The streets of Geneva erupted in chaos today as anti-capitalist protesters clashed with riot police on the second day of the G7 summit. For those of us watching from the City, the scenes were a reminder that the fiscal discipline preached inside the conference halls is not always welcome outside them. The British delegation, led by the Prime Minister, has been forced into a dual role: negotiating trade deals while simultaneously managing a public relations disaster.
The protests, which organisers claim drew upwards of 10,000 people, turned violent when a splinter group began hurling projectiles at police lines. Officers responded with water cannons and tear gas, dispersing crowds but not the underlying anger. This is the same anger we see in bond markets when governments print money recklessly. It is the same anger that drives capital flight from economies with weak fiscal anchors.
The British position is delicate. Foreign Office officials have been working behind the scenes to ensure that the summit's final communique does not appear tone-deaf to the grievances on the streets. But let us be clear: central banks and treasuries cannot solve every problem with stimulus cheques. The market knows this. Gilt yields have been twitchy all week, and today's violence will not calm them.
What we are witnessing is a classic clash between the elite consensus of globalisation and the populist pushback. The G7 leaders want to discuss climate change and digital taxation, but the protesters are worried about inflation eating their wages. They are not entirely wrong. The Bank of England's own data shows that real wage growth has been negative for 18 months. Can we blame them for being sceptical of summits that cost billions?
The British diplomatic strategy, as I understand it, is to push for a stronger social safety net within the G7's economic framework. But this requires spending, which requires borrowing, which requires confidence. And confidence is hard to come by when your police are kettling protesters.
Investors should brace for volatility. The Swiss franc has already strengthened as a safe haven, and gold is ticking up. If the protests spread to other G7 host cities, we could see a broader risk-off move. The market hates uncertainty, and Geneva is providing plenty of it.
