Firstly, many thanks indeed to all those who have completed my little survey which I sent out last week. I should have mentioned that it is anonymous. I can read the replies but can’t see who sent them, so don’t feel you have to be nice to me. That said, some of the comments have made my week. Thank you! The survey is still open so please do respond if you haven’t done so already. It will take three minutes max and it will be very helpful for me as I think about how to take Wealth of Nations forward after the summer.
Meanwhile, here is this week’s newsletter. You were going to get a round-up of my favourite books so far this year but I had a couple of things I wanted to write about so you are getting a regular newsletter instead. You might get the books post later in the week in lieu of a newsletter when I am on holiday. As always, please do share with anyone who might be interested and consider upgrading to becoming a paid subscriber if you find these newsletters valuable. As always, I look forward to your comments and aim to reply to all them.
Bessent’s Ruse: France’s Problem?
Farage’s Victory: Binning Europe
Modern Greece: The New Byzantines
1. France’s Problem?
It looks as if Scott Bessent’s ruse isn’t working. If the point of the US Treasury Secretary’s intervention to prop up the Yen was to keep a lid on Treasury yields, last week delivered the verdict: the US sold 30-year bonds at a yield of 5.22 percent, the highest since August 2001. That compares with a yield of 5.06 percent at the last 30-year auction in July. It followed a $42 billion auction for 10-year notes on Wednesday, which were sold at the highest yield since 2007.
As noted last week, it certainly looked as if Bessent’s intervention was designed to stop the Bank of Japan from selling its Treasury holdings or raising interest rates to defend the Yen - either of which risked unwinding the carry trade propping up US asset prices (see Weaponised Capital). That suspicion was fuelled by his decision to fund the intervention by selling euros rather than dollars and by leaning on the Fed to expand an emergency facility that would allow the BOJ to borrow dollars rather than sell Treasuries.
But resorting to such unorthodox measures may have deepened the anxiety it was meant to soothe. The US debt pile has now swollen to $40 trillion, pushing the debt-to-GDP ratio towards an all-time high and Bessent’s improvised intervention hardly signals confidence in the Treasury’s own paper. Investor doubts are further fuelled by Trump’s continued inability to extract himself from the Iran War, which is keeping oil prices and inflation elevated.
Then there’s the fear that Bessent’s ruse simply won’t hold. Since the joint US-Japanese intervention, the Yen has given back half its gains. Indeed, as Spyros Andreopoulos has noted, the US intervention may end up undermining both the yen and the credibility of future intervention. After all, if Bessent is trying to stop the BOJ selling dollars, it raises questions about how much firepower Tokyo really has to defend the Yen. As things stand, the Fed credit line is capped at $60 billion, less than the $87 billion it is said to have spent so far.
Meanwhile, rising Treasury yields have dragged up longer-dated bond yields everywhere, pulling other highly-indebted sovereigns back into the market’s crosshairs. Most worryingly, French government 10-year bond yields last week rose to close to 4 percent, raising fresh concerns about debt sustainability as a result of soaring interest costs. As ReutersBreakingviews noted:
France’s interest payments in the first half of the year, at €34.5 billion, were up 19% on the same period of 2025. The government is trying to keep the budget deficit to 5% of GDP this year - roughly unchanged from last year. But a recent report commissioned by the government noted that even if the goal was met, France’s debt load would rise from the current 118% to 130% of GDP by 2030.
Stabilising French debt would require whoever wins next year’s presidential election to deliver a €125 billion austerity budget. But none of the dozen-plus declared or potential candidates has so far even broached the subject, notes ReutersBreakingviews. Far-right candidate Marine Le Pen, the favourite to come out ahead in the election’s first round, is promising tax cuts and more spending.
What has so far prevented spreads widening to crisis era levels is the architecture built up since 2012, as noted earlier in the summer (see Conviction Politics). But programmes such as the European Stability Mechanism, the ECB’s Transmission Protection Instrument, and NextGenerationEU common funding are conditioned on compliance with EU budget rules and France, already in the Excessive Deficit Procedure, might not qualify. That would set the stage for a collision between Paris, Frankfurt, Brussels and the bond markets.
Whether that means that France is heading for a debt crisis now or at some point after the election is unknowable. But what is clear is that the Trump administration’s incompetence, unpredictability and appetite for coercion rather than cooperation with allies is raising risk everywhere. As one of Bessent’s more distinguished predecessors said, “the dollar is our currency but your problem”.
2. Binning Europe
To no one’s surprise, Nigel Farage easily won the Clacton by-election. Indeed, it was a much better result for the Reform leader than most commentators were prepared to acknowledge, given that Farage received an increased number of votes on a lower turnout than in 2024. Instead, they tried to play down the scale of his achievement by reading significance into the 9,455 votes received by comedy candidate Count Binface — as if it told us anything other than that a substantial minority of Clacton residents don’t like Farage. We already knew that from 2024, when he won with 46 percent of the vote, as opposed to 63 percent this time.
As I warned in a column for The Guardian, a vote for Binface fuelled by nothing more than media vibes would be devoid of any useful information about Farage, Clacton or Britain: the joke would last about 24 hours, and it would be on all of us. Instead, the only real surprise of the election was that the Rejoin EU party’s John Stevens came third out of 34 candidates — albeit a very distant third — despite being almost entirely ghosted by the media.
One can only speculate how Stevens might have done if more pro-Europeans had got behind his campaign, rather than criticising him for splitting the Binface vote, and what impact that might have had on the national conversation. The campaign team reckons almost all their 492 votes came from people they had canvassed, suggesting that a bigger ground operation than the seven or eight volunteers it relied upon might have delivered an even better outcome.
Nonetheless, the real question, as discussed last week, is what this by-election says about the state of pro-European opinion in Britain. Earlier in the year, it did seem as if the looming change of prime minister might open the door to a more ambitious European agenda (see The Overwhelming Case for Rejoin). Yet it does seem that something has shifted between the Makerfield and Clacton by-elections: first, when Andy Burnham repudiated his earlier support for Rejoin to reassure voters in a heavily Reform-leaning constituency, and now with almost the entire liberal pro-European political and media class hiding behind the bin.
This has real consequences for British politics and economics. In a post last week, Denis MacShane, a former Europe minister in the Blair government, wrote that after Clacton, Labour needs a grown-up discussion on Europe. But I suspect in his heart he knows Labour won’t get one. Burnham has already said he will stick to Keir Starmer’s European red lines, which have impeded any meaningful progress on a promised “reset” beyond a few limited goals. As MacShane notes, Starmer’s mantra of Make Brexit Work was the same as Theresa May’s.
Indeed, my assumption is that political and economic pressures will draw Burnham in the opposite direction. Already, to the delight of Brexiteers, he has used Brexit freedoms to cut VAT on electricity prices. Unconstrained by single market rules, I would expect to see more dabbling with the forbidden fruits of subsidies, social prices and industrial policy. As MacShane reminds us, Labour was for many decades the most eurosceptic party, seeing in European integration a neo-liberal plot at odds with its own economic nationalism.
Burnham may be an instinctive pro-European, but it is clear he has no Europe policy and has given little thought to one. And in the absence of any unified, mobilised pro-European lobby in Britain — even the Confederation of British Industry no longer backs rejoining — I would expect him to retreat into Labour’s comfort zone. We know from the 1970s where that is likely to lead: the economic situation became so dire that Britain finally begged to be let in. I fear the European question in Britain has been binned, at least until after the next crisis.
3. New Byzantines
Ahead of my holiday in Greece, I’ve been reading The New Byzantines: The Rise of Greece and the Return of the Near East, by Sean Matthews, a Greek-American journalist. It’s a terrific book - part travelogue, part history, part commentary on the complex (Byzantine?) geopolitics of the East Mediterranean. His thesis is that Greece is historically, culturally, politically and economically part of the Near East, and that global trends, including America’s decline as a superpower and the erosion of Cold War borders, are drawing it back to the region.
It’s something that has struck me on recent visits. Greek friends talk of the huge inflows of Israeli and Middle Eastern money into Athens and other property hotspots; of the expansion of tourism and second-home ownership in northern Greece, including the Halkidiki peninsula, driven by buyers from elsewhere in the Balkans; and of the Dubaification of islands such as Mykonos. Much of the country’s economic strategy is focused on positioning itself as a hub for the region. At the same time, it is striking how often conversations in Greece these days turn to the difficult relationship with Turkey — which in turn is driving Greece’s increasingly close alliances with Israel and Egypt.
Matthews explores all this through a series of chapters focused on different places, not just in Greece itself but throughout what was historically the wider Greek world. There are chapters on Athens, Epirus and Kavala that explore aspects of the country’s Ottoman past that often get lost in the euro-centric and nationalist histories, plus chapters on Egypt, Istanbul and Jerusalem that uncover fascinating details about the Greek communities that proliferated across the Levant and Near East until relatively recently, and how these links are being revived. I had no idea that the Greek Orthodox Church owns nearly a third of the land in Jerusalem, including the land where the Knesset sits.
I’ve read quite a lot of books about Greece over the years. I really enjoyed this one, and heartily recommend it to fellow Hellenophiles.
That sounds like an excellent read, Simon. Many thanks for the tip. I’ll be in that part of the world much of the upcoming winter. Initial reading sorted.
Excellent, thanks Simon.
The CBI's position is an important pointer. I suspect that the business community largely lost interest in the EU debate some time ago. This apparent lack of interest makes serious discussion about re-joining the EU unlikely.
I suspect that firms are bored with the subject. Those affected by Brexit directly have made the expensive and time-consuming adjustments they needed to make; Brexit is the new normal and, with apologies to Charles Dickens, we are creatures of habit.
As I remember it, the CBI and similar prominent organisations started to pull their punches even before the referendum a decade ago. In the absence of a clear objective about rejoining the EU, it seems natural for attention to shift - for brtter or worse - towards questioning whether we need certain EU-derived regulations, especially new/amended laws, some of which are unpopular among EU-based firms.