Britannia Radio

A round-up of this morning's news and comment on the crisis.

Apparently Alistair Darling is to make a statement to the Commons 
this afternoon. with the papers forecasting that the Treasury will - 
on our behalf - buy shares in the banks to provide recapitalisation 
across the board.  (But we won’t get the dividends, if any!)

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TELEGRAPH   6.10.08
Where were you when Europe's leaders had their cosy little chat?
    By Janet Daley

According to Nicolas Sarkozy, the leaders of the Big Four countries 
of Europe are "united" on the need to call all the leading nations of 
the globe together to "create a new financial world". Well, modesty 
has never been a big feature of European Union rhetoric. Mr Sarkozy's 
great world summit is to include, in addition to the G8, China, 
India, South Africa, Brazil and Mexico.

This enormous gathering, encompassing countries with wildly differing 
economic conditions and directly conflicting competitive goals, is 
somehow to reach agreement on the creation of a New Financial World, 
even though the Big Four of the EU were unable to agree on anything 
last weekend except an emergency slush fund (to be dispensed by, and 
accountable to, whom?) and the need to call another meeting.

They could not even agree in Paris on a bail-out package similar to 
the one that had just been approved in Washington, and the closest 
they got to co-operation on a new regulatory system for banks was 
Gordon Brown's proposal for something called a "college of 
regulators" - which, if it ever saw the light of day, would surely be 
one more job creation scheme for well-fed Eurocrats.

And the leaders of Britain, France, Germany and Italy managed to 
achieve this stupendous failure to agree on anything much at all 
without even the hindrance that faced the US Congress: the manifest 
and noisy involvement of the electorate.

Where were you and I during last weekend's Grand Day Out for the EU 
leaders? Who was listening to our views and arguments about the 
future of our savings and our investments, our employment prospects 
and our security?

If the dear leaders had managed to carve out a deal that determined 
the financial possibilities and constraints of every citizen of their 
respective countries, what power would any of us have had to counter 
it, or even to register our objections?

Where was the channel for public debate to influence their 
deliberations? In that bloody, partisan struggle that took place in 
America, which everybody in Europe is so anxious to avoid emulating, 
there was no question in anybody's mind whose opinion had to be won 
over before an agreement could be reached: it was the electorate, 
stupid.

US legislators were simply not prepared to hand over the tax dollars 
of their furious constituents, who were besieging them with protests, 
without a damn good fight. (One Congressman reported that his 
telephone callers were running about "half and half": half of them 
said "no" and the other half said "hell no".) So in the US they 
fought themselves to an exhausted standstill and in the end they got 
a result which may or may not work - but at least it was a course of 
action.

Even more important, the paralysis was a temporary, constructive 
phase that eventually guaranteed the complaints and the misgivings of 
voters would be taken into account. It was ugly and pig-headed, at 
times it was ludicrous, but it was also magnificent.

And it was all played out in full view of the voters, and the world.
But in Paris, behind closed doors, the negotiations failed (and make 
no mistake, they did fail) to produce anything of significance 
without any help from public outrage.

France, Germany, Italy and the UK could not agree on a single course 
of action because - as Mr Sarkozy effectively admitted in a 
characteristically irritable press conference performance - they all 
have different economic circumstances and needs. He described this as 
having "different cultures", but it adds up to the same thing: France 
and Germany do not have property-owning traditions that produce house-
price booms and busts, the UK population has much greater credit 
liabilities than the French, etc, etc.

We are very different nations with very different economic habits and 
there will never be a one-size-fits-all solution to our economic 
problems. Which is what some of us have been saying all along about 
the impossibility (and danger) of imposing economic union on 
disparate countries.

Mercifully, in a crisis, they could all see the impossibility of a 
unified solution: when the chips were down, they were not actually 
going to jeopardise their own national economies for the sake of some 
phantasm called economic union. But that didn't stop them talking a 
lot of blather about co-operation and joint action.

The joint action they seemed to relish most was the threat of some 
fiendish punishment for Ireland and Greece who had had the temerity 
to behave "unco-operatively" by offering guarantees to savers which 
would have the effect of sucking capital out of the banks of their 
European partners. Well, whatever next? An elected government puts 
the needs of its own national economy first in a world crisis.

The EU Four warmed themselves cosily with the prospect of preventing 
countries from "acting unilaterally" to guarantee bank deposits in a 
way that would hit their neighbours' economies - only for Germany to 
do exactly the same thing last night.

And what is meant by acting unilaterally? Engaging in competition so 
that the would-be investor has a chance to protect himself? Rather 
than agreeing to plunge over the cliff in collective camaraderie with 
your neighbour states? Would you as a depositor like to have the 
option of moving your savings to a safer banking regime or would you 
prefer a deal to be done on your behalf by the Big Four that might or 
might not support your home banking industry? You might feel that 
there are arguments for both these possibilities, but nobody asked 
you before or during the Paris summit, did they?

European co-operation in this case, as in so many, seems to amount to 
conspiracy between the political classes of EU countries to prevent 
individual citizens from making choices that might jeopardise - what? 
Why, European co-operation, of course - which is a good in itself, 
even if it works against the interests of the individual or even all 
the individuals of a nation.

I cannot remember a time when the absurdity of the concept of 
economic union has been made so demonstrably clear, or when the 
democratic deficit of the EU - the way it does business with utter 
disregard for the opinions of its populations - has been so palpable 
if only by vivid contrast with the awkward, vulgar thrashing out of 
public policy that characterises the robust mass democracy across the 
pond.

Within the foreseeable future, we will know which of these governing 
philosophies was able to produce the economic goods. But if neither 
of them produces an immediate working solution, I know which one is 
more likely to have the flexibility and the popular support to adapt 
and survive.
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OTHER HEADLINES -----
TELEGRAPH
FTSE 100 tumbles as banking crisis intensifies  @9.37 am
The FTSE 100 tumbled 5pc at the open in London as fears that the 
banking crisis is deepening sent shares of Royal Bank of Scotland, 
Barclays and HBOS lower.

FINANCIAL TIMES at 10.36 am
Banking stocks plummet across Europe
European financial stocks suffered sharp losses as worries about the 
extent of the crisis in the sector deepened. The FTSE 100 fell 4.8%, 
with the Dax and CAC 40 also down nearly 5%. Oil dipped below $90 for 
the first time since February

Darling plans ‘big steps’ to aid UK banks
Taxpayer funds may be used for equity stakes -

TIMES
Iceland reels as bank rescues evaporate
Credit rating agencies downgrade Iceland and its four biggest banks 
as government decides against 'special measures'

BNP Paribas pays €14.5bn to control Fortis
The deal means the French bank now becomes Europe's largest deposit 
taker and Belgium is its largest shareholder
===========================
THE TIMES   6.10.08
Every country for itself as European unity collapses in an attack of 
jitters
Germany became the latest EU member to put its national interest 
first by announcing its own guarantee for bank deposits
    Roger Boyes

Germany shattered any semblance of European unity on the global 
credit crisis last night by announcing that it was ready to guarantee 
€568 billion of personal savings in domestic accounts.

The move – which came as Berlin announced a new rescue package for an 
ailing mortgage bank – is sure to anger France, which, holding the 
European Union presidency, tried to create the illusion of a common 
front at a weekend summit in Paris. Instead, the message coming loud 
and clear from Berlin is that it is every man for himself. Or as 
President Nicolas Sarkozy would prefer not to say:sauve qui peut.

The massive liquidity crisis in the banking system has already nudged 
the Irish Republic and Greece into unilateral – and probably illegal 
under EU law – action to guarantee the deposits in national banks. 
Faced with a choice between the possible collapse of their banking 
systems and violating EU competition rules, the two countries opted 
for what they saw as the lesser evil. Now Germany, which at the 
weekend rejected French plans for an EU lifeboat fund, has taken the 
decisive protective step, and it is said to be plain that other 
European states will have to follow suit.

Early today the Danish Government guaranteed all bank deposits in 
Denmark as part of a deal with banks to set up a liquidation fund. 
There had been a ceiling on the guarantee.

Yesterday Peer Steinbrück, the German Finance Minister, said of his 
own country’s move: “This is an important signal to calm the 
situation and head off disproportionate reactions, and which would 
make our crisis management or crisis prevention even more difficult.”

Berlin insiders say that Angela Merkel, the German Chancellor, did 
not make a spur-of-the-moment decision but had been pondering the 
move since the Hypo Real Estate bank first ran into serious trouble. 
The Munich-based group is the second-largest commercial property 
lender in Germany and it seemed set to go down ten days ago, hit by 
the problems of its Irish subsidiary Depfa. Then the Government came 
up with €35 billion of liquidity to be provided by a consortium of 
banks and the Bundesbank, while banks and the Government would stump 
up €35 billion of credit guarantees. The alternative was to see the 
bank go down and suck the real economy into the maelstrom.

The new deal announced last night gives Hypo Real Estate an 
additional €15 billion credit on top of the €35 billion. Of the extra 
credit €14 billion of that extra credit will be underwritten to 60 
per cent by the commercial banks and 40 per cent by the Government. 
The hope is that this will be sufficient to head off a run on the bank.

But even before she went to the Paris summit to argue against a “Euro-
tarp” – a troubled asset relief programme – or bailout plan, Mrs 
Merkel knew that matters were unravelling at home. The original 
rescue plan for Hypo Real Estate was clinched in a phone call eight 
days ago between her and Josef Ackermann, head of Deutsche Bank.

She persuaded him to tell Germany’s bankers to up their contribution 
to the rescue from €7 billion to €8.5 billion. She was determined 
that the Government should not shoulder all of the burden. But then 
Mr Ackermann reported back – the banks were willing to cough up only 
€3 billion for the rescue. Hypo Real Estate made matters worse by 
announcing that it had got its figures wrong – it could need as much 
as €100 billion by the end of next year and €20 billion by the end of 
the coming week.

Since then – more specifically since an allnight session of the 
Bundesbank on Thursday – she has known that she has to come out on 
behalf of the savers, the taxpayers and even more important the 
voters. Germany faces a general election next year and they will tip 
out any Government that is seen to be throwing their money at sinking 
banks or bungling its handling of the economy.

“We won’t allow the crisis in a single institution to become a crisis 
for the whole system,” the Chancellor said. The Germans will abolish 
the current limit guaranteeing 90 per cent of all bank deposits up to 
€20,000 per account – essentially the same measure taken by the Irish 
that triggered dismay from its partners, especially the British. The 
€20,000 sum is the lowest possible guarantee under EU law; other 
countries have higher limits.

The scope of the guarantee is huge. “It covers all savings deposits 
and private giro accounts, a total value of €568 billion,” Torsten 
Albig, spokesman for the Finance Minister, said.

The primary task of the Government is to stop a financial meltdown 
that destroys all consumer confidence in the economy. “People are 
asking: what is going to happen to my savings?” says Rüdiger Ditz, 
economics commentator of Der Spiegel. “Is an investment secure? And 
what is going to happen to us when there is no backbone to the system 
any more and the money just evaporates?” It is difficult to deal with 
the crisis using conventional political instruments, he says.

“It is about the loss of confidence of ordinary people, the fear of 
fear itself,” he says, “and nothing is more irritating than the 
massive capital flight of the Germans to supposedly safe havens such 
as Ireland.”

The underpinnings of Chancellor Merkel’s decision emerged in an 
interview with the Interior Minister, Wolfgang Schäuble. History had 
taught Germany, he said, that a sustained economic crisis created 
political havoc.

“We learnt from the worldwide economic crisis of the 1920s and 1930s 
that an economic crisis can result in an incredible threat for all of 
society,” he said. “The consequence of that depression was Adolf 
Hitler.” Only one thing trumps German anger at the perceived abuse of 
taxpayers’ money: the fear that the 1930s will return.