BBC BLOGS - Peston's Picks
« Previous | Main | Next »

Britain to oppose giant euro bailout fund

Robert Peston | 19:11 UK time, Saturday, 8 May 2010

No one seems to know whether the European Central Bank (ECB) will in fact provide backstop liquidity to Europe's squeezed banks - and whether it will go further and create money through quantitative easing to ease economic conditions in countries like Greece and Portugal facing significant fiscal tightening.

Euro coins and notesOfficials and politicians I've spoken to say the ECB is playing its cards close to its chest, though pressure is being applied for it "to do the right thing".

There is talk of the ECB providing some kind of one year repo facility (where government bonds are swapped for 12-month loans) in collaboration with the US Federal Reserve.

We'll see. Certainly for the sake of a bit more stability on markets, something of that sort is required.

What is clear is that European finance ministers will tomorrow approve a scheme that would allow the European Commission to borrow against the security of its budget, and then lend some of the money to eurozone members facing financing pressures.

But the sums of money that will be made available by this approach - which already exists in a small scale way to help financially challenged Hungary, Latvia and Romania - will be relatively small, perhaps 50bn euros in total.

That won't be enough to reassure markets - although it's bound to be controversial in the UK because it effectively puts Britain on the hook for a few billion pounds to bail out eurozone states in difficulties.

However eurozone members want to go further and effectively create Europe's own giant IMF-style fund, with all EU member states clubbing together to guarantee borrowing by troubled individual members.

My strong sense is the Treasury - and today's Chancellor, Alistair Darling - will oppose the creation of such a fund.

He will argue that the IMF already exists, and has both the financial resources and the expertise to do this job. So what's the point of replicating it?

If Darling opposes what one might call a European Monetary Fund, other EU members could go ahead and create such a fund without any financial contribution from the UK - but it would have to be in some sense separate from the institutional structures of the EU.

And I would assume that eurozone finance ministers know there's little point hanging around to see who might succeed Mr Darling in the coming days, because the most likely successor - George Osborne - is likely to be even less sympathetic to the idea of throwing in a few tens of billions of British pounds for the common European good.

Comments

  • Comment number 1.

    Why have a crisis when you can have an international crisis?
    It will certainly set the cat among George and Vince.

    And how the Euro sceptics will howl.
    Couldn't have happened at a better time.
    To a better bunch.
    This one will run and run untill the inevitable fudge.

  • Comment number 2.

    Has A. Darling/Brown already agreed to increase the UK's annual EU contribution for next year?

    If Darling does not oppose a new EU currency bail out fund he would be totally incompetent - except that it now looks like the UK that is going to need a bail out... but ... since the UK is not a member of the EU currency ... then presumably Britain would not be able to benefit from an EU bail out anyway?

    Britain is viewed now as a risk to the EU and would not now be able to join the Euro currency now with a mountain of debt and deficit and permanently in breach of the 'Maastrict debt limits'.

    Why did the UK's EU rebate get negotiated away by Blair and Brown?

    When is Darling going to be replaced with a competent Chanclellor?

  • Comment number 3.

    So let me see we will need to borrow more money to contribute to a fund that is bailing out over borrowed countrys.

    Just how big do they expect this fund to need to be?

    Oh and what happens when we all need to access it?

  • Comment number 4.

    Looks like a busy time this weekend for all! Bankers and politicians alike.
    This looks like Mr edge he had before the election. and how to keep in power

    Mr Darling is right, why reinvent a bank when there is one? Why dilute the talent?

    But I can say that as I am just a voter with the vote for next time, not too soon I reckon.

  • Comment number 5.

    "When is Darling going to be replaced with a competent Chanclellor?"

    When the Lib Dems get their Proportional Representation wish and Vince Cable becomes Chancellor

  • Comment number 6.

    The Eurozone can certainly create a bailout fund for itself as long outsiders don't
    have to contribute. The task now must be to develop a funding and crisis resolution
    framework for the Eurozone which can operate independently - neither Tonga nor Britain should have to be consulted.

  • Comment number 7.

    These are assumptions only. But we must find out some finer escape routes to balance the unbalanced financial system through our give and take policy. Unless we do that the stability we are seeing in the Stock Market is artificial only and hence a very much a temporary phenomena. With entire wealth hold-up in China, we cannot do anything other than neutralizing it somehow through use of some tricks. The Economy of Britain being not very much attached to EU but is more or less independent and hence can opt to enforce its own decision which is believed beneficial to it. But unless we ensure equal distribution of wealth within us with self sacrifices infused, the World might again see a collapse of it any time in near future.

    (Dr.M.M.HAZARIKA PhD)

  • Comment number 8.

    Why should the UK contribute?

    If the Eurozone want a fund to help each other they should set it up between them. Asking for a few billion from the UK is the same as asking for it from China or America!

    We are not part of the Euro

    Thankfully our current chancellor, and the Tory in waiting both agree, Maybe a Con/Lab government could work after all? They have far more in common than Con/Lib.

  • Comment number 9.

    How ironic, we would not be permitted to join the Euro! Is it just me that still thinks we should have joined as at least with the impending crisis we at least would not have the Sterling crisis that will inevitably engulf us?

  • Comment number 10.

    Why not borrow more to help the Greeks, Irish and Spanish?

    This is the Chancellor who at a stroke and against Treasury advice bailed out the Icelandic banks to the tune of £8,000,000,000.

    The government said that "total support to Icelandic banks amounted, at latest estimates subsequently to be revised, to £8.1 billion.”

    And not a penny retrieved.

    That £8b was £2b more than the threatened £6b of Tory cuts this year that so exercised the asylum seeker in No. 10 during the election campaign.

  • Comment number 11.

    However eurozone members want to go further and effectively create Europe's own giant IMF-style fund, with all EU member states clubbing together to guarantee borrowing by troubled individual members.
    ---------------------------

    Here comes the new USSR! It will all end in tears and decades will be lost. Alas people never learn from other people's past mistakes (and their own ones sometimes)!

  • Comment number 12.

    A truly independent Europe has to be able to manage its own finances - there's no alternative to it. It has more resources and a bigger internal market than anyone else. One should be practical and look ahead, we will wish we did so in a decade or so, needless to say by then it would all be too late – again. Compared to established currencies it is still in its infancy and yet, over the years, had gained value against them. And, it will survive its current crises and emerge stronger and more mature.

  • Comment number 13.

    I have been living in Germany for a few months and, whilst I don't understand enough German yet to fully understand what is going on politically, I have become aware of a lot of unhappiness in regions in Germany too regarding the current economic state. I think the NRW region is in big trouble but the Germans have also contributed massively to the bailout of the Greeks. It appears that the UK is not the only place where this kind of thing goes on....

    http://the-fa-premier-league.blogspot.com/

  • Comment number 14.

    Darling seems to be on the right lines here...

    Better late than never I suppoose....

  • Comment number 15.

    Well Mark S, I am happy to reassure you, that I feel the same as you (and so do several of my friends) that we should have joined the Euro, when we had the chance!
    For some reason, there seems to be a large Media Lobby, which heaps scorn on this view.

  • Comment number 16.

    What increasingly worries me is to see all this agitation on week-ends with references to "[insert some goal here] before the markets open". Has the world gone mad? Can you imagine Churchill's, de Gaulle's, or Adenauer's behaviour and schedule being dictated by "the markets", that giant squid?

  • Comment number 17.

    Let me get this right, so the EMF contributors borrow money from the market at a certain rate then lend it to countries within the EMF that can't get access to normal markets at a presumably higher rate...Hnnnnnn... I know lets call it sub Prime lending because I doubt thats ever been done before.

  • Comment number 18.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 19.

    I am surprised Darling is not committing billions to this rescue fund!

    They already have financially bound the hands of the incoming government, why not make an even greater mess for them to clear up.

    As the Gov. of BOE says, it would make it even more likely the Conservatives will be unelectable for a generation.

    For that reason, it would not be such a bad thing if the Con/Lib pact falls through, and Labour/Lib/Other stitch-up is left with the mess. Then no amount of election manipulation will make Labour or LibDems electable in a generation.

  • Comment number 20.

    It's over folks, it's really all over.

  • Comment number 21.

    The IMF is a well funded body no doubt, but that it has the expertise is very much in doubt. The track record of the IMF fixing economies is terrible, as it only provides the loans by removing all protections that these economies have in place, 'freeing the markets' and leaving them much more vulnerable to further turbulence. If an 'EMF' were to be brought into existence, then maybe it could allow these loans to go through without imposing the economic 'shock therapy' that is currently under-way in Greece, and has been seen the world over, from South Africa, Iraq, Chile, Russia and throughout South East Asia. The major European economies of Britain, France, Germany and Italy all have a certain level of mixed economics, along with most of the rest of the developed world. The IMF attempts to enforce pure free market in economies much less stable than ours, and nobody is under any doubt that these policies would be disasterous here, let alone in Greece. But that the EU is any less free market orientated than IMF is not clear, but as far as I can see, we should, in the EU, have as little to do with the IMF or World Bank as possible.

  • Comment number 22.

    Banks have been bailed out and now countries are having to be bailed out. As an ex banker ( low pay grade....tiny annual bonus) I despair. I studied and passed all Institute of Bankers exams but regretably the likes of Goodwin and most of his Dealers and also Brown and Darling etc did not and as time has proved have no idea of the principles of borrowing/lending. Why do we allow this.

  • Comment number 23.

    "Britain to oppose giant euro bailout fund"

    What hypocrites we are! It is OK to bail out our banks with QE, but it is not OK for anyone else to do it. Which fools said this? Ah, the Treasury and Mr Darling.

    Apart from demonstrating yet again that they are almost terminally innumeracy, does it not occur to them that the beneficiaries of such a bail out will be the present owners of European national government bonds - the major international banks - i.e. our banks! It they block a bailout of the Euro it will be our banks that suffer and we will have to bail out our banks, again. Unwise, is the kindest expression that comes to mind.

    Britain needs a fully functioning international finance system as we (unfortunately) blessed with huge international banks (till we do something about it!) anything that potentially damages their liquidity or loan books will hit us disproportionately hard. We should be please to play out (smaller) part in rescuing these (our) banks with the help of the other members of the EU.

    My guess is that the Treasury is being manned by third line staff over the weekend! I expect the policy to be changed by Monday.

  • Comment number 24.

    My sense is that some in the Markets are simply out for their pound (or should that be Euro ) of flesh here. Back on Black Wednesday Mr Soros and others took common cause to throw a sovereign currency into turmoil. Then, in 2008 the scant regard for the realities of lending by all too many in "the markets" led us to our massive current debt problems. Now, it seems, the failure of one (Greece) country to deport itself with due dilligence now threatens us all? Even those of us outside the Euro? On Newsnight on Friday a 'Hedgefund Manager' threatened that our Banks are again suffering liquidity issues. So, the list gets longer; first Lehman Bros, then the Banking system, then Greece, next the World!!! As the worlds financial systems finally gets sucked into a black hole of oblivion, will the last voice heard be that of an "expert" saying "well, that wasn't supposed to happen....."
    ps - can all this be traced back to Portsmouth FC ????

  • Comment number 25.

    The American Economy is altogether different than all others being it is the source from where fund originates and hence any and all generation of fund by itself can never put any pressure on the overall Economy of the Country but it shall bring more health to it so long there is no over circulation of fund. Again although there is scarcity of currency within the Country; the value carried by the Country is remaining very much intact to counter all ups and downs of Economy within the Country but Europe is a mixture and hence cannot draw that much value to withstand the assaults on its entire Economy.

    As and when we are successful in bringing the lost Economy of Greece to some health, all factors that are responsible for doing the current turbulence within the Global Economy shall run away from the scene to force the entire blockade evaporate at a gust to start afresh its free movement from one hand to the other . Therefore the Greece is a perfect test case in front of us with all the variables working very much in our behalf. This therefore is a golden chance in front of us to bring the entire obstacles to go away in case we are able to transform our desire into reality with Style infused into it. The other Economies within Europe which are under strain must not however desire for a likewise treatment for similar bailouts but require drawing of their own strategies to handle it.

    (Dr.M.M.HAZARIKA PhD)

  • Comment number 26.

    Labour and Liberals together got 52% of the vote, clearly the majority of voters and citizens in this country are for progressive, liberal,
    pro-European policies.
    The Conservatives got 36% of the vote. In a country with an election system based on proportional representation they would never have the chance to govern alone. They would be finished without seeking coalitions. The broad mainstream in this country is not in favour of current conservative policies (who in their right mind likes tax breaks for the rich in the midst of an economic crisis?).The Conservatives are still right of the centre of UK public opinion.

  • Comment number 27.

    Maybe the Euro countries don't want the IMF showing up to countries being attacked by big business because the IMF will tell those countries to sell their infrastructure to the very companies attacking them on the market. Isn't that what the IMF does? Isn't it viewed as an arm of corporate US by many commentators?

    Perhaps what a more socially responsible and wiser EU should do is create a co-op bank!

  • Comment number 28.

    I dont know much about banks, but if my neighbour gets into financial difficulty and cant afford their kids new shoes would I help them out? If it was of their own making, ie over spending and luxurious lifestyle, no, I would most certainly not. If they had been made redundant or fallen sick and had to be put on IS or worse no money at all, then yes I would.
    What I mean is, from what I have read Greece got themselves into this mess, through over spending and borrowing beyond their capacity to pay back. Just because they are part of the EU, why should we, when they clearly cannot manage their affairs chuck more money at incompetent bankers and governing bodies when they cannot pay it back?
    But there is one scenario missed in your report, what if, Cameron takes on a Lib Dem Chancellor as part of the deal, they are pro Europe, they could in theory turn any decision made by Darling upsides down and get the UK into even more debt. I seriously doubt a bail out in Greece to the magnitude talked about will actually help matters. I would be more inclined to send in a select body of IMF bankers and accountants to sort it all out instead. Why heap a country already in huge debt with more? we have debt Councillor here for people who get into debt and make repayments more manageable without adding to the misery, why not a country instead? Its irresponsible to chuck more money at them when they cant pay it back. As for a giant EU wide bailout fund, no. Definitely not, we cannot sign up for that. Younger, poorer EU countries might decide to go on a spending spree if they think there is a fund to bail them out, and on this occasion, charity begins at home, and right now our mess is more important. Sorry, it just is.

  • Comment number 29.



    How can borrowing more money to pay back the money you owe be the way forward?

    I bought my first house in 2001 and have bought and sold 3 times since then, without exception the house has appreciated at a faster rate than my wages. As I was an early career professional, my wages went up significantly faster than inflation (RPI) which is supposed to include housing costs. BUT IT CLEARLY DIDN'T INCLUDE ENOUGH HOUSING COST otherwise my wages would have increased at the same rate or more. My hypothesis is that the office of national statistics caused the housing boom and thus allowed the country to use their houses as cashpoints which fuelled the last 10 years of 'growth'. Either that or RPI was manipulated to be artificially low, which kept interest rates artificially low) hang on, this sounds familiar.

    Back to the topic. Bailing out the Euro bondholders with a call on future tax revenues accross the whole of Europe! GREAT! Looking forward to a long and highly taxed working career to pay for this nonsense. ECB should fire up the presses now and QE the Euro down to a rate where EU exports can compete with the Remnimbi and the loyal citizens of the EU will have to suffer a drop in living standards and more expensive imports & oil. Should reduce CO2.


    Good Luck! Reckon gold priced in GBP might go up in the next few months.

  • Comment number 30.

    Evening Robert,
    my view is that the UK treasury and Mr Darling (Browns stand-in) have been wrong about every decision concerning Europe that they have made in the last 10 years.
    Some bloggers here think that we are in control of the market forces at work here but in reality we are just reacting and taking no effective action to head off this very real crisis.
    This is a struggle between the USA dollar and the Eurozone Euro. The American forces are trying to break the Euro and become even richer in so doing. The plan is working well at the moment and I would ask you all to consider what would happen if the Euro becomes unwanted.
    What needs to be remembered is that the Eurozone is our largest export market so no Euro, no exports... is that in Britains interest?
    We contribute to the IMF (which is controlled by bankers not Governments- well maybe with the exception of the USA) but it is a small fund considering the sums of money that may be involved here.
    This crisis has been very badly handled by all involved in the Eurozone, it could have been stopped early on but politics got in the way of sound business decisions and we will ALL pay much more dearly for this dithering and intransigence.
    I think that it's possibly too late now to save the Eurozone and maybe we need to push for the Yuan to become the reserve currency instead of the reliance on the Euro.
    Maybe the Eurozone will be restricted to Germany, France and The Netherlands with all the others going back to their own currencies, interest rates and financial policies.
    Hold on to your hats...it's going to be a very bumpy ride in the next 18 months, this will make the credit crunch seem like petty cash!

  • Comment number 31.

    26. At 10:22pm on 08 May 2010, invisiblehandadvisor

    Aye, who thinks making the richer richer and the rest of is poorer? Not a lot of people do.

    36% of the vote is shocking - it's a steal!

    The Observer is reporting there are internal Tory calls to sack Gove and Osborne. Ashcroft is in a huff too. Apparently he thinks it would have been a better result if we hand't got to see inside the Boy Wonder packaging. Seems a senior tory described the 'Big Soceity as "c*&p". Wonder when the BBC will begin reporting the internal battles?

  • Comment number 32.

    Let me see if I get this right:

    1. The EU do not have their accounts signed off by auditors as there are holes in them. Do we really think the accounts for this new fund will pass muster?
    2. The EU want to take from the budget money for country bail outs within the Euro zone
    3. Those outside the Euro zone will contribute
    4. Those outside the Euro zone will probably not be eligible access to this fund

    Surely I must be missing something for none of this makes sense

  • Comment number 33.

    I think Mr Peston is jumping the gun just a little here.

    One assumes a Eurozone fund would be just that. A fund denominated in Euros and created by Eurozone members for their mutual benefit.

    Britain is not by definition a Eurozone member and thus would have no say in the fund formation, no membership of the fund and no liability to such a fund.

    Should the Eurozone members wish for contributions from non-Eurozone members they would no doubt receive short shrift from the UK et al but as no one has yet suggested that it seems pointless to speculate on it.

    In fact, a strictly Eurozone fund would be good for Britain as we currently contribute to the IMF and presumably now share some liability for a part of the IMF Greek bail it. If such bailouts were to be totally reliant on an internal Eurozone fund in future then we would have no national liability to the Eurozone members at all, which would be nice :-)

  • Comment number 34.

    invisiblehandadvisor

    still trotting out the line libdems + labour vote share = majority against conservative are we.
    most parliamentary seats won in last general election by a single party = conservatives
    most votes cast for a single party = conservative
    most seats gained by a single party = conservative
    give it up, its boring already.

    robert's post and many of the comments show that when the markets know that a government or the eu, will not let any economic models fall, they can speculate against it until its on its last legs, then let it revive, before speculating against it again once its been bailed out.

    speculators know that none of the countries in the euro will be allowed to fall, so once one has been saved and drained by the money men, then theyll move on to another.
    clearly, the UK staying out of this mess remains the case, as we have our own mess to contend with.
    we should certainly not be paying money in, to bail out euro countries.
    there is one important thing missing, that the speculators are fearful, a fail option.

    is there a mechanism for a euro country to default on its debt?
    i cant see a way of devaluing the currency... without such a mechanism, the speculators know they cannot lose, no matter how bad they damage a country's economy, it will be fixed by the rest of the countries.

    they, as indeed do we, need a fail mechanism, whereby the money men can actually lose their precious cash.... amazing how that will focus their pockets and protect countries from being drained of cash

  • Comment number 35.

    Dear me,don't we gift enough money already to the EU,£4+billion and rising.

  • Comment number 36.

    @invisiblehandadvisor “Labour and Liberals together got 52% of the vote, clearly the majority of voters and citizens in this country are for progressive, liberal, pro-European policies.”

    Your math is poor. Conservative and Liberals together got 59.1%, which beats 52% by the 7.1% lead David Cameron achieved over the old Labourites still barricaded into #10.

    Clearly the majority of the voters have suffered enough after 13 years of “progressive, liberal, pro-European” and economically insane policies that have left us with crazy Gordon’s debts of £1.2tn and an annual overspend in excess of £160bn.

    Even if one stole the entire £5bn bank bonus package from the top 5 banks it would only amount to about £25bn or not even 1/6th of the annual overspend of the Labour government. If you hate banks then at least be consistent and hate Labour 6 times more…

    If voters had wanted to further cripple the economy they would have voted Labour back into power – they didn’t – read the results and accept the view of the majority please mr ‘invisiblehands’.

  • Comment number 37.

    There is no way Germany would contemplate an IMF of Europe - it would up and off before then. Time to dust off the old dmarks!

  • Comment number 38.

    There seems to be a growing recognition amongst most ordinary people that the end is nigh.

    The days of being part of the bourgeoisie seems to be coming to an end and the credit card does not secure one's place at the table of being "middle class". That folks is what countries are doing. The Credit Card is empty, yet the debt is being sold off to the Bailiffs.

    If the UK tax-payer ends up having to bail out failed countries, in order to prop up the Capitalist system, at which point do they actually get it ? At which point do they actually say "enough is enough" ?

    Greece is the Word.

  • Comment number 39.

    There is a route to recapitalise global sovereign debt. This problem is not particular to Greece after all.

    My proposed solution of a year ago is as follows:

    The G20 central bankers agree a plan that involves them all buying some of their own sovereign debt with QE. Even countries with a sovereign wealth fund run up some QE.

    The G20 central bankers meet in one month’s time and put their negative chips on the table, their QE chips. They then agree on an equitable disposal of QE chips that leaves global trade, FOREX and capital movements as they were but sovereign balance sheets vastly improved.

    Virtual money, QE, is largely eliminated from their balance sheets and never has to be paid back.

    The Greek crisis is disposed of. China gains some $2 to £3t improvement in its sovereign wealth fund. The global pecking order of sovereign wealth is unchanged but the zero bar has been lifted.

    We all sign up to this lifting of the zero bar by agreeing to go forward with a cap on future sovereign debt equal to a 10 year state mortgage and a ban on the issue of further QE.

    Since many of the G20 absolutely need this to avoid an 80 year state mortgage including the US and the UK, since the world’s area, population and resources have not changed and since on so many issues, like godalisation and global warming, we are all in this together we can go further with our leverage to sign up. We can expand the deal on future debt limits and a ban on QE to include other pressing global cooperation issues such as nuclear dissarnament and a greener future.

    We need no leverage with the PIGS as they would sign anything tomorrow to get their debt down. China would sign up as they would gain some £2 to $3t and be able to use this new wealth to easily meet their new green targets that they must sign up to.

    This plan is not political. The only attendees are central bankers. Anything they put on the table in terms of a global stability wish-list is purly my beckoning. They all attend simply to loose some debt or gain some credit. The big outcome is the raising of the zero bar with no impact on the global wealth pecking order.

    There are no sovereign bailouts, no sovereign defaults, no bond holders loose their money. The only risk is that there is some exuberance and some global inflation. But every global impact is global. No G20 member looses or gains other than a massive improvement in their balance sheet as the zero bar is lifted.

    The non-G20 states are only responsible for 5% or world trade but they are automatically uplifted on the back of the equitibility of the global rescue provided by the meeting of the G20 central bankers.

    There is no alternative other than unnecessary global austerity beginning with Greece and followed by contagion.

    This proposal is only the extention of the “coordinated interest rate cutting strategy” which has been so successful. QE is the extention of monetary policy when interest rates cannot be cut below zero. I am only proposing more of the coordinated interest rate cuts solution.

    The last big debt crisis cost 100m lives as austerity gave way to expressions such as “useless eaters”. We don’t want to go there again.

  • Comment number 40.

    As the UK is not in the Eurozone and is not likely to be any time soon give the state of the EU finances at present with a bankrupt Greece, Spain and Portugal on the brink, we should stay well away from this poison chalice.

    It is not our problem, we have the UK £ not the Euro, and that's in a bad enough state without dragging us into the mess in Europe

  • Comment number 41.

    According to the politicians and economists life in the world at large (and the UK) is now ruled by the "markets". So what was the point of the recent General Election in the UK? The questions to ask are:
    1. who allowed the supposed markets to take over our lives? (In my view all of us).
    2. Wasn't the UK General Election supposed to be for the benefit of the British people rather than "markets"?
    3. How much longer do we put the (human) cart before the (market) horse?

  • Comment number 42.

    Finally some comon sense is shown by the treasury. There is no point in bailing out bankrupt countrys/banks/companies. Why waste good money on failed states? We would just be delaying the enevitable bankruptcy.

    If we let people face the consequencies of their decisions they would be more careful next time! If we keep on bailing people out, we can't complain when people get themselves into this mess or investors make a quick buck by manipulating the market. If you know that someone will always fix your mess why would you bother stoping yourself getting into the mess?

    When people realize that if they overspend and get themselves into debt, they will go bankrupt and no one will help, that's when we will see a stable market and an end to this incoming financial oblivian.

  • Comment number 43.

    Robert, The printing presses will roll or should I say that the aptly named QE a.k.a Quick and Easy will come into play and involve no paper or ink thanks to electronic funds! The ECB should "print" the PIGS liabilities and Britain with its AAA rating should "print" away the 1.2 zillion UK indebtedness. Net result devalued currencies. As most governments are living on "tick" the markets/userers will rule and we will remain subserviant to them and their guardians, the ratings agencies until money has zero true value. Which is probably the case anyway.
    In the meantime there will be a lot of suffering for those, who through no fault of their own, are caught up in this mess. Yep, Joe/Jose/Guiseppe... public. At least they'll have their plasma tv's to throw out the window.

  • Comment number 44.

    tomwillbeton1,

    1. The reason for the market's particular influence right now is that the British government is borrowing 30% more than it receives in taxation. Note: the 11-12% of GDP deficit that is usually quoted leads to a mental underestimation of the problem. The concept that government debt should be compared to 100% of the productive capacity of a country is rather absurd. If government was entitled to 100% of the fruits of labour it would be slavery - as can be seen with the Greek unrest the idea that a people will work just to pay off government debt is irrational.

    All major parties are in favour of borrowing money from the markets. There are advantages to this (governments can usually borrow at a cheaper rate than the nominal increase in GDP and it leverages seigniorage).

    2. The markets do benefit the British people. Having a smoother income stream prevents shocks. We're currently borrowing £500,000,000 per day to fund our largess. If nobody buys our debt in short order then we'd have to cut spending by £163bn this financial year.

    £163bn in cuts would be the equivalent of slashing all benefits and public sector wages/pensions by 20% and the immediate payment, at the point of service, for all NHS costs (with no reduction in taxation for individuals to pay for treatment).

    In more normal times - when the Eurozone didn't look on the verge of breaking up - there would be buffers to smooth the decline in spending, most notably the IMF and quantitative easing, but both are looking flaky at the moment. The IMF may not have the funds, even if they do the £120bn worth of special drawing rights Britain is entitled too would only last 8 months before having to make drastic cuts. Quantitative Easing is often churlishly called "printing money", the key difference is the acceptance by the market that the Bank of England will at some point destroy/cancel the gilts they have bought from the Debt Management Office and these gilts have value. If Britain has a run on Sterling and could not not issue debt in the primary market to anyone bar the Bank of England, i.e. no-one considered gilts creditworthy - then that would be printing money, we'd be the next Zimbabwe/Weimar Republic.

    That politicians have not spelt out the dangers to the British electorate - and instead spoken in generalities such "its a serious economic matter" - was the biggest scandal of the election. If the parties dare not spell out home-truths on the deficit the idea they will implement the required deficit reductions is farcical.

    3. A market is a mechanism of many human individuals trading - be that in your local market town, the decision to shop at Tesco or Asda, or trading synthetic collateralised debt obligations. To trade with others - to benefit from competitive advantage and the division of labour - is the reason we no longer live in caves.

  • Comment number 45.

    Robert:

    I am very supportive that Britain is very much opposed to the giant, Euro bailout fund!

    (D)

  • Comment number 46.

    It amazes me to hear of conservative voices that whine of "13 years of misrule" - David Cameron even used that phrase yesterday.

    May I remind people of true misrule, the thatcher years, 1979-1990. In 1978, unemployment was at an all-time high of 1 million. The tories campaigned heavily on this; I remember their campaign poster of a long dole queue. Within 2 years of thatcher in power, unemployment trebled to 3 million!

    thatcher's economic policy was low inflation driven. She believed in the Keynesian model which said that low inflation = high unemployment. She even famously said that high unemployment was a necessary evil of keeping inflation low.

    In the early 90's under a tory govt, interest rates were @ 7% (ish) and doubled overnight when they took us into the ERM (Exchange Rate Mechanism). Norman Lamont quickly took us back out - this was called "Black Monday". May I point out that there was NO global recession at that time!

    1997 - Tory sleaze and misrule was swept aside by Labour.

    In the past 13 years, the UK has seen sustained:
    LOW interest rates
    LOW inflation
    LOW unemployment

    All ripping up the Keynesian model that thatcher so believed in. Labour proved that you can have LOW inflation and LOW unemployment at the SAME time! In this same 13 year period, the once strong ecomomies of Germany and Japan have struggled.

    Then a GLOBAL recession hits. A banking CRISIS hits. ALL western democracies were hit. Gordon Brown made the right decisions time and again.

    Yes, you may have guess it, I am a Labour supporter and proud of Labour's record in government. I firmly believe that had the tories been in power when the GLOBAL problems landed, we would now be in far more trouble.

  • Comment number 47.

    As I understand it, the new European Fund will be organised in the same manner as the IMF. It is a membership Fund and there is no compulsion to join. However, there is also no compulsion for the Fund to help/bailout any country that is *NOT* a member !!

    Britain does not need to join but it cannot expect any help from them if it is in trouble !!

  • Comment number 48.

    Clearly the debtor greece can no longer pay its way, bankrupcy is not a favourable option because they share the euro bank account,
    the massive greek cuts have been agreed a necessary part, however, a visit to the euro citizens advice bureau should occur.
    Creditors whoever they are should have their capital shaved for taking excessive risk. Simply make 50% of the debt non performing ie base rate interest for 5 years. a profit should not be made when no one else will lend because the borrower is unsound. the greedy need their wings clipped even if hey are rich.
    The fear of this happening will prevent a run on other countries.
    this is financial war ,but who is the enimy, ourselves?

  • Comment number 49.

    Tories have Tunnel vision

  • Comment number 50.

    I agree with those who have written that a Euro Zone country's crisis is primarily for those countries who elected to be partners in the Euro Zone to sort out.From the inception of the Euro the main problem has always been the starry-eyed approach of those pushing for its introduction, together with the lack of vigour in ensuring the financial probity of those countries participating. It does seem that the latin countries of Greece, Spain, Italy and Portugal have a very different understanding of the meaning of financial probity and prudence than the the germanic nations.The glue doesn't appear to be holding well. Could there eventually be a parting of the ways?

  • Comment number 51.

    Gordon Brown, sorry you will not able to help save Europe from this mess. As you sit up there in Scotland it is now the people who tell the tyrant:
    "Stand not upon the order of your going, but go at once!"

  • Comment number 52.

    Have I missed something? When did we join the Euro-zone?
    After I have shelled out of my personal income via income tax to the Banks, Foreign Aid,Paying benefits to people that will not work...I was told that communism was dead, is it?

  • Comment number 53.

    Pass the debt parcel until the music stops.

  • Comment number 54.

    I do not believe the UK should contribute to a fund designed to support the Euro. We have no duty to a currency we dont use.

    But, I have a proposal : lend the 200 billions of sterling QE sterling gilts plus corporate bonds acquired by BEAPFF to the ECB on the condition that ECB indemnify the UK Treasury against any fall in face values against market during the period of the loan plus currency swap losses. In return we receive a commission / interest payment. This should help us recover £18 billions of paper losses run up by the BEAPFF Ltd operations last year.In this way, we encourage a mutually supportive strategy between the two currencies.

    What do you think, George and Vince?

  • Comment number 55.

    The point here is that the UK has already bailed out its banks and under EU State Aid rules, choices that would not have been made commercially were forced upon our banks to level the field. As taxpayers we are on the hook for the measures that we as a country adopted.

    Now, through s.122(2) of the Lisbon Treaty we will likely be REQUIRED to provide guarantees/funding to a fund that will be backed by the 27 Governments of the EU (of which we will have c.15% of the pot since contributions are split by relative GDP)for the benefit of the 16 members of the club who adopted the Euro without ever enforcing the rules of the club on deficit and debt levels.

    So why my point about the State aid impositions. Well, who will be the beneficiaries of the new stabilisation funds - it will be the major European banks and in particular the French banks (many of who have substantial equity investments in Greek banks as well as Government bond holdings) and the Spanish banks who are increasingly relied upon as buyers of first resort for Spanish Government debt. We are being REQUIRED to bail out the banks of other nations. Don't get me wrong, the UK banks will also benefit (as will we all) from stopping the system from going down - but lets meet our responsibilities on an equitable basis. We have bailed out our own banks and will suffer for years ahead under the burden and the EU has sought to level the playing field for the assistance we have provided. We should not be in the position where we as taxpayers have to help save other EU banks (their Governments did not help us bail out our banks),if we are forced to do so under the Lisbon treaty, lets please make sure that a price is extracted. If only we had a Government to bang on the table in Brussels.

    This issue should be the lead story, if we are bounced into a major support operation (and we will get a good indication at 6pm this evening from the EU Commission), the sums involved will (or will become) vast.

    Is there a better solution - well quite frankly I would not want to start from here.......

  • Comment number 56.

    > My strong sense is the Treasury - and today's chancellor,
    > Alistair Darling - will oppose the creation of such a fund.

    You're darned tootin' he'll oppose it. They can put thier
    own money into the pot, but I'll keeping mine in my pocket.

    > That won't be enough to reassure markets

    Last time I checked, markets were driven by fear AND
    greed. If we lower thier fear, we increase thier greed.
    And the LAST thing we want is more greed, thank you
    very much.

  • Comment number 57.

    Will this mean that we as a nation have to contribute to this fund but would never get any assistance from it as we are not in the Eurozone?
    If so it seems like another fine mess you've got us into Oll--sorry - Alistair!

  • Comment number 58.

    Alistair Darling is so right on this one.

    Robert, interestingly, you mention Hungary and Romania in your piece - both those countries were listed on the IMF website, only this month, as already being indebted to the IMF - if those two countries are looking to be supported by an EU fund as well .... OMG?

  • Comment number 59.

    While bearing of a value by one is real to transform labor into liquidity, the currency notes are imaginary. While knowledge is real, the books are imaginary to derive different meaning out of it by different ones. While the actions within the Computer are real, the pictures in the Screen are imaginary. Therefore, none has the Authority to arrest the flow of fund either from one place to the other or from one hand to the other. Anyone doing so for whatever reason is a worst crime one can inflict to the Humanity. Since neither value non knowledge nor happening of an event can never be stolen through use of any tricks, if either of any of the above is lost (without a limitless list) through the doing of the act of stealing by one who is interested to robbed the beholder, the recreation of the output is very simple to make the situation normal once again depending upon the sincerity of the beholder how the entity intends to react to the situation. This shall never disturb the prevailing situation in any way.

    Again a single drop of nectar poured into a glass of poison shall make the effect of the Poison invalid or null and void to do the purpose for what reason it is prepared. The reverse shall happen if an ill will is induced into the offer of nectar to turn its sweetness of it into a poison. No matter how much big or miniature, an offer of help is, it shall do nothing if it is not put or convert into fruitful actions and when some bear a desire to absorb it on its way to the recipients. With limitless variables available in front of us, none can ever venture to offer any bailout package to others even if the Counties are in dare need of it without consideration of the amount involved or quantum of help required to do so, due to raising of a suspicion of its possible misuse as it is appearing to the world at present which however change tomorrow by bringing-in a congenial atmosphere there too.

    Since the world has not lost the value as yet, with some permutation and combination infused with the help of all, we can recreate the wealth to flow freely within us. Such approach must not meet with a suspicion nonetheless it always bear a risk but it is worth undertaking the risk rather than living like this under the cover of fear everywhere. Let us either do or die. As and when I left the Company under forceful circumstances which was followed by subsequent most harass actions inflicted, the action transformed me from a most faithful worker into a hermit. Since the later action is better than the former, the said action is irreversible. But the current Global financial situation has gone from bad to worst falling into the hands of vested interests and hence very much reversible with the help from every one of us.

    (Dr.M.M.HAZARIKA PhD)

  • Comment number 60.

    Why don't governments tax "the markets" more? They always seem to make fat profits. Caledonian Comment

  • Comment number 61.

    For the Euro to survive as a single currency without total political and fiscal union, then the Eurozone needs the help of the Chinese, who after all are the ones with the money as Western Governments are practically bankrupt. Therefore why no issue a Euro Bond with the guarantee of all European member states that has a coupon of 5% for a period of 5 years and is fully convertible into gold at the equivalent of US$ 1,250 per ounce upon maturity. That way the Chinese will snap it up the Euro will initially strengthen and the Eurozone countries have 5 years to get their fiscal deficiets in order. Also it gives the Chinese at alternative to having to hold US$ Treasury's which they so dearly would like to dump but don,t know how too in any size.

  • Comment number 62.


    As WOTW says at 20. "It's over folks, it's really all over."

    We have no choice but to support this fund as it will be swept through by Qualified Majority Voting. It will benefit us as it seems we (UK Govt) hold about EUR 420bn of the sovereign debt of the PIIGS and default & contagion would hit us bad.

    http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html?ref=weekinreview

    It won't work of course as the weight of all this debt, public & private, in the system is almost at an overwhelming level. Once the interest rates on our debt start to rack up due to Moodys downgrading us, the soup will rise above our chins, the Euro will crack and the revaluations of currencies will start.

    What this actually means for day to day life, I don't know.




  • Comment number 63.

    So money is needed in the UK, USA, Ireland, Greece, Portugal, Spain, Italy... Aren't there a lot of multi-millionaires?.
    I am not advocating for communism outright. I still believe that a fairer, better incentivised, better governed (political and justice reforms), and regulated capitalist system is the least bad for our western democracies, but I can’t understand why taxpayers and dependents are going to have to suffer so much for many years to come, while a privileged few will continue to enjoy their billions.
    How come no billionaire has volunteered yet to plug the budget deficits in health care, pensions, education …?
    Let’s promote it and campaign for it. I am not suggesting taking property or assets by force, nor nationalising private companies.
    I am just suggesting we encourage the wealthiest to give back to society in these times of need, because it has been all of us who have made it possible for them to amass billions.
    Of course there need to be financial reforms, budget cuts, political reforms. But I bet that if we give the wealthy a chance to help and be charitable to the majority of us, they will be happy to.
    At least it is worth a try.
    I think it is in these tough times that accumulated wealth could make a difference and be re-distributed to plug our financial black holes.
    I also think it will be in the best interest of the millionaires. If we all let this financial mess deteriorate much more, there could be violent uprisings in some countries leading to more revolutionary and painful reforms in future.
    The clock is ticking, and as we have learned with all these recent financial and banking crises, history has a tendency to repeat itself

  • Comment number 64.

    The root of the problem is the fiscal and monetary nationalism built into the Masstricht treaty. Those drawing up the treaty preferred to leave the casino-like money markets in control, rather than create a federal structure able to do the job. There is no democratically accountable authority that can agree a fiscal regime which is a compromise between the wide spectrum of opinion over the Eurozone, and the member countries could not even suppress their nationalistic instincts sufficiently to organise timely help for Greece. The special funds are just sticking plaster, not a permanent cure.

    The idea of a common currency for the EU is a good one, and underpins the single market by preventing competitive devaluation within the Eurozone ,which would spoil the "level paying field".

    Amendment of the Masstricht treaty is urgently needed.

  • Comment number 65.

    For heaven's sake! We haven't got enough money to sort out our own national debt, let alone contribute a hefty sum to support the vanity of the Euro!

    We already pay a massively increased amount into the Eurozone since Blair and Brown agreed to cease applying the discounts fought for so hard by Thatcher.

    Let them use the money from the contributions of all EU members....but hang on a mo, as another poster has said, they can't even produce a decent set of accounts, so how can they possibly know where our contributions have been spent?!

    Just as our government have no idea of the full size of the black hole, the Eurozone government have no idea at all either. How two-faced are they to dictate to other member countries how to run their own finances when they can't sort out their own.

    Ridiculous - just what, exactly has our contribution already been spent on?

    I have no doubt whatsoever that the UK would be refused any help from this EMF.

    Desperate measures to prop up the Euro indeed.

    Us Brits have been sold up the river and will now be held to ransom. Had we had a referendum (as promised by Labour) on the Lisbon Treaty our great UK would have voted against it. Brown waited so long to call an election that the treaty was already set in stone and the referendum promised by Cameron would be useless. There is nothing we can do.

    We're now being told we will be forced to contribute because of a clause originally included to help those countries beset by natural disaster, NOT (as suggested by Sarkozy) to stop the rotten behaviour of the money markets.

    The banks are supposedly in profit - get the money from them. Better still, find a way of stopping the behaviour of credit rating agencies (for personal, corporate and sovereign debt) and currency speculators.

    This whole thing is an attempt to prop up the Euro so certain European leaders can save face.

    I'm furious that they even think they can tell us to put our own country at greater risk just to support their pride and vanity.

    Stand firm Mr Darling.

  • Comment number 66.

    Re: 36. At 11:56pm on 08 May 2010, Paul J Weighell wrote:

    I wrote about policies, not party propaganda. If a conservative-liberal alliance should emerge (I hope not) then it won't last long. How could such an alliance last long with such big differences in policies on Europe, defense, electoral reform and even banking reform. I assume that voters have voted for the policies they prefer and there the picture is clear: only 36% voted for the anti-European, market-hugging policies of the Conservative party. Most liberal voters dislike the policies of the Conservatives and, given a voice, will oppose a power sharing deal with the Conservatives if this leads to the abandoning of their core liberal policies for the sake of gaining very temporary access to power. Its simple really.

  • Comment number 67.

    #63 Mike

    'But I bet that if we give the wealthy a chance to help and be charitable to the majority of us, they will be happy to.'

    Mike, sorry to disillusion you but the wealthy didn't amass their great wealth by helping and being charitable to the rest of us.
    They got their great wealth by exploiting us.
    They are adding to their great wealth by exploiting the situation that we now find ourselves in.

    The wealthy own the banks, they made a few bad investment decisions and unlike the rest of the great unwashed, they did not suffer the ignomy of financial collapse and bankrupty, repossesion etc. that we would suffer, no, they just helped themselves to the public purse to allow themselves to continue as before.

    The wealthy now find themselves in the position to make capital from the disruption in the public finances that they themselves created.

    So no, the wealthy will not help us, they will do all they can to protect and increase their wealth and if that is at the expense of the rest of us then so be it.

  • Comment number 68.

    Throwing good money after bad is stupid. But there ain't no 'good money' anymore - the whole thing is a sham/scam.

    However, YET AGAIN Britain is saying "no" to Europe, a-la-Thatch, and on the continent notes will most certainly be taken...

    Come the run on Sterling, Britain will have little more than all that water around it to save it from the financial terrorists who are already plotting to fleece it for whatever spoils of war they can steal.

    It's going to be an interesting week!

  • Comment number 69.

    I wonder if Europe's problem lies in the fact that for years (......How many?) it has not published an annual Audit. I thought that when keeping an eye on ones personal finances it was a good idea, at least now and again, to check just how much income we have AND where we are spending it all. So this does not apply to money bags Europe? Mmmmmm.......
    We cannot support this problem, it is a 'Euro' problem......just how, after years of pandering to Brussels we, Dave and Nick, tell them that is going to make interesting viewing.
    Why don't the BBC do an update programme on ' le AUDIT'?....now that would be interesting.

  • Comment number 70.

    Britain has become the world's expert in "painting oneself into a corner, and how to do it". So you shouldn't be surprised at anything the buffoon class does anymore.

  • Comment number 71.

    Should we trust the IMF? Is this the same outfit that sold me a kitchen in 2008 and then went bust?

  • Comment number 72.

    I might be being a bit simple here but what if say 5 countries get into real financial trouble as the toxic debt is passed around like pass the parcel.
    How the hell is a central fund going to help, because all countries would have to spend more to build up the fund. They have managed to keep the lid on this but time is running out.The banks have off loaded so much debt to make things look as though its business as usual, but anybody with half a brain knows its not.
    And that's before the tax hikes cut peoples spending even more!

  • Comment number 73.

    I still think this is a plot to pull the rug from under every working family, you spend all your years working to provide a home feed the kids then they take it all off you.
    Ordinary folk being the donkey, the carrot is owned by the rich minority that own the banks. Now the rich are raiding the public coffers because nobody is buying anything any more. We have too many ways for business to raid the public purse now, its getting to be a free for all.

  • Comment number 74.

    The various governments in Europe should never have bailed out the private banks. Shareholders know the risks and they should have taken the hit.
    Now you have banks off loading debt to the various governments, businesses are off loading labor on to dole. Who picks the tab up for that governments.
    Then you have some businesses asking for financial support, who provides that governments. How much more is going to be loaded on to the government and ultimately the tax payer? The greed that killed the banks and various businesses should have cleansed the markets, they should have all gone under.

  • Comment number 75.

    The city created this mess and then played pass the parcel (toxic debt parcel), they must be smirking and breaking open another bottle of plonk no champagne!
    And not one of these financial institutions has been brought to court for the damage they have done on all western economies.The free market has played foot loose and fancy free with every bodies savings, pensions, mortgages etc for too long. And they still come out smelling of roses.

  • Comment number 76.

    In the end the euro will fail,if not now then in the future.We should not give them a bean. As a main trading partner of ours we want them to do well but not at any price. The euro may fall like a house on fire but nations will rise again from the ashes.
    I am one of many who think that if the countries had kept there own money and forgot about the crazy idea of the same interest rate works and is good for all, a lot of this could of been avoided or at least made easier to deal with.

  • Comment number 77.

    I personally think that European defense will take a bit more than a Eurofund.

    It looks to me as if WWIII is actually in full swing, but it is an electronic war that is aimed at smashing up and destroying Europe as a monetry, economic, military and political entity.

    It seems like a realy basic military plan is in action, DIVIDE and CONQUER, because it seems that this is exactly the direction, motive, and outcome of present market attacks on Europe.

    I'd like to know who the hidden faces and names are behind this instead of just "Mr Market".

    In all honesty, I do believe that there is something much more sinister afoot than just market reactions.

  • Comment number 78.

    All this user's posts have been removed.Why?

 

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.