Goldman Sachs advised clients in late April 2010 to go ahead and buy British pounds. Despite the fact that a UK general election is due on the 6th of May, Goldman saw no problem with buying the pound.
The outcome of the UK election was pretty uncertain in late April, with some forecasters and political pundits predicting a hung parliament, or coalition government. Goldman, however, argued that the foreign-exchange markets were quite ‘comfortable’ about the possibility of the UK election resulting in no overall political majority.
The reason given for that lack of anxiety is that, whatever the differences between the UK’s three main political parties, they all agree that Britain’s ruinous budget deficit must be slashed. Goldman’s recommendation that investors buy the pound is based on the belief that it will strengthen to 83p against the euro, the best exchange rate since November 2008. The analysts explained:
“A hung parliament would surely come as less of a shock than it might have done some months ago… Sterling could rally further, in particular against the Euro, where Greece-related risk factors remain high on the agenda.”
Yes, Greece-related risk rattles on in Europe, troubling the euro zone leaders and making the fragile euro increasingly unstable.However, to a Brit watching UK election antics from the sunny south of France, I would say this about the prospect of a hung parliament in London’s House of Commons. Despite the fact that the three main parties agree on cutting the British budget deficit, they would be no more likely to co-operate in a positive fashion in a hung parliament than three hungry ferrets in a sack.
The mediocre, outdated LibLabCon parties – New Labour, Liberal Democrats and Conservatives (or Tories) – are second to none in their desire to score puny political points against one another regardless of the interests of the British economy or the country’s citizens. You can pretty much bet that if one party says Black the other two will say, respectively, White and Grey.
A hung parliament in the UK context would result in a stubborn political paralysis as parties, ministers and civil servants jockeyed endlessly to get scraps of party political advantage at the expense of the country’s interests. Her Majesty’s Government and Opposition behave badly enough when it’s clear who’s got the power, screeching, slinging mud and sticking spokes in each others’ wheels whenever they can like a bunch of naughty children. Once the power was subject to daily negotiation, you can expect to see British politicians practically hysterical with excitement at the thought that each day offers them the chance to grab a little more political power for – the sake of it – than yesterday.