Ad Hoc Commentary – UK elections will likely produce weak coalition, possibly even political sclerosis

The British are going to the polls on May 7: “…With just days to go until the general election, the polls remain largely unchanged with the Conservatives and Labour neck-and-neck, although there has been a decline in support for Ukip since the beginning of the year…”

Yours truly is not sure if the eroding support for Euro-skeptic UKIP is real or just symptoms of the supposedly biased press:

Neither David Cameron (Conservative) nor Ed Miliband (Labour) is going to win a majority. In fact, we will likely see the end of two party politics in UK. Fringe parties are growing at the expense of the traditional parties: Nicola Sturgeon’s SNP is growing at the expense of Labour, and Nigel Farage’s UKIP is growing at the expense of Conservative. The rise of fringe parties seems to be a global phenomenon. Perhaps America’s Democrats and Republicans should take heed. In any case, Nate Silver, the world’s most respected pollster, sums up the uncertainty in UK: “…There is still enormous uncertainty about who forms a government after May 7…” “…You might not only have no party with a majority, you might have no two parties that can form a majority…”

Based on the seat projections by Mr Silver: “…the Labour leader, could form a minority government with the “consent” of the SNP but warned it would be an “incredibly messy outcome”…”

You just need to read the article below to know why it is going to get messy: “…Nicola Strugeon [of SNP] yesterday threatened to use “enormous clout” to force Ed Miliband to change “direction” if he becomes prime minister…”

The main problem is an almost guaranteed new Scottish referendum. It doesn’t help that factions within the SNP believe in the ‘conspiracy theory’ that MI5 rigged the Scottish referendum: “…In the front window of Dunoon’s Scottish National Party campaign base, alongside posters and canvassing information for the local SNP candidate, Brendan O’Hara, they’re displaying for sale a new pamphlet which describes in detail how MI5 and John McTernan, chief of staff to Jim Murphy, the Scottish Labour leader, “rigged” last year’s independence referendum by creating thousands of fake No ballot papers…”….html

The likely political sclerosis that will emanate from weak coalitions after May 7 will probably lead to a no confidence vote and early elections. If Europe is still mired in destructive austerity at that time in the future, say in a year’s time, then it is very likely that the 2017 referendum on Britain’s membership will be the most important issue especially the question about migrant workers from the EU:

In that situation, power is likely to return back to David Cameron’s Conservative party in coalition with Nigel Farage’s UKIP. Yours truly note that immigration is a big topic for the current elections, but the responses so far had been rather nuanced – more nitpicking than substance. However, immigration will inexorably turn into a full blown xenophobia crisis in the coming years if the EU economies outside Britain turns down, leading to waves of people on British’s shores seeking to escape crushing austerity.

Good luck in the markets.