EU agrees bank rescue

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Finally, as the blog noted with relief last week, there is a workable plan on the table to rescue the global banking system. On Saturday, the IMF warned of potential ‘meltdown’ if the plan was not approved. In the blog’s view, they were right to do so. Yesterday’s EU meeting could not afford petty politics and point-scoring.

As it was, the IMF says the meeting went well. We shall learn the details today, but the basic UK plan, under which governments will effectively take over the banking system on at least a temporary basis, seems to have been accepted. The major governments within the eurozone provided a lead. The smaller countries, not wishing to go the way of Iceland (now effectively bankrupt with $85bn debt and $20bn GDP), didn’t complain.

The sums involved are enormous. The UK will be spending 3% of GDP to rescue its banking system. Germany will be committing €400bn ($540bn). All of this money will have to come from other budgets. So the ‘real economy’ is about to take an enormous hit. But, as the EU leaders recognised, they had no choice. Our economy cannot function without banks, so the price of rescuing them has to be paid.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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