Wednesday, May 12, 2010

The new government in Westminster

Well, I am relieved that Nick Clegg and the LibDems could not make a deal with Labour and have instead agreed to form a coalition with David Cameron and the Tories. This is good news for Britain, but probably bad news for the Tories. 

They have inherited a government with falling revenue, rising expenses and a high debt load. They are going to have to bring the deficit back into the low single digits in order to stabilize the debt-to-GDP ratio. Given the presence of the LibDems in the government (and possibly at the Treasury), this will be accomplished by raising taxes as well as expense control. It's hard to see how this will make the government popular. 

The UK's principal problem is its overdependence on the City of London (the financial services industry), which is shrinking in size due to the 2008 panic and subsequent woes. Financial reform may be necessary, but killing the City is killing the egg-laying goose. 

We will learn more this week about the cabinet and policies of the new government.

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