Liz Truss Wants to Be Thatcher. She’s Not.

These days, the yields on British government debt on the bond markets might be the first thing that comes to mind when comparing Britain to Argentina—as I write, the five-year yield on U.K. gilts exceeds that on Italian and Greek bonds—but there is a much deeper parallel.

The Conservative Party is Britain’s dominant political movement, like the Peronists in Argentina. That dominance is assured by extreme ideological flexibility, allowing the Tories to renew themselves in office by changing their leader and ideological direction. Out goes former British Prime Minister Boris Johnson’s “leveling up” of the post-industrial north, and in comes Thatcherite Prime Minister Liz Truss.

The new prime minister brings a strong ideology to her office. Libertarian on domestic policy and hawkish on foreign affairs, the political gods have given her half the circumstances she needs to put her beliefs into practice. Russia’s war against Ukraine renders hawkishness necessary but libertarianism impossible.

Russia’s war against Ukraine renders hawkishness necessary but libertarianism impossible.

The energy price rises caused by Russian President Vladimir Putin’s war have required Truss to begin her premiership with a 150-billion-pound (or $160.7 billion at current exchange rates) energy subsidy. Although it is hardly interfering in a free market—after all, the energy market is highly politicized already—it bears no relation to the libertarian manifesto she co-wrote, titled Britannia Unchained: Global Lessons for Growth and Prosperity.

The war and the resultant energy crisis have given Truss limited room for maneuver. Supporting Ukraine and protecting Britons from the effects of high energy prices are the sorts of policies about which the Conservatives’ first female leader and patron saint, Margaret Thatcher, used to say, “There is no alternative.”

Although arming Ukrainians against Russian invaders and shielding Brits from Kremlin-induced high energy prices may be difficult policies to carry out (not least due to the increasingly skeptical financial markets that punished the pound by nearly devaluing it to parity with the U.S. dollar over the weekend), they aren’t Truss’s biggest problem. The real difficulty for this government lies in Downing Street’s ideological approach to those parts of Europe Putin is not currently invading—in other words the disastrous impact Brexit has had on trade and ties with the European Union.

On Northern Ireland, the ball is firmly in Truss’s court. She is hemmed in by the notorious “Brexit Trilemma,” which holds that it’s impossible to avoid a trade border either in the Irish Sea or on the island of Ireland and for the United Kingdom to leave the EU’s customs union, which allows goods to flow across the EU’s national borders without being inspected by officials.

Former British Prime Minister Theresa May’s solution was to (in effect) stay in the customs union, but this was too much for the true-believing Brexiteers in the Conservative Party for whom the freedom to negotiate new trade agreements (greatly limited by customs union membership) was one of the main justifications for Brexit. So they ousted May.

Her successor, Johnson, the one-time pro-European who allied with hard-line Brexiteers to get rid of May, ended up agreeing to a specific “Northern Ireland Protocol,” which kept Northern Ireland in the EU’s internal market for goods, avoiding a hard border on Ireland while requiring supervision of trade between Northern Ireland and the island of Great Britain by British officials.

The protocol, needed to secure a Brexit agreement with the EU, has been an economic success for Northern Ireland but a political albatross for the Conservative Party. Johnson, not a man troubled by consistency, spent the next two years trying to repudiate the protocol he had signed.

Its supposed iniquity (by requiring supervision of trade within the U.K.) has become an article of faith for the Tory grassroots and all candidates during the recent Tory leadership election duly promised—in the manner of 1970s-era Arab nationalists promising to drive the “Zionist entity” into the sea—to scrap it. (After losing to Israel in the 1973 Yom Kippur War, those Arab leaders lost all hope of actually defeating Israel, but they found it useful to keep the conflict bubbling along.)

With interest rates unable to prop up the currency, the U.K. is starting to look like an emerging market when it comes to yields on its government debt and currency volatility.

The elimination, or radical revision beyond recognition, of the protocol has become a totem of “soundness”—as Tories term ideological rectitude—to which Truss has to commit herself.

But the circumstances don’t favor Truss. The protocol is part of the Trade and Cooperation Agreement (TCA) with the EU. Whether out of historical suspicions of “perfidious Albion” or some sort of sense that Johnson was not a man of his word, the TCA includes robust provisions that allow the EU to retaliate if the U.K. breaks the agreement.

Johnson attempted this twice: first by trying to openly break international law (though his Northern Ireland secretary insisted this would only be in a “specific and limited way”) and, more recently, by a bill giving ministers the power to ignore parts of the agreement unilaterally.

The hard-line Euroskeptics, whose single-minded fanaticism has made life impossible for every other Conservative leader, are now watching Truss for signs of deviationism. She has bought some time by putting one of them, Chris Heaton-Harris, in the cabinet as Northern Ireland secretary, but they will expect her to confront the EU sooner rather than later.

But it would be an unequal battle. That’s because the EU’s economy is five times bigger than the U.K.’s, and the U.K. has no geographically close large trading partners that could serve as alternatives to the EU. In other words, EU trade still matters more to the U.K. than U.K. trade does to the EU.

And because the EU did not trust the U.K. during its exit negotiations, it ensured tough retaliation measures were built into the Trade and Cooperation Agreement that governs the post-Brexit relationship. If an arbitration panel cannot settle the matter or if the U.K. chooses to ignore the arbitration panel, the agreement allows either party to suspend parts of the agreement.

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In theory this is an option available to both sides, but because of the difference in size between the EU and U.K., it is a weapon that only the EU can safely use. The main element likely to be suspended is the agreement for tariff-free trade. U.K. exports to the EU would then be subject to tariffs, ensuring they would be priced out by the competition.

Such a battle comes amid a sharp British financial crisis, caused by British Chancellor of the Exchequer Kwasi Kwarteng’s fiscally expansionary “mini” budget. The market reaction makes clear that investors think it was badly timed, and they have sent the cost of British government debt up and the value of the pound down despite recent rate rises from the Bank of England.

With interest rates unable to prop up the currency, the U.K. is starting to look like an emerging market when it comes to yields on its government debt and currency volatility—not to mention inflation rates that exceed those in continental Europe.

Launching a new battle against the EU would be just the distraction Truss needs to keep a nervous Tory party together. Truss, who is a die-hard Thatcher fan, might even imagine it could be her Falklands War moment—standing up to an ancestral enemy in the name of the motherland.

It could be, but her role would be that of reckless Argentina, not victorious Britain.