The EU seeks more austerity and less growth


              Several contributors want to hear more about the many ways in which the EU affects or controls our lives. There are all too many ways, following years of EU directives and regulations, based on the huge powers transferred in The Treaties of Rome, Nice, Amsterdam and Lisbon, to name but four that rarely get mentioned.

              In recent years the EU has been granted large new powers to regulate banks and financial institutions. This week-end reports ciruclated that the EU is now considering imposing capital surcharges of as much as 10% of a bank’s assets on EU large banks on top of the minimum 7% capital ratio required already.

              The aim is to stop EU banks getting into the mess they got into in the 2008-12 period. That is a worthy aim, but this remedy does not seem to be based on any sensible analysis of why various large EU banks got into difficulties in that period or what is needed to get us out of the mess. There is little  recognition that Central Banks and regulators got it wrong as well as the commercial banks, producing a toxic mixture. It does not tackle the problem we have often discussed here, of weak banks lending money to overborrowed countries, which in turn undermines the value of the loans to those states made by the banks. The way the Regulators and the ECB have encouraged banks to hold more of their own government’s debt has caused problems for banks in countries like Greece and Portugal, instead of strengthening them.

               Forcing banks that are weak to hold much more capital does not ease the problems we face. Rather it intensifies them. It will mean that banks are even less able to finance recovery in weak economies. It will help drive asset values down further, leading to more bankruptcies and further losses for the banks. If a weak bank is told to hold more capital  relative to its lending, its easiest option to c0mply is to lend less. If banks in recession ridden economies lend less, asset values for things like property are likely to fall further. More firms go bust, and more assets return to the banks for fire sales. The banks lose  more money, so they hold less capital. They then need to lend less again, to comply with the Regulator’s wishes. A country can get into a downward spiral.

                 This regulatory policy, alongside the policies demanding higher taxes and lower public spending, will reinforce any deflationary tendencies in these weakened economies. The EU does not need less growth. It needs more. We need counter cyclical regulation. This is the worst kind of regulation, which intensifies the cycle. It makes things worse.


  1. Mick Anderson
    April 16, 2012

    Strange how that when the EU call for “Austerity”, it only applies to other organisations….

    //sarcasm off

  2. colliemum
    April 16, 2012

    “We need counter cyclical regulation. “

    However, regulators in the EU or here seem very unwilling to think along those lines. I’d guess thinking ‘counter’, in banking and elsewhere seems to be very difficult.
    There are other examples, like ‘punishing’ universities or schools which are not doing well by cutting back on the funding they receive.
    Wouldn’t it make more sense to help those institutions by giving them more funding?
    In the same way, it makes eminent sense to me not to burden weak banks with more regulations.
    In general, I get the impression that the ‘safety first’, ‘reduce risks’ attitude has taken hold of minds in society generally, not just in ‘health and safety’ departments.
    Isn’t it obvious that one cannot really regulate to reduce risks in whatever area of life, from banks to sport to children’s play to cars?

  3. lifelogic
    April 16, 2012

    Indeed a downward spiral created, as usual by incompetent EU (and UK) regulation. We need, as you correctly say, counter cyclical regulation. Not banks addressing yesterdays problems

    Rather like Major’s ERM of positive feedback where we had:- weak economy leads to weak pound so Major puts up interest rates (to strengthen the pound against his idiotic arbitrary D Mark rate) which leads to high interest rates which gives a still weaker economy the back to start of the spiral.

    It is hurting and it clearly does not work. He has never apologised, nor it seems has he nor his many supporters in the Tory party (and at the BBC trust) it seems learned anything from the self inflicted disaster that buried the Tory party for three elections. Indeed they seem determined to repeat it all for May 2015.

    All they needed was a little basic knowledge of control system engineering.

    1. lifelogic
      April 16, 2012

      Cameron and the coalition are also, as the EU, “seeking more austerity and less growth” with its incompetent, big, suffocating, parasitic state policies.

      Now the treasury has also chosen to reveal that of the 200 taxpayers earning more than £10m a year, 12 are paying less than 10% in tax (plus NI I assume). They do not say why, or whether these are none domiciles, big charity givers, heavy investors in enterprise zones or new businesses/EIS schemes or the other (Osborne endorsed) tax incentive schemes.

      However if they did have to pay 50% (or £5 million plus) PA just to have their bins empties they might well think of moving. After all would you stay if offered £14,000 a day to leave you can still stay for 89 days? It is quite an incentive to do so (on top of all the many others reasons), with a lost to the treasury of at least £1M (virtually all profit to HMG) for each tax payer leaving.

      Osborne is as usual pissing on the wrong tree with totally counter productive results. Just make sure the charities and investment schemes are genuinely doing good Osborne and shut up.

      1. lifelogic
        April 16, 2012

        The treasury spokesman (on radio 4) this morning was hopeless on the issue – not a clue – and he was, as usual, not even being asked sensible or challenging questions by the BBC interviewer.

        The Treasury needs more tax payers, giving them £1M+ (for very little in return) not fewer as Osborne seems determined to arrange.

        1. JimF
          April 16, 2012

          Indeed. These people are being accused now by some know nothing Treasury spokesman of opting-out of the tax system, because they only pay £1m per year tax. This is just crazy crazy weasel talk.
          If they have opted out, where does that leave everybody else?

        2. uanime5
          April 16, 2012

          Your contradicting yourself. You say we need more taxpayers who pay over £1 million in taxes but you stated that these taxpayers will receive very little from the Government; so why would they want to live here or pay this much in taxes?

          Also as you keep encouraging people to avoid as much tax as possible don’t expect a lot of very wealthy people to pay over £1 million in taxes if they have any way to avoid this.

          1. lifelogic
            April 16, 2012

            I am not contradicting myself at all.

            It might suit the rich to live in the UK for all sorts of personal or work reasons, relatives, friends, work, hobbies love of their estates, other connections, good private medical specialists, good private schools, a special interest in morris dancing, a taste for bad food or the history of English churches, the lovely countryside that has not yet been ruined by the Greens turbines.

            Who knows what keeps them in England an intellectual interest in studying riots and dis-functional law and order, NHS or state educational systems perhaps.

          2. lifelogic
            April 16, 2012

            At 20% it is often not worth the hassle costs, complexity and risks of all the avoidance measures. So often better just to pay. At 50% it is a different matter.

      2. lifelogic
        April 16, 2012

        People not only paying £1M, just in income tax (plus NI and all the other countless taxes) and also it seems giving very, very large sums to good causes and investing in tax efficient new businesses and the rest – are these really the people Osborne sees as “morally repugnant” and wants to chase out of the country?

      3. Bazman
        April 16, 2012

        If you are earning 10 million a year you are paying for infrastructure, a stable society and education system facilitating that income. I f you are a foreigner then you are here for security,stability and the knowledge that you cannot just be carted off to some Gulag on trumped up charges as many rich Russians have. The Murdock enquiry was just bin rummaging (etc ed).
        If you think society should be run entirely for the benefit of a rich elite few, you need to go and live in some dictatorship. Saudi, Russia take your pick of many.

        1. lifelogic
          April 16, 2012


          There are plenty of pleasant and often much safer (than the UK) places to live for millionaires with tax rates at or below 20%.

          I do not think society should be “run entirely for the benefit of a rich elite few”. I am quite sure the things I suggest would benefit the poor greatly too probably – more than the rich.

          You say “You are paying for infrastructure, a stable society and education system facilitating that income”. Perhaps for some but it might well just come from overseas investments and dividends. Anyway all this only costs the government about £10K per head in total expenditure, including all the waste and the pointless wars.

          1. Bazman
            April 17, 2012

            There must be some limit for sure, but the 10k for head is a red herring. The countries infrastructure is far more complex.

      4. uanime5
        April 17, 2012

        I says close down or severely limit all the tax avoidance schemes and make the wealthy pay the 50% tax rate rather than 10%. As long as at least one fifth remain the UK won’t be any worse off.

        Reply: Most rich people pay full tax, so your numbers are way out.

    2. lifelogic
      April 16, 2012

      As Osborne has foolishly chosen to reveal (very selectively) these tax details of the top high earners can we please have the full facts.

      How much of the tax of these top payers is avoided by:
      Charity Donations
      EIS type investment schemes
      Allowable Interest Deductions (in which case they clear do not really have the full income claimed)
      Film investment schemes
      Loss Making Partnership schemes
      Enterprise Zones
      Non UK domicile status

      How many would be likely to go if pushed further?

      Can we please have a freedom of information request on any analysis they have done?

      1. Richard1
        April 17, 2012

        I think Conservative MPs must demand that Mr Osborne defines what he means by ‘aggressive’ tax avoidance and lists those tax avoidance schemes, which whilst legal, he regards as ‘immoral’. This is essential now that the Government is making retrospective tax changes. We can’t have investment confidence if taxes will be determined not according to law but to the capricious whim of ministers and/or officials. If E Milliband had any gumption he would be on to this.

  4. Rebecca Hanson
    April 16, 2012

    Not many politicians can appear on ‘Have I got News for You’ and look completely sensible.

  5. Matthew
    April 16, 2012

    Sure the title is correct?

  6. Caterpillar
    April 16, 2012

    “We need counter cyclical regulation”

    But how can pro-cyclical populism be avoided in parliamentry democracies?

    1. Steve Cox
      April 16, 2012

      Spot on, which is why Osborne will soon start to backtrack on his planned public spending cuts.

      Perhaps election dates should be selected at random by a computer, and the government of the day will only be told one month beforehand that its mandate has run out? I’d guess that way we might actually get sensible government planning for the nation’s future, instead of just for the next election.

      1. Caterpillar
        April 17, 2012

        Steve Cox,

        Yes I think this is a very helpful suggestion (and I suppose supported by the theory of repeated games).

    2. lifelogic
      April 16, 2012

      Good question not only do they have a 4-5 year vision they have an incentive to leave as big a mess as possible (where they are going to loose) so the next government gets the blame and they can return quickly. As Gordon Brown certainly did and in spades.

  7. Steve Cox
    April 16, 2012

    To judge by the government’s reaction to the 2008 crisis and the ensuing policies meant to solve the problem and stop it from ever happening again, the fault and blame (at least as far as the Treasury is concerned) doesn’t lie with the commercial banks; it doesn’t lie with the regulators; nor does it lie with the central banks. The reason for the crisis, and therefore the ones who must be punished most severely, are all those damn selfish savers. If they hadn’t been so prudent and squirreled away vast sums of money then the banks would never have been able to lend so irresponsibly, borrowers would never have been able to leverage themselves to the hilt, and regulatory shortcomings would have been irrelevant. The Bank of England would never have been able to keep interest rates so low at the peak of the cycle (even if it was an artificial boom) and none of this mess would ever have happened. Yes sir, it’s abundantly clear that both George Osborne and Mervyn King are completely convinced that savers are the greatest evil in the land. If they just went out and spent their money instead of hoarding it for a rainy day, or a hip replacement, then the economy would be booming again, that’s clear. So policy is deliberately set to discourage saving, QE, ZIRP, tolerance of high inflation, you name it, it’s all designed to ensure that that inconsiderate savers will never again endanger the system so carefully nurtured by Big Government, the commercial banks, the BoE, and the various regulators.

    (Written with my tongue only half in my cheek 😉 )

    1. Denis Cooper
      April 16, 2012

      I realise that you’ve got your tongue partly in your cheek, but to be completely serious I’ve read that the problem wasn’t an excess of domestic retail savings available to banks and building societies to lend on irresponsibly, it was their excessive wholesale borrowings from abroad.

      He or she who posts comments as “It doesn’t add up … ” usually seems to know what he or she is talking about, eg this back in August 2010:

      “Collectively, we are borrowing £1,238bn in mortgages. Just prior to the credit crunch around half of that was borrowed abroad (and some £300bn in overseas short term deposits) – so our mortgages were effectively paying interest to foreigners.”

      Thinking back to when building societies such as Abbey National demutualised, I recall that one of the arguments forward by the management to support their proposal was that it would give greater access to cheaper wholesale funding; and where is Abbey National now as a result of pursuing that strategy?

  8. James Reade
    April 16, 2012

    What exactly is your focus here? Your title suggests its austerity, your article suggests its bank regulation.

    Can you outline why these regulations are different/worse than the ones you think we should have had pre-crisis, e.g. on leverage. Why would those regulations have been better and these ones terrible?

    And on austerity, I thought you were a big fan given how much you moan about how little we’ve supposedly had here – how come you don’t mind about the growth implications here, but you wax on about them for Europe?

    Reply: Your tedious cavils show a breathtaking lack of understanding or even ability to read what I write. Austerity can hit private as well as public sectors. If you force banks to hold too much capital during a recession that increases austerity. If you let them hold too little capital during a boom that can cause an bubble or inflationary blow off. I change my advice on the levels of regulatory capital and cash depending on the state of the cycle and the neeeds of the economies. I am no fan of austerity in the UK, and have constantly pointed out that we are in danger of taxing too much, which is damaging the growth rate. If the deficit is too high you do need to control spending to sensible levels, but you also need to make sure the private sector can expand to take up any slack.

    1. lifelogic
      April 16, 2012

      You reply is spot on JR “make sure the private sector can expand to take up any slack”.

      Not, as currently, kick it in the teeth, force it to buy over priced energy, tax its parking places, ram absurd “equality” and employment laws on to it or force it to retain useless staff or people of 102+. Can you let Cameron know too please.

    2. Bernard JUBY
      April 16, 2012

      ” Several contributors want to hear more about the many ways in which the EU affects or controls our lives. There are all too many ways, following years of EU directives and regulations, based on the huge powers transferred in The Treaties of Rome, Nice, Amsterdam and Lisbon, to name but four that rarely get mentioned.”

      Sorry John, but these are two separate issue – albeit linked together.

      Your opening para led me to believe that we were going to have a précis of the many ways in which we are controlled/restricted ever more from Brussels yet the remainder is aimed at banks.

      This isn’t up to your usual clarity of purpose so I can fully appreciate JR’s comment. Just using the headline to try to tie in two seperate ideas won’t do!

    3. James Reade
      April 18, 2012

      Impressive John – didn’t expect quite that level of abuse from an elected politician. (etc)

      I quite well read your post, and asked a few clarificatory questions, and it looks like some others actually agreed with me here.

      Nothing in your response really answers any of my questions either – interesting though that you do respond to the questions after your initial outburst.

      How do you define this cycle that you’d reference your regulations against? Who would be measuring it and how timely would it be? How can you guarantee it wouldn’t suffer like any other kind of Keynesian stop-go policy?

      Actually, probably the most hilarious thing about your response is this: “Austerity can hit private as well as public sectors.” Stone the crows! How about that?! I mean, it’s not like I’ve been pointing this out to you consistently throughout the time I’ve been tediously posting on here.

      Reply: I identified 2007 as the last peak and 2009 as the last trough. These are judgemetns that have to be made to be able to follow a counter cyclical policy.

  9. Brian Tomkinson
    April 16, 2012

    Another example of the many failings of the EU and the folly of our membership. Why do our politicians want to be members of such an organisation? Are they too lazy to govern without EU control? Is it convenient to blame the EU for certain things and shrug their shoulders and say there is nothing can be done? It is clear that too many MPs either want to be told what to do by Brussels or just don’t want to rock the cosy Westminster boat.

    1. javelin
      April 16, 2012

      Good points – Can the Government actually show the integration in recent history has helped rather than hindered progress towards any goals?

    2. Bernard JUBY
      April 16, 2012

      Spot on. For the Labour Party thery see it as a way of bringing in Socialism via the back door which they would never be allowed to get away with at home. Remember “Ratchet Socialism”?
      Lib-Dems don’t seem to want to believe the facts and figures before thyen but carry on with the pipe-dream.
      Conservatives – well they should know better but I fear that many have some part of their snout in a trough. When you can waste so much money that is not yours, as the EU does, then you can afford to be generous.

  10. javelin
    April 16, 2012

    John and various comments have posted for years that investment in the UK is going to fall once investors learn how to invest in emerging markets. Why invest in Birmingham with a return 0f 1% when you can invest in Bangalore with a return of 100%.

    Western leaders have encouraged globalism with no controls – why are they now puzzled why it is out of their control. Free markets are and always were a MYTH. Think about the golden age of free markets (at any time), it was always ensured by a bullet. Today there are no bullets to ensure profits flow to the UK – but no other controls either. Free markets will follow the money and the money will flow to the emerging markets.

    Politicians needs to face up to the reality of the situation.

    1. stred
      April 16, 2012

      It seems the money flows both ways. The Thais are the latest growing state to buy the mothballed steelworks here and get it going again. Who would have thought the Thais would rescue the Brits?

      1. Caterpillar
        April 16, 2012


        Yes indeed. Flows of capital are good news, steel in the north, tungsten in the southwest, manufacture in between and still some advantage in financial services. If only the UK could decrease the size of Govt, stop BoE meddling, and just free the free market a little then one feels that the r(d)ecession would bring itself to an end.

    2. Electro-Kevin
      April 16, 2012

      With you on this, Javelin but on ‘western leaders’ I would like to be more specific:

      Our country is unique in its embrace of globalism.

      It was the Tory Party which enable the globalisation of our corporations which resulted in massive sell offs at short term gain and long term pain. Think of the tax revenue streams we’ve lost.

      It was the Tory Party which threw open the flood gates with Maastricht enabling uncontrolled immigration and further integration into the EU against the will of the British people.

      It was the Tory Party under which PACE 84 was enacted neutering the police for foreign cultures which heralded an era of introspection and cowing by means of ‘political correctness’ – something which has affected us all. They managed to defeat hard working miners but under their rule, lawless – welfare assisted – inner city ‘ganstas’ began to thrive and went undefeated – in fact they were able to grow from strength to strength and transmit their ‘culture’ to many of those former mining towns by means of MTV and BBC Radio 1.

      It was the Tory Party which began those unBritish pension raids under Norman Lamont attacking virtues of prudence and self reliance.

      It was the Tory Party which began ‘health and safety gone mad’ by allowing USA style no-win-no-fee ‘spiv’ lawyering which binds employers, emergency services and councils.


      It was the Tory Party which enabled the housing bubbles through the creation of new home owning classes. Was this a good thing ? We are yet to see. But deluding half of the population into thinking that they are middle-class when they are not seems to me to have brought our economy to the very brink. Especially when – laterly – those aspirations were founded on easy credit, bogus university degrees and state jobs. Where were the Conservatives when deregulation and 100% mortgaging was underway ?

      It seems that we are ready to blame Nu Labour for our problems, but in fact both parties have played their part.

      1. stred
        April 16, 2012

        You should be teaching history in a uni instead of driving trains!

        1. Electro-Kevin
          April 17, 2012

          Stred – I can’t teach in uni. I’M NOT A LEFTY.

          I am an erstwhile Conservative voter wondering why fish soup got made out of an acquarium.

    3. Susan
      April 16, 2012


      No one is puzzled by the flow of capital towards emerging markets it is how to cure this situation which is of interest.

      What controls would you like tariffs maybe or regulation?

      What goals did you have in mind when speaking about integration as a hindrance or a help. None of this is explained in your post.

      There are two schools of thought on Globalisation, I would like to hear what you have to say on the subject.

      It is all very well to be a prophet of doom, as your posts come across as, but I personally would like to hear the considered thought behind the warnings.

  11. Andy
    April 16, 2012

    I’m coming to the conclusion that many in the EU are simply insane. There would seem to be no other logical explanation for the never ending list of stupid ideas they come up with.

    1. lifelogic
      April 16, 2012

      All designed with the interest of the EU staff mainly at heart.

    2. stred
      April 16, 2012

      There may be method in their madness. Banks are allowed to simply create money and the ratios went completely out of control after deregulation. Now, the ECB and the BoE can reduce the bank creation and replace it with their own.This allows excess state spending to be financed by disguised printing of money through QE and cheap ECB loans to banks, who then choose to lend it back to governments instead of private investors.

      The central banks can then argue that this is not inflationary, as the total creation is similar. But it increases wasteful state spending and allows the Civil Masters to keep their perks, while screwing the small to medium private sector into bankrupcy .

      1. sm
        April 17, 2012

        QE/ZIRP and softloans, subsidies etc from all governments is just preventing mass debt deflation, bailing out the bad loans decisions, with no real changes to date. Other consequences are price rises in essentials and imports, unless production outpaces the falling value of £.

        How can growth come from moribund economies where rational decisons can not be taken because of massive market manipulaltions and political risk. Without some creative destruction economic evolution is stopped. The bad calls are made good, the good calls are made bad or not worth the effort.

        Does QE effect negatively the senior decison makers in the public service?

    3. rose
      April 17, 2012

      Criminally insane?

  12. Lord Blagger
    April 16, 2012

    So lets see. Lower capital requirements.

    That is basically what you are proposing.

    How are you going to fund the deficit if

    a) You can’t cut spending (remember its up in real terms)

    b) No sane idiot will invest in banks because your penally taxing them.

  13. Richard
    April 16, 2012

    Apologies if you’ve answered this already, but what do you think of Paul Krugman’s analysis of the European economic situation (e.g. in today’s column ‘Europe’s Economic Suicide’: ?

    1. sjb
      April 17, 2012

      Is that the Paul Krugman whose macroeconomic model does not include factors such as money, banks & debt?

      Did his model predict the financial crisis?

  14. Damien
    April 16, 2012

    The best argument against these latest calls for more capital is to show that we have taken the necessary measures to avoid a repeat of the financial crisis in the banking sector. Have we implemented all the measures recommend by the Independent Commission on Banking by Sir John Vickers? If so then we should argue the case against capital surcharges as they will reduce lending and slow growth as well as being deflationary.

  15. Lindsay McDougall
    April 16, 2012

    Well said.

    It’s the same old story with government intervention in matters economic. Too much, too late. Governments (and the EU government is among the biggest) invariably over correct for yesterday’s problem.

    What is needed is forcible disclosure by banks of all toxic assets, with the degree of toxicity and risk clearly quantified. It will then become clear which banks should crash and burn – and they should be allowed to. That is the type of intervention that is needed. The job of Central Banks is to deliver a strong banking system and zero inflation. They are failing dismally.

    I do hope that the practical actions of the EU, not just the constitutional issues, are condemned regularly in the House of Commons by Conservative back benchers. Motions such as “This House has no confidence in the European Central Bank” and “This House believes that the UK Supreme Court should be the highest court in the land” should be tabled regularly. Given the present composition of the Commons, you will probably lose the lot. Don’t worry. It is important to get the opinion of Conservative MPs on matters European on the record in the place that matters. If the PM doesn’t like it, then tough.

    1. uanime5
      April 17, 2012

      Just because you don’t like something doesn’t make it wrong.

      What is having no confidence in the European Central Bank going to achieve? Given that the EU is our main trading partner creating problems for them will hurt us much more.

      Why should the UK Supreme Court should be the highest court in the land on European and Human Rights issues? If the Supreme Court is so capable of deciding these issues then they shouldn’t be afraid of having their decisions subject to the scrutiny of other courts.

      1. Lindsay McDougall
        April 19, 2012

        But not overruled by them.

  16. Norman
    April 16, 2012

    There is an easy solution, albeit it will end in disaster but hopefully not for 5-10 years so politically ideal.

    We all know Osborne’s draconian cuts kept our AAA rating, making Britain one of the best financially ran countries in the world, so surely any loans to government can be counted as money in the bank, so to speak. The solution then presents itself. Print one or two hundred billion a year (the visible debt already tops a trillion so we’ve moved into a higher gear, making billions acceptable to people), give it to the banks, they lend it bank to government and count it as capital.

    After all, if worst comes to worst, we can either print more or raise taxes. That’s plan A and I’m sure the Chancellor won’t veer from it.

    1. stred
      April 16, 2012


  17. alan jutson
    April 16, 2012

    I have given up on trying to fathom out the thinking and reasoning on any EU policy.
    Other than all policies seem to want to increase its control, and keep those people who run it, in the manner to which they have enjoyed and accepted as perfectly normal for them, and them alone.

    The sad fact is that no Country/Government has yet worked this out, and they continue to fund, in ever larger sums each year, this growing monster and threat to national democracy.

  18. Richard1
    April 16, 2012

    Don’t we just need a very clear resolution regime for insolvent banks such that, if they can’t fund themselves in the market, Governments / Central banks will guarantee depositors up to a limit and ensure payment systems function by providing liquidity, and other lenders and shareholders fight it out as they would in any other company? If we had that there wouldn’t need to be any regualtion of capital ratios – no-one would lend to a highly leveraged bank. A by-product of this would most likely be break-ups of monolithic banks and more plurality in supply and much more reasonable remuneration at the top, as its only the huge inflation of banks’ balance sheets which has justified the current levels of banks’ bosses’ pay.

    1. A Different Simon
      April 17, 2012

      There can be no deposit guarantee in banks which indulge heavily in casino activities .

      The banks have to be split up , ring fencing is not enough . Otherwise all that will happen is that depositors money will be used to pay off gambling losses .

      Look at MFGlobal ; all the assets were transferred to other players in the financial services industry hours before the administrators arrive .

      It all smacks of policeman arriving conveniently just after Jack the Ripper has finished and made his “get away” and I’m not falling for this type of collusion anymore .

      1. Richard1
        April 18, 2012

        Ring-fencing is certainly no answer. In a bankruptcy the fence would collapse. But I believe in the power of the market – if banks could fail and would be allowed to their cost of funds would reflect their strength. At the moment what happens is the regulator puts up a hurdle, and that becomes a target to hit, with banks looking for creative ways round it. Stronger banks will have lower cost of funds. It is also clear that some sort of lender of last resort (ie the BoE) is needed in a monetary system such as ours.

  19. Neil Craig
    April 16, 2012

    “The aim is to stop EU banks getting into the mess they got into in the 2008-12 period”

    This is the aim, claimed but, assuming everybody in the EU bureaucracy isn’t clinically insane, you have proven, yet afain, that “the purpose of government programmes is to pay government employees and their friends, the nominal purpose is, at best, secondary” (Pournelle).

    In this case, since the nominal purpose cannt be achieved this way and can be simply by not bailing out banks and not printing unlimited amounts of cheap money for them, it is clear the nominal purpose isn’t anywhere on the real agenda.

  20. Atlas
    April 16, 2012

    The EU seems to be hooked upon the notion that ‘green’ things will get us through. Surely they are just as ‘swivel-eyed’ in this regard as they accuse UKIP of being?

  21. Leslie Singleton
    April 16, 2012

    This highly impressive economics stuff is all very well but I (with an Italian mother and having worked in Europe and America) reckon that THE reason the EU makes sense to many a man in the strasse is simply that they cannot face the grief involved in the physical toing and froing across Borders, of which there are many.

    Correct me if I am wrong but you thought the Hard Ecu was a good idea once and for my money it still is. To my knowledge you have never commented on why you gave up on the Hard Ecu which is more of a market led solution and which would seem to have many of the advantages of a Gold Standard and a Parallel Currency–for the use of those who want to dash around Europe whilst allowing people who want to stay at home the use of their local currency.

    My keyboard continues to have keys for both £ and $ and though the analogy is far from perfect (like most analogies) did not Belgium once have two currencies (It did)? How and why did you change your mind please?

    Reply: No, I did not prefer the hard ecu to letting EU countries continue with their own currencies. You can have free movement of people across borders without having a single currency, though that brings other problems with it.

  22. Denis Cooper
    April 16, 2012

    Like most laymen I don’t know whether ideally banks should be required to have 17% capital rather than just 7%.

    I do know that a bank could claim to have 17% capital, and have that claim accepted by EU regulators so that it passed a “stress test” with flying colours, when in reality a significant part of that claimed 17% capital was tied up in assets which were being over-valued and/or could not easily be sold under crisis conditions when it might become necessary to liquidate them.

    I also know from the very first line of the 1957 Treaty of Rome that the paramount purpose of the EU, the reason for its existence, is to bring about the “ever closer union of the peoples of Europe” – not to promote financial stability in Europe, or improve postal services in Europe, or clean up the environment in Europe, or any other subsidiary or intermediary or incidental purpose – and that therefore its preferred solutions to perceived practical problems will usually be sub-optimal solutions, and sometimes disastrously so.

    It was at the instigation, at least, of the EU that Brown took responsibility for the “prudential supervision” of banks away from the Bank of England, provoking the then Governor Eddie George to threaten resignation – a pity he didn’t follow through with that – and handed it to a bunch of incompetent novices at the Financial Services Authority, newly created according to the EU model.

  23. Denis Cooper
    April 16, 2012

    On a related topic, here are two recently published Irish views on the “fiscal compact” which will be put to a referendum on May 31st.

    The first is a detailed analysis of the likely effects on the provisions of the treaty on the Irish economy:

    It concludes:

    “This threat of exclusion, faced with the reality of an ongoing if declining deficit after 2015 and the need to refinance tens of billions of existing debt is the only reason to (find oneself forced to) vote yes for such a treaty.”

    The second refers to a broader brush analysis prepared for the Irish Congress of Trade Unions:

    “It seems that the blackmail clause is necessary for David Begg too. In a paper which is 80% a useful demolition of the Treaty from a social democratic point of view, an excuse that the wording does not really copper fasten austerity and, especially, the projected inaccessibility of the European Stability Mechanism (ESM) for a second bail out following a rejection, leads to the conclusion, encapsulated in the final sentence:

    “While the treaty is wrong from our economic and social perspective it becomes hard to oppose it unless a satisfactory alternative to the ESM can be advanced.”

    It appears that his will be the leading proposal to go before the relevant ICTU executive meeting for deciding a Congress position on the Treaty.”

    Here are a couple of relevant passages from that analysis:

    “3. If the treaty had been in force in 2008 would it have prevented the crisis in Ireland?

    No. Ireland ran a fiscal surplus in every year bar one between 1999 and 2007. Ireland’s problems were caused by the banks borrowing excessively from international money markets and funnelling the money into a property boom – a situation made possible by the deregulation of capital markets. In other words, fiscal misbehaviour was not the problem on our part.

    4. Is fiscal discipline not a good thing?

    It’s a question of degree. Countries should try to keep spending in line with tax revenue over time. Flexibility is needed to deal with problems that arise say at times when unemployment is high and there are more demands on the welfare budget. There is no great merit to fiscal discipline beyond what is sane and sensible in the long run. A structural deficit of 0.5 per cent will be too constraining. Even the Netherlands, a paragon of fiscal rectitude, is finding difficulty reducing its fiscal deficit from 4.5 per cent to 3 per cent at present. Such austere fiscal policies will exert a downward pressure on demand across Europe with consequences for employment.”

    However these practical considerations are irrelevant to the eurofanatics such as German Foreign Minister Westerwelle, who thinks that the solution to current problems must be “more Europe” and who regards the ESM treaty as “a milestone in European integration”:

  24. Frances Matta
    April 16, 2012

    It all goes to prove how successful the euro and its various parents in the EU have been, are and will be in the future.
    Germany seems to be coming out on the top of this dungheap.

  25. sm
    April 16, 2012

    How do you encourage banks not to distribute all the ‘state sponsored profits’ out as pay, bonuses and dividends. This would do more to concentrate minds on engineering a recovery.

    I am sure the EU will address the issue of the above sooner rather than later, probably the reason why the UK has stayed its hand to date.

    Lets just hope the USA manages to get the train moving sustainably, to mitigate the unfolding job depression in Europe.

  26. Bazman
    April 16, 2012

    Could always make the bankers more personally responsible instead of being just managers who cannot loose what ever the outcome whilst telling everyone how great they are whilst just being on a win streak due to circumstances beyond their control and then claiming losses are because of the same.
    Fred the shred allegedly changing his suit when it became creased after a few hours is telling. Imagine an MP or regulator telling him he is deluded?
    Funny how many do not mind a financial dictatorship. It’s just peasants worshipping the Tsar.

  27. Derek Emery
    April 16, 2012

    The controlling EU elite are totally disinterested in anything other than “The project.” Hence they have no real interest in economics, GDP growth, markets and risks etc for one simple reason. In their dream world everything else automatically falls into place from following the project. How intelligent is it for follow and unsuccessful unworkable eurozone 1 with a virtually identical eurozone 2?

    The EU are left leaning and therefore instinctively anti-business and years behind in understanding of technology markets economics etc . They believe in the entitlement agenda. Therefore eternal EU low growth follows like night follows day.

    Over the decades this has meant that parts of the rest of the world have moved up from third world level to level pegging both economically and technologically.

    This process will not stop so by the end of the decade China and others will be well ahead economically and technologically. Like the USSR the EU thinks that it can follow its own head in the sand agenda regardless of the rest of the world. The reality is that EU products will be dearer, less well designed and poorer value for money that those from the rest of the world. It is impossible for the elite to build a wall high enough to keep out the world.

    Combine with with the unrealistic EU pensions commitments which can never be met from EU GDP growth and the EU ageing demographics and it should be patently obvious to anybody that the only future for the EU is downhill regardless.

    1. uanime5
      April 17, 2012

      Who are the ‘controlling EU elite’ and which countries are they from? If you don’t know then that’s because they’re not real and neither is “The project.”

      “The EU are left leaning and therefore instinctively anti-business and years behind in understanding of technology markets economics etc .”

      Germany seems to have a good understanding of the technology markets economics, given that they’re a leader in manufacturing. Care to explain why they’re not anti-business despite being in the EU.

      “Over the decades this has meant that parts of the rest of the world have moved up from third world level to level pegging both economically and technologically.”

      Which countries are you referring to? The BRICS are nowhere near being economically or technologically equal to any Western country.

      “The reality is that EU products will be dearer, less well designed and poorer value for money that those from the rest of the world.”

      Based on what evidence? China and India are nowhere near making any car as high quality as those made in Germany.

      “It is impossible for the elite to build a wall high enough to keep out the world.”

      Tariffs have been pretty effective at preventing China from swamping the EU market with their textiles.

  28. Mike Stallard
    April 16, 2012

    Let me start at the debt end. Governments cannot pay their employees, so they have to borrow money from somewhere by selling bonds at 6%, say. Who rushes in? Well isn’t it the banks who borrow from the IMF at a much lower rate? When the government then goes belly up, the banks demand that the taxpayers of other countries bail them out and they do.
    So the EU and IMF demand that the banks get firmly established on their capital bases, with the disastrous results you describe.
    Add in a lot of envy of London from Frankfurt and Paris, and you have the recipe for a serious disaster.

    1. Lindsay McDougall
      April 17, 2012

      Yes, indeed. The Spanish government has got itself into the position of relying on the ECB to buy some of its bonds, with the implication that the IMF will have to follow up. The IMF is now run by an EU federal fanatic, so beware. In promising that the UK will contribute another USD$ 10 billion to the IMF bail out fund, Osborne is playing her game. Very foolish; Spain’s problems are soluble if they leave the Euro zone.

      One of the crueller descriptions of foreign aid in days gone by was that it was “the insolvent giving to the insolvent”. It now applies to bail outs.

  29. Acorn
    April 16, 2012

    JR, am I sensing a softening of your austerity rhetoric at last election time? Do I detect a slight move toward modern monetary theory? When the private sector stops spending, the public sector has to take over to maintain the economy; for instance? An acceptance that a sovereign country with its own currency can always print money to pay its debts and the interest on any amount of government debt, (just like Japan).

    Reply:My view has always been that you should not impose austerity on all sectors at the same time – the Euro model. I argued in 2009-10 we needed to curb publlic spending more, and free the private sector to grow and compete. That would have worked, as it did in 1982 onwards and again in 1992-3.

  30. Jon
    April 16, 2012

    The policy reminds me of how Gordon Brown focused on private sector final salary schemes which seems to have been uplifted by the EU in their Solvency 11 proposed legislation.

    To cut a very long story short, solve the problem of solvency by requiring defined benefit schemes to 100% fund. Its easy, why not? If you want a 2/3 rds pension why not fully fund it from day one so you have no problems. Instead of companies paying in contributions and looking for growth why not fully fund it from the start. If a company paid 100s of millions upfront then they could put it in ultra safe investments and all the members would get their pension.

    The small problem is who fully funds their mortgage? If you can afford to buy it outright from the start then okay but if not and the legislation requires you to do so then you don’t get to buy your home. Ergo, unless companies have 100s of millions lying around there goes the defined private sector pension schemes. The companies would go bust if they didn’t bow out from them.

    Require the banks to hold unrealistic capital (just like the defined benefit schemes) and they won’t lend. Force them to lend and they will bow out.

    It seems the left does not want to recognise that growth is based on an assumption of future returns, its not something that can be banked today.

  31. David Langley
    April 17, 2012

    I suppose that if the EU directives mean more countries go bust, then so be it. Perhaps this is the only way their supine politicians will start to do what is right. The pain and suffering of course is totally unnecessary if the publics reaction towards their elected representatives at the ballot box is allowed. As in this country however the public will not be allowed a free say until the smell of burning democracy overcomes the whiff of political corruption.

  32. Conrad Jones (Cheam)
    April 24, 2012

    Mr Redwood,

    Yes – austerity is the wrong thing to do. You are absolutely correct. It is very difficult for most conservatives to understand why it is wrong to do the one thing that Conservatives are most against – increasing our debt. It only becomes apparent that we have to fight against this tendency when we understand that without debt – we have no money. Without money, unemployment rises, civil unrest increases and society begins to break down. Greece is a good example.

    We have a Financial System which is painful to most Conservatives as it demands – no … it orders us to do the thing we most hate. Get into debt.


    Because most money is debt (97%).

    Mervyn King is not responsible for the current recession (which appears mild at present). Mervyn King understand the problem. He has openly criticised the system of Fractional Reserve Banking. Gordon Brown – who I am not so sympathetic to; is one of the Politicians who IS responsible for our current problems. A man so inept that he sold our gold at a rock bottom, bargain basement, discounted price only to observe the sharp rise in Gold Prices after he had done it.

    Having easily criticised an incompetent Labour Politician it gives no satisifcation to aim the finger of contempt towards our own George Osborne and David Cameron. Why they continued the same Imperial War monegering – started by Tony Blair; against Libya and now Syria and Iran is beyond belief. Instead of making friends and influencing peolpe they have chosen the path of destructive policies which will make the World less stable and less diverse. Why David Cameron has chosen to Travel to the Middle East and then Asian Countries accompanied by Arms Manufacturers is a sign of a rapidly collapsing moral and ethical code. Is it now true that the best form of export that a serving British Prime Minister can come up with is Armaments?

    Who – exactly; is advising George Osborne on economic solutions ? Who thinks that austerity and debt reduction is going to place the UK in any other situation other than continued recession, given our current monetary system. Who is it that believes that Banks are the only and best source of our money supply ? Who ?

    The Solution – from History; is for the UK to ban Banks from creating our money supply and for the Public to create its own money. Abraham Lincoln and King Henry I of England understand what money was a form of record keeping. They understood that who creates the money supply controls the economy and calls the shots.

    Think about this for a second – Private Banks in the British Isles control over 97% of our money supply. They decide where it goes, how much is created and how much interest to charge. If you cannot afford the repayments – they take ownership of your collateral. They are not liable for bad judgement concerning the ability to pay of the borrower. A borrower may be well able to repay the loan if interest rates do not go up, but if they do – it’s foreclosure time! If there’s a recession – it’s foreclosure time!

    1. Conrad Jones (Cheam)
      April 24, 2012

      This is an open question:

      Why did anybody vote for Gordon Brown? – a man openly (well – accidently caught on audio), calling a Labour supporter a “bigoted women” ? If he calls a fellow Labour Supporter “bigoted” what was he calling Conservative voters?
      (Somethinmg worse-ed)perhaps.

      Sorry – I still cannot understand why people vote for these Politicians. They proport to be experts on subjects they know nothing about. Especially selling Gold at a near respectable price.

  33. Conrad Jones (Cheam)
    April 25, 2012

    “The aim is to stop EU banks getting into the mess they got into in the 2008-12 period. That is a worthy aim, but this remedy does not seem to be based on any sensible analysis of why various large EU banks got into difficulties in that period or what is needed to get us out of the mess.”

    It’s obvious how to get out of this mess – all you have to do is listen to PositiveMoney in the UK or Bill Still in the United States – all they are doing is reminding us of what solutions have been offered in histiory – print our own money regulated by inflatoion – debt free.

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