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The turmoil continues

Peter Hoskin

Monday, 6th October 2008

Brace yourselves for another day of financial turmoil. At time of writing, the FTSE 100 share index has fallen by just under 6 percent; as has Germany's DAX index. And all this despite the German finance ministry's €50 billion rescue package for one of the country's biggest banks, and Angela Merkel's announcement that the government will ensure that all savings account deposits are "safe" (although it's still unclear whether this will translate into an Irish-style savings guarantee).

The big question now is whether the UK government will also guarantee all deposits in this country. As numerous commentators have pointed out, there are various reasons against such a measure - the Damoclean sword it would place above the heads of UK taxpayers foremost among them. But the government may be forced into it anyway, to prevent UK companies and individuals transferring their assets to countries which do offer a full guarantee.

One thing's for sure: there's absolutely no room for dithering here - otherwise we might end up with the worst of all possible worlds, in which UK savings are transferred abroad and a massive burden gets placed on taxpayers' shoulders. Will Brown and Darling show the leadership and direction they have failed to in the past? Watch this space.

UPDATE: The BBC are reporting that the German government won't pass extra legislation to protect savers.

UPDATE 2: For more on the guarantee question, head over to Trading Floor.

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Mark

October 6th, 2008 11:57am

Our government wants to give a guarantee without giving one. That is why Darling keeps saying that they will "do whatever is necessary" to ensure that no depositor loses money.
A formal guarantee would, of course, have to go on the government's books.

Joe Mooney

October 6th, 2008 12:02pm

Could Fraser do an article on who he thinks is to blame for this mess. My top five reasons are as follows:

1. Bill Clinton for urging the fed and the banks to lend to people that could not afford to pay back the loan.

2. Gordon Brown for putting electoral advantage before the needs of the country. He took no action to decrease the bubble.

3. Lax regulation of our banks by the Fed and the BOE.

4. Alan Greenspan for keeping interest rates too low.

5. Some Greedy bankers.

Nick Kaplan

October 6th, 2008 12:14pm

At least this should help kill the myth that this has been a failure of US-UK style capitalism in which the continental big state model has been a beacon of stability.

Ian C

October 6th, 2008 1:33pm

If the Euro nations start protecting their own and not all Euro depositors across the membership it will open up one of the fundamental flaws of the single currency.

The Irish and Greeks could be forgiven, just. The Germans, France, Italy and Spain acting unilaterally, taking all the liabilities that go with such a guaranetee on their balance sheets would break the Euro membership rules without reference to other members and would thereby undo the string tying it together. The Euro could be destined for the history books as a consequence.

Hysteria

October 6th, 2008 3:18pm

Break-Up of Euro may at first site appear to be a Good Thing - but if the whole system is coming unglued and we get increased tension within the European states we know where that could lead........

Linda P

October 6th, 2008 3:36pm

Joe Mooney, your appropriation of blame is spot on, in that order. The root of the problem goes back to left-leaning governments and their redistributive agendas.