On a brisk Monday evening in May 2010, Gordon Brown stood on the steps of Downing Street and announced one of the most surprising announcements of the New Labor era: his resignation as prime minister of the UK.
The decision came days after a nail-biting general election that left no party with a clear run at No 10. Brown continued his decision, which followed days of political wrangling, to a tight inner circle. Nick Clegg, who will continue to serve as deputy prime minister in the Conservative-Liberal Democrat coalition, was formally told of Brown’s resignation just 10 minutes before the announcement.
But across the pond, a man named Jeffrey Epstein, a well-connected financier and convicted child sex offender, was announced a few hours ago. “Finally let him go now …” an email believed to be sent by Peter Mandelson Epstein announced Monday morning.
The apparent tip-off, revealed in the latest tranche of the Epstein files, not only gave Epstein an inside track on future UK politics, but also on the major moves that will take place in global markets.
That includes further wild swings in the value of the British pound, which has already fluctuated in the run-up to the 6 May general election. It fell 2.2% on the day of the vote, its worst day in more than a year, illustrating how worried traders are about the risk of a hung parliament and political instability.
On the day of Mandelson’s apparent tip-off to Epstein, the pound rose more than two cents to $1.505, before losing all its gains as Brown’s resignation – and his plan for Labor to hold coalition talks with Clegg’s Liberal Democrats – sent shock waves through Westminster. Sterling would recover a cent a day later, as the Lib Dems struck a deal with the Tories, handing the keys to No 10 to Conservative leader David Cameron.
While there is no evidence that anyone sold the leaks, this is just one example of the kind of inside information Mandelson is said to have shared with Epstein, according to the latest batch of documents released by the US Department of Justice this week. The leaks have sparked political outrage across the UK, with Keir Starmer asking the police to investigate over concerns they contain sensitive market information.
The market for sterling is one of the largest and most liquid in the world, traded through currency desks around the world. Bank of International Settlements data shows that it was the fourth most traded currency in 2010.
Among the allegations that Starmer has asked the police to investigate is that the former business secretary, who resigned from the House of Lords on Tuesday, may also have tipped off Epstein on a €500bn bailout deal for the eurozone.
In the same weekend that Brown was locked in talks about the political future of the Labor party, EU finance ministers scrambled to strike a deal that would prop up the euro and avert a potential eurozone collapse.
What started during the financial crisis in 2008, and transformed into a sovereign debt crisis in Greece, now threatens the solvency and stability of the eurozone. It has spread across the Mediterranean, triggering market bets against Portugal, Spain, Italy, as well as Ireland, and raising questions about whether European leaders have the political will to save the common currency.
In general, the crisis, and its resolution, have created useful opportunities for traders and financiers to profit from the European stock markets and operate in the euro.
On the evening of Sunday 9 May 2010, while eurozone ministers were still in negotiations, Epstein emailed Mandelson, saying that sources claimed the €500bn bailout was “almost complete”. [sic].
“I’ll let you know tonight,” he replied seems to have been sent by Mandelsonsaid. When Epstein asked if the UK business secretary was at home, Mandelson wrote “Just leaving No10..will call”. The UK government, which never joined the common currency, did not contribute to the bailout, but the former chancellor, Alistair Darling, was in Brussels for negotiations.
At around 2.30am the next morning in Brussels, the finance ministers of the eurozone announced a staggering €750bn rescue plan – mainly €250bn from the International Monetary Fund – to support the currency bloc.
It came shortly after markets in Tokyo opened for trading, and prompted a sharp rally after European stock markets opened at 8am UK time that day. Only France’s CAC 40 index saw significant moves, rising 8.8% in that session. The euro also rallied in early trading before falling back. Currency traders can place trades from 10pm on Sunday, UK time.
Chris Beauchamp, chief market analyst at IG, told the Guardian that there was “limited time” to sell such information before the eurozone bailout was announced, as policymakers tried to time bailouts in open markets.
On the contrary, Mandelson’s tip-off on Brown’s resignation seems to have been sent during the trading hours of the market, which means that it is easierfor someone with inside information to sell sterling, government bonds or stocks in the FTSE 100. However, “there is a risk that the market will not interpret the movement in the same way as you do”, said Beauchamp.
“If proven, the allegations as reported amount to a serious abuse of delegated power at the heart of the government at a time of national crisis, said Daniel Bruce, chief executive of the anti-corruption body Transparency International UK. “It is right that the police are now involved.
“Any investigation must examine whether offenses have been committed under the Bribery Act and the common law offense of misconduct in public office.
“With public trust in politics at historic lows, the government must act decisively to rebuild trust. While we welcome the development of misconduct legislation and reform of the rules on removing partners, ministers must speed up these reforms to arrest the UK’s declining reputation as a beacon of good governance.”