offered then Liberal leader Jeremy Thorpe a Commission to review and make recommendations concerning electoral reform, which was not adequate for the Liberals. This time, Cameron is offering an “all-party committee of inquiry on electoral reform”, which also is unlikely to be successful, although its his first offer in a process that could be prolonged. Labour has already embraced electoral reform, and in that sense would be an easier partner for the Liberals.
An issue for the Liberals is Gordon Brown, and a condition of their joining in a coalition with labour, should the talks with the Conservatives break down might be the removal of Gordon Brown as the Labour leader.
It is very early into the process at present, and we will monitor developments, however, the British Stock market Index, the FTSE was down 2.3% on the day.
Government Accounts – First Quarter Deficit
Government Accounts – First Quarter Deficit
The Brazilian Government was making comforting noises after the release last week of the first quarter government accounts which showed a small Primary deficit of R$ 216 million for March, down from positive results of R$ 7.2 billion in March 2009, and R$ 13.6 billion in March 2008.
For the first quarter, the Primary surplus was at R$ 16.82 billion as compared with surpluses of R$ 18.8 billion for a similar periods of 2009, and R$ 42.9 billion in 2008.
However, the Government has financial expenses in the first quarter of R$ 44.97 billion, giving a nominal deficit result of R$ 28.15 billion (The nominal deficit for March alone was R$ 17.01 billion.). Thus, the nominal deficit for the first quarter was R$ 28.1 billion compared to R$ 21.1 billion in 2009, or a surplus of R$ 2.5 billion in 2008. This is at a time where the Government is collecting taxes in record volumes. The increase in taxes in March alone was 12.9% higher than in 2009 (R$ 41.9 billion as compared to R$ 37.2 billion) and on a quarterly basis collection was R$ 133.5 billion in 2010, as compared to R$ 112.7 billion, an increase of 18.3%.
Government expenses in the first quarter were up 18.7% over 2009, from R$ 105.6 billion to R$ 125.4 billion. In March alone, expenses were R$ 44.3 billion, 39.7% higher than in the R$ 31.7 billion of March, 2009.
The situation of higher collections, much higher expenses, and resulting deficits at both the primary and nominal levels, is cause for concern. The Government, however, is citing evidence not only that April will be a better month, but that the April result will be so good that the country will be back on track to meet its goal of an annual surplus of 3.3% of GDP.
During the month of March the Government paid its renegotiated payables. Last year, due to the crisis and the desire on the part of the Government to put capital in the market, these payables were paid in January, and thus March is not comparable with March. However, both were paid in the first quarter, which makes the quarters comparable. Other causes cited for the increase in expenses were the purchase of educational books by the Education Ministry, resources required by the Unique Health System, and the bid for the acquisition of submarines by the Ministry of Defense.
In an election year, when the Government’s candidate appears to be floundering, it will be interesting to monitor the extent to which the Government succeeds in holding down Government spending.
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