SIR Meryvn King, the governor of the Bank of England, Thursday night announced emergency measures to help banks and boost business lending amid a warning from the chancellor George Osborne that the “debt storm” raging on the continent had left the UK and the rest of Europe facing their most serious economic crisis outside wartime.
With one Spanish minister warning that the future of Europe could be decided within hours, the Bank of England will begin pumping a minimum of £5bn a month into City of London institutions within the next few days and the government expects to have a new “funding for lending” scheme for households and cash-starved small and medium-sized businesses in place within weeks.
The bank and the treasury believe their joint proposal — under which banks will receive cut-price funds provided they pass on the benefits to their business customers — could provide an £80bn boost to the stock of lending to the private sector and help alleviate growing fears of a second slump since the start of the financial crisis five years ago.
Both the governor and the chancellor used the backdrop of another day of financial and economic turbulence in the eurozone to express deep concern about the threat to Britain posed by Europe. With interest rates on Spain’s 10-year borrowing hitting the seven per cent level and Angela Merkel insisting she was running out of patience with her fellow eurozone policymakers, King told a City audience at the Mansion House that there was a “large black cloud of uncertainty hanging over not only the euro area but our economy too, and indeed the world economy as a whole.”
Osborne said things were likely to get worse in the eurozone before they got better and insisted that the time for decisions had come. Strongly defending the government’s handling of the economy, the chancellor said it had been the hard-won credibility built up over the past two years that had allowed the treasury and the bank to take action.
Thursday’s announcements were designed to shore up confidence before this weekend’s elections in Greece, seen as a possible trigger point for a new phase in Europe’s debt crisis. In a speech to parliament in Berlin presaging a fortnight of crucial elections and summitry in Europe, an exasperated Merkel bluntly told the rest of Europe to get real about the crisis, dismissed calls for Berlin to share responsibility for other euro countries’ debt, and rejected charges that Germany was not doing enough to stabilise the euro.
“Germany’s strength is not unlimited,” Merkel warned. “The way out of the crisis in the eurozone can only be successful if all countries are capable of recognising the reality and realistically assessing their strengths.”
Merkel expects to come under pressure when the G20 group of developed and developing countries meets for its summit in Mexico on Monday. “Once again Germany will be the centre of attention,” the German chancellor said, adding that some of the formulas being proposed for saving the euro using German money would simply amount to illusory short-lived fixes condemning Europe to a future of high debt and economic mediocrity.
King raised the prospect that the eurozone would not emerge from the crisis intact. Underlining his concern about the pressures on UK financial institutions, the governor said Threadneedle Street would provide as much cash as banks required. —The Guardian, London
