The Economist Continental Europe Edition October 1, 2022

Italy’s nationalist right triumphed at a general election. An alliance of three parties headed by Giorgia Meloni’s Brothers of Italy won a solid majority in both houses of parliament. Ms Meloni is all but certain to become Italy’s first female prime minister. Though her party has neo-fascist roots, she has tried to present a reassuring face to voters. She promises not to ban abortion or gay civil partnerships, and to stick broadly with Italy’s economic reform plans as agreed with the European Commission in Brussels. The markets seemed relaxed about her victory. Russia staged sham referendums in four partly occupied provinces of Ukraine. Residents were asked, sometimes at gunpoint, whether they wanted their land to be annexed by Russia. The Kremlin’s local puppets announced that nearly everyone voted Yes. If Vladimir…

Markets took fright at the British government’s announcement of huge tax cuts. The cuts, laid out by Kwasi Kwarteng, the new chancellor of the exchequer, include reductions to payroll taxes, income taxes and stamp duty. Investors were perturbed by the amount of borrowing required to pay for the cuts, the biggest for half a century. Mr Kwarteng had disregarded common practice by not asking the Office for Budget Responsibility, an independent watchdog, for its assessment. The Treasury tried to reassure markets by announcing that he would unveil a medium-term fiscal plan, but not until November 23rd. An omnishambles “The markets will react as they will,” said Mr Kwarteng after producing his tax cuts. The pound was hammered, dropping briefly to its lowest level on record against the dollar. It also fell sharply…

IT WAS MEANT to usher in an era of economic growth. Instead the 25-minute statement that Kwasi Kwarteng, Britain’s new chancellor of the exchequer, gave on September 23rd kickstarted a crisis. By unveiling £45bn ($48bn) of unfunded tax cuts, alongside temporary measures to help with energy bills, Mr Kwarteng spooked financial markets in spectacular fashion. Most of the tax cuts and emergency spending had been signalled, but the vaunted supply-side reforms needed to pay for them were vague and the new government’s approach to the public finances was cavalier. Worse, the backdrop to Mr Kwarteng’s epic budget-busting was a slump in bond markets that raised borrowing costs for even the most creditworthy governments. As investors took fright, gilt yields surged, prompting the Bank of England to say on September 28th that…

XI JINPING WAS 31 when he arrived in Iowa in 1985. A junior Communist Party official at the time, he was on a two-week tour to learn about animal feed. His hosts liked him and he liked them. The highlight of his trip was a two-night stay with families in the small town of Muscatine. Mr Xi slept in a room decorated with posters from “Star Trek” and “Star Wars”. He tried popcorn for the first time. By all accounts, he loved Iowa. Embroidered stories like this led many observers to be optimistic in 2012, when Mr Xi became China’s leader. His father was a revolutionary pioneer, who later backed economic opening and reform as a provincial boss. Mr Xi grew up as a “princeling”, a child of party royalty. Some…

WHEN THE result of a vote is announced as 99% for something, you can conclude that the ballot was rigged and the riggers want you to know it. So it was this week with the sham referendums that President Vladimir Putin’s men illegally organised in four partly occupied provinces of Ukraine. Accosted on their doorsteps by men with guns, residents “agreed” that the invading power, Russia, should annex their land. To be fair, the 99% was recorded only in Donetsk, one half of the Donbas region. In Luhansk, the other bit, support was lukewarm: only 98%. And in Kherson and Zaporizhia provinces the vote was a nail-biter: Yes was in the high 80s or low 90s. Mr Putin’s referendums, which took place over five days and ended on September 27th, were…

THE WORLD’S financial markets are going through their most painful adjustment since the global financial crisis. Adapting to the prospect of higher American interest rates, the ten-year Treasury yield briefly hit 4% this week, its highest level since 2010. Global stockmarkets have sold off sharply, and bond portfolios have lost an astonishing 21% this year. The dollar is crushing all comers. The greenback is up by 5.5% since mid-August on a trade-weighted basis, partly because the Fed is raising rates but also because investors are backing away from risk. Across Asia, governments are intervening to resist the depreciation of their currencies. In Europe Britain has poured the fuel of reckless fiscal policy on the fire, causing it to lose the confidence of investors (see leader). And as bond yields surge, the…