If banks really don’t want to lend to small firms, will they start giving loans because of George Osborne’s concept of ‘credit-easing’?
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Stockmarkets can all collapse together but foreign exchanges are a zero-sum gain: one currency must rise for another to fall. So the US and Eurozone having a crisis on one weekend is a competition between the weak. In the end, the US losing its AAA rating and Europe bailing out Italy will both prove damp squibs.
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Is the Greek bail-out by fellow euro members the end of the story? Or is it the beginning? Now it has been accepted that a government can default, why won’t other countries follow?
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Sir Richard Lambert’s withdrawal from the Bank of England body set up to prevent another financial crisis shows the impotency of this Financial Policy Committee.
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When an economy is in such trouble as Ireland’s and a currency is in as much trouble as the euro, maybe the answer is to gamble. By threatening to default, the Dublin government and its European backers could make a killing – or shoot themselves in their own feet.

The rescue package agreed by the IMF, European Central Bank and EU with support from non-euro neighbours such as Britain, Sweden and Denmark has not dared to ask senior creditors to take a haircut – to accept less than they are owed.

The idea of redeeming debt at, say, 75 or 50 cents in the euro, has been rejected for fear that entertaining the concept of default would encourage creditors to assume that Portugal, Spain and other troubled nations would follow. The rate that lenders demanded on future debt would thus soar.

And the creditors are largely big banks in Britain and Germany, many of them state-owned, so the losses they took would bounce back on the governments bailing out Ireland.

But here’s the gamble that Ireland, the EU, IMF and ECB could have taken. Allow the possibility of a default to prevail. That would push down the price of Irish debt. The Dublin government could then buy in its debt cheaply – using funds from those partners, if necessary – thus making a healthy profit.

Having eliminated much of its debt (or taken it onto the books of the state and its government supporters) Dublin would then declare that it has no plan to default and would offer to redeem debt in full. Prices would bounce back, the cost of borrowing would fall.

Even if Dublin borrowed the funds from the IMF etc, it might be borrowing 1 billion euro to cancel 2 billion euro of debt. The rate on that borrowing would either be low because the lenders would know what it is up to, or short-term so it could be refinanced cheaply once Dublin had declared it would not default. Either way, it would emerge with a stronger national balance sheet.

The snags? The operations would have to be handled covertly so that the market did not know the government was buying the debt – and markets do not like to be deceived. Banks that sold their debt cheaply would bear a loss and some of those banks are owned by foreign governments. And it would push up borrowing costs for countries such as Portugal until Dublin declared that there would be no haircuts.

And the worst aspect of the gamble is that it might not work. Having allowed its creditors to fear that it might default, Ireland could indeed be forced to do so – and then the whole house of cards would tumble hitting not only other weak countries but the agencies trying to avert the crisis and support them.

So on balance, the rescue package is right in playing safe and ruling out haircuts for senior lenders, thus missing out on this chance to buy in debt cheaply. The problem is big but the gamble was greater.

Bad news for those hoping that Ireland’s problems herald the break up of the euro. It’s so difficult for a country to leave the single currency that Ireland will have to stay in.
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We are now three years into the granddaddy of all financial crises, yet it has still not yet been given a name. Other crashes and catastrophes have a handy handle – the Russian debt crisis or dotcom bubble – but what should we call this one.
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With hindsight, Bradford & Bingley obviously had no value when the bank collapsed in 2008 so there is no compensation for shareholders. But why were the owners of shares asked to inject new capital just before the crash?
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The public-sector job cuts have started.
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If you want to know what Britain will look like after the election, look at Greece now. Or if that seems too far away, look at Ireland. The politicians must now introduce the austerity measures that they were too scared to mention during their campaigning.
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