The axis of unpredictability formed by Benjamin Netanyahu and Donald Trump is creating a permacrisis that threatens global stability, and Whitehall appears paralysed. This is not hyperbole. It is a cold, hard assessment of the market for geopolitical risk. When the leaders of the world’s most militarily aggressive democracy and its largest economy behave like volatile assets, the rest of us are left hedging against disaster.
Let us examine the balance sheet. Netanyahu, with his coalition of religious nationalists and settlement expansionists, is running a fiscal deficit that would make a Greek finance minister blush. His government’s policies have eroded Israel’s traditional premium of international goodwill. The recent judicial overhaul, which centralises power and undermines institutional checks, has spooked foreign investors. Capital flight from Tel Aviv to London and Singapore is picking up. This is a sovereign risk that cannot be isolated.
Then we have Trump. The man who once said 'I alone can fix it' is now promising to fix everything by breaking everything. His economic agenda of tariff wars, tax cuts for the wealthy, and pressure on the Federal Reserve is a recipe for inflation and currency debasement. The dollar index is already twitchy. British gilt yields, which reflect inflationary expectations, are rising in sympathy. The market is pricing in a future where both the US and UK central banks are forced to hike rates into a slowdown, a classic stagflationary cocktail.
The permacrisis concept is not just academic. It describes a state of continuous instability where no resolution is in sight. In such an environment, investors flee to safety. Japanese yen, Swiss francs, gold. But Britain, lacking its own safe haven currency, is exposed. The pound sterling is a proxy for the UK’s trading relationship with the US. Tensions between Washington and Tel Aviv hit London first. Our financial services sector, still the crown jewel, is vulnerable to contagion.
So what must British diplomacy do? First, understand that the era of polite notes is over. The Foreign Office needs a liquidity injection of realism. We must engage both parties not as friends, but as counterparties in a deal that cannot be allowed to default. This means using our permanent seat on the UN Security Council, our intelligence sharing, and our financial ties to impose conditions. No more blank cheques.
On Israel, we must signal that further annexation of the West Bank will result in real consequences: suspension of trade deals, asset freezes, and diplomatic downgrades. The Balfour Declaration is history. The modern bond is our own national interest. We cannot afford to fuel a conflict that destabilises the entire Middle East and sends oil prices spiking.
On the US, we must treat Trump as a counterparty, not a partner. The special relationship is a myth if it means accepting protection racket economics. We need to diversify our trade alliances, deepen ties with the EU and Asia, and build resilience in our currency markets. The Bank of England must be ready to raise rates preemptively to defend the pound, even if it hurts growth.
Chancellor Hunt and Foreign Secretary Cameron need to act before the permacrisis becomes a contagion. The cost of inaction is far higher than the price of intervention. In financial terms, we are at a credit event. The risk of default on global order is rising. British diplomacy must engage in aggressive risk management, or we will all be left holding the bag.
The bottom line: Netanyahu and Trump are not going to change. So we must change our strategy. No more appeasement, no more hoping for normalisation. The market is already voting with its feet. It is time for Whitehall to follow the yield curve and act decisively.
