Whilst we were meeting in Manchester to debate the economy, world markets took another beating. There was alarm about delays to getting the Greek deficit under control. There were fears that the next tranche of money to Greece would not be made available. There were worries about a Belgian bank.
There were different worries in the USA about banks and airlines. The inter bank markets remain frozen. Fear stalks the financial world.
UK policy towards Euroland should not be based on some idea that we have a duty to help bail it out, or that is in our interest to spend our money on trying to shield them from the consequences of their ill gotten scheme. Instead our policy should be motivated by two main concerns. The first is everything this government does should be to to curb the UK deficit. We do not have money to spare for a single currency in search of a sovereign, with wayward members who borrow too much. The second is to limit the UK’s risk to the likely losses and dangers now emanating from the continent.
To cut our risks the Uk should
1. Rule out a tax on UK financial institutions to help pay for Euro mistakes, whatever the attempted legal base, argument and what others might want to do
2. Get rid of all at risk Euro area sovereign bonds held by government owned banks and olther direct holdings using public money. The ECB is buying them so let them increase their collection.
3. Manage Euroland banking risk cautiously. UK taxpayers cannot afford losses through our government owned parts of the banking system in banks that get into difficulties, or through banking bond haircuts
4.Refuse any more money into Euro bail out schemes, whatever the legal base or route
5.Urge the IMF to regard financing members of the Euro zone as a Euro area matter, not as suitable candidates for IMF money
The Chancellor rightly says you cannot cure a debt crisis by borrowing more. This should underpin UK policy towards the Euro area. The UK is going to have to live with a slow growth Euroland at best, and something worse if they do not soon come up with a serious fix of their problems. The UK needs to turn its goods exporters eastwards, to emerging economies with money to spend.
I am glad the Chancellor recognised yesterday a bank lending and credit problem in the UK private sector. I will comment another day on the options, and why fixing the private sector banks is preferable to a state bank.
Yesterday I spoke at the Adam Smith meeting on a growth strategy, on the Euro and the UK economy at the book launch, and on controlling public spending at the CPS meeting, so I was not able to moderate posts. As always short posts that do not make contentious and personal allegations get posted quicker. Avoiding references to unknown websites also helps.