The opinions expressed here are those of the author, the former head of communications at the Bank of England and a former senior editor at Reuters.

By Mike Peacock

LONDON, June 12 (Reuters) - More than rising populism, the developed world’s defining political trend in recent years has been transience. Governments increasingly do not get a second term – and often don’t even finish their first. If incumbents are going to be one-term wonders, perhaps they should start governing like it, with one key constraint: the bond market.

After a landslide election win in 2024, Britain’s Prime Minister Keir Starmer is now facing a leadership challenge. German Chancellor Friedrich Merz’s poll ratings have slumped since he took power last year, and even U.S. President Donald Trump lost power before regaining it.

This is a marked shift from recent decades – think former German Chancellor Angela Merkel’s 16-year tenure and the successive eight-year terms of U.S. Presidents Bill Clinton, George W. Bush and Barack Obama. While France’s President Emmanuel Macron has held his office since 2017, few think his successor in next year's elections will have the same longevity.
The future, it appears, will be fickle.

In general, this comes down to “the economy, stupid.” Across the developed world, people feel their lives have gotten worse. Household income data in many countries bear that out, showing a dramatic slowing in wage growth since the global financial crisis of 2007–09.

For example, in Britain, the average annual per capita growth rate of national income has only been 0.6% in the post-GFC era, compared with roughly 2.0% in the prior 18 years, Bank of England Governor Andrew Bailey noted in a recent speech.

The pattern has been replicated across many other developed nations.

It is not only a matter of living standards, however. Governments face escalating geopolitical tensions, energy security concerns, fractured trade rules and the generational disruption posed by AI. The answers to today’s problems are anything but simple, and what doesn’t work are yesterday’s strategies of political triangulation, outflanking opponents and government-by-focus-group.

Given this new reality, perhaps leaders should consider governing based on the assumption that they will only have four or five years. Doing so could free them to push through a handful of bold policies that might actually move the dial, even if it hurts. The paradox is that such conviction might even improve their re-election chances.

BOLDNESS AND BONDS

Parties often campaign cautiously - avoiding hard truths, only to find hemselves cornered by their promises once in power.

But political capital is never higher than the day after victory. So it’s critical for leaders to have a clear plan and to be upfront about the hard truths.

Given the high levels of government debt in many developed nations, that will often mean acknowledging that welfare and pension systems need to be reformed to drain less from public resources.

Starmer is a prime example of what not to do. After two years of half-measures and U-turns, the embattled prime minister vowed last month to end “incrementalism” only to produce a legislative slate that was the essence of caution, declaring he would put Britain at the heart of the EU while ruling out the routes to getting there, such as membership of the Single Market or a customs union.

Meanwhile, in Germany, Merz ripped up tight fiscal rules even before taking office, pushing through a landmark borrowing package worth hundreds of billions of euros only to find himself bogged down in coalition politics and a reluctance to tackle structural reforms.

ONE-TERM WONDERS

So what might governing as a one-term wonder look like?

For the UK, that could mean addressing Brexit and reforming the bloated welfare system to allow more productive investment.

For EU members, it may mean agreeing to bloc-wide approaches to economic reform such as those laid out in former European Central Bank President Mario Draghi’s 2024 blueprint to boost economic competitiveness - a plan EU leaders have supported in word more than deed. Importantly, they would need to be clear that it would require relinquishing some national sovereignty.

For almost all developed nations, governing with a one-term mindset would mean acknowledging the difficult choices that will need to be made in the face of aging demographics – such as boosting retirement ages and trimming pensions.

There is one hard constraint: the bond market. It will likely only tolerate bold changes inside a credible fiscal framework.

While investors do not always reward honesty about fiscal costs, trying to downplay or obscure the trade-offs usually leads to more severe market and political turmoil, as Britain discovered during Liz Truss' brief premiership in 2022, when she launched a big programme of unfunded tax cuts and caused a bond market revolt.

Bond investors can be willing to play ball, however, when leaders match bold policies with fiscal realism.

For example, Canadian Prime Minister Mark Carney has launched an ambitious housebuilding programme, pledged to make his country an energy superpower and set up a sovereign wealth fund to invest in technology and infrastructure, while bearing down on public spending in other areas to avoid seeing government debt balloon.

He remains popular after a year in power, in part due to his willingness to stand up to Trump, while Canada's 10-year borrowing costs, at below 3.5%, compare favourably with the nearly 5% Britain has to pay to borrow over the same period.

During the euro zone sovereign debt crisis that followed the GFC, European Commission President Jean-Claude Juncker declared, "We all know what to do, but we don't know how to get re-elected once we have done it."

Perhaps the key is forgetting the second part of his dilemma, coming clean about the challenges that ageing, high-debt nations face, and putting forward a plan of action that will inevitably involve pain as well as potential gain.

Investors might appreciate that, and, who knows, maybe voters will as well.

(The views expressed here are those of Mike Peacock, the former head of communications at the Bank of England and a former senior editor at Reuters.)

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