British elections present less stark choices than you might think 

The decision of the British people in their election today will be crucial to deciding whether or not Britain drags itself out of a mire of debt or heads precipitously towards being a major economy version of Greece. However, when it comes to international negotiations, in two particular areas the US will see little difference no matter who wins. In terms of financial regulation and environmental policy, the outcome of the election is largely irrelevant.

First, we should note that we are in such uncharted territory with a genuine three-way race is so uncertain that we can’t really say who will win tonight. A simple average of the polls puts the Conservatives on 37%, the ruling Labour party on 27% and the insurgent Liberal Democrats on 27% too. The polls are conducted at such a coarse level that we can’t tell whether the surprising swing to the Liberal Democrats is uniform across the country or not. If it is uniform, then the likely effect will be a hung Parliament and probably a constitutional crisis.

However, it is plausible that the swing is actually concentrated in the Labour heartlands, as an anti-Brown phenomenon. If that is the case, combined with a high turnout, we might see many supposedly safe Labour seats go “Lib Dem,” which will be a disaster for Labour. On the other hand, it is plausible that the swing is mostly from Labour to Liberal Democrats in Conservative heartlands, as a continuation of the tactical voting so prevalent in the last three elections. If this is the case, then the Tories, as the Conservatives are often called, will be stymied and a “LibLab” coalition is perhaps the most likely result. The fact is, we simply cannot tell until the votes are counted.

Having said that, the fact is that the election is unlikely to make much difference in either of the international arenas I mentioned earlier.

Let’s start with financial regulation. All major British parties agree that there is a need for punitive regulatory reform. David Cameron went along with Brown's temporary tax on executive bonuses, for example. However, when it comes to international regulation, there is likely to be an equal diffidence from the new government as to the pace and form of the new regulations. Gordon Brown's own government, even as it shouts its leftist credentials to the rooftops, like all European governments has been telling President Obama "Great idea. You go first!” on issues from bank taxes to derivatives regulation.

We should also consider the UK’s strong interests in looser regulation. The city of London is one of the country’s main income generators, and it should be noted that the mayor of London, Boris Johnson, an important Conservative figure, has been speaking up against tighter regulation. In fact, the UK is starting to get international IPOs again, and therefore it seems extremely unlikely that any incoming government is going to bring in a Sarbanes-Oxley type regulation for public companies.

The one sense in which the election result could matter in the international financial arena is if a hung parliament has the result some suggest it will on investor confidence. A run on the pound and a withdrawal of capital from the UK is just what the country does not need at the moment, and could plunge it into the same category as Greece and Portugal in short order.

Given London’s importance, this would be a serious blow not just to the UK, but to the international financial system as a whole.

As for climate negotiations, again all three major parties are agreed on the basic principles. Conservatives, Liberal Democrats, and Labour are all campaigning on a green manifesto in one way or another. Indeed, it is fair to say that the Labour manifesto is probably the most friendly to traditional, energy-intensive industries. The Conservative manifesto is actually quite extreme in its environmentalism, having adopted the policies of the mainstream statist environmental movement in its bid to appear modern, without even considering the arguments of free-market environmentalism (which I believe is an indication of how intellectually thorough the Cameron project is, but that’s an argument for another time).

The plain fact is that Britain’s stance is irrelevant in international climate negotiations now. The same goes for the rest of the EU.

What we saw at Copenhagen was the final nail in the coffin of EU leadership on climate issues. None of Europe’s demands were met in Copenhagen and in the end the very weak Copenhagen Accord was agreed to without a single European in the room. It was drafted by the US and the leaders of the developing world coalition – China, India, Brazil and South Africa.

The fact is that the developing world has usurped Europe’s position as the voice of moral authority on climate issues, and their stance is very different from Europe’s. Yes, they want binding emissions targets, but only from the developed world (a deal that continues to be unacceptable to the US Senate), and they want a massive wealth transfer before they even consider small reductions in growth, which means that even reductions in emissions growth will have to be paid for.

Previous climate pacts have been very Euro-centric. EU Vice-president Margot Wallstrom said that Kyoto was actually about leveling the playing field between Europe and America. The reason why, when Kyoto was signed in 1997, the benchmark year for reductions was set as 1990 was because the EU could rely on “banked” emissions reductions from the UK’s “dash for [natural] gas” and the close of Germany’s inherited smokestacks in the East, which took place between 1990 and 1997. In fact, from 2000 to 2006 the EU did not reduce its emissions at all, even as the US reduced them by 3 percent. Yet the EU is closer to its Kyoto targets than the US, because of the trick involved in those “banked” reductions.

But all that is irrelevant now. The EU is not dictating the pace on climate negotiations at all. President Sarkozy and Italian Prime Minister Berlusconi have recognized this, calling a couple of weeks ago for a “border adjustment” in the import of goods from countries that have not taken on binding emissions reductions. In other words, they want a carbon tariff and a trade war between North and South. That’s the only leverage Europe has left – to threaten to keep the developing world in poverty by closing their markets.

If the new British government is to have any influence in international climate issues, then perhaps it involves dragging Sarkozy and company back from the brink of a climate trade war. David Cameron and the conservatives are very good on trade, and there is a smidgeon of classical liberalism left in the Liberal Democrats on this issue, so it may be that they will see the folly of what the French and Italians are proposing. Labour, on the other hand, might be tempted to go along with them.

It is likely that future international negotiations will go the way of Copenhagen. The EU is increasingly irrelevant in world affairs, and Britain, having given up much of its autonomy to the EU, is part of that growing irrelevance. Only in military matters, where Britain does “punch above its weight,” is that not true.

If any of the British party leaders believe that they are going to have some special influence on future two of the bigger issues of the hour, financial or climate negotiations, they are just kidding themselves.

Iain Murray is Vice-President for Strategy at the Competitive Enterprise Institute, and a British Citizen

About The Author

Iain Murray

Mr. Murray is a contributor to Examiner Opinion Zone and is Vice-President for Strategy at CEI. He is the author of the best-selling book on environmental policy, "The Really Inconvenient Truths," and specializes in energy, environment, finance, trade, and science and technology policy. He is also an expert on... more
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