Douglas Carswell's Blog

A real crisis

As the politico-media elite in SW1 focus on the politico-media elite in SW1, Europe teeters on the brink of financial disaster. 

Forget hackgate for a moment, and consider these two graphs. What do they tell us? The rising yeilds on 10-year Italian (lefthand graph) and Spanish (righthand graph) bonds show that it is not just Greece that is in serious trouble financial.

Those who lend money to Italy and Spain are putting up the price of their loans because they fear that money lent to Rome and Madrid is increasingly high risk. As happened with Greece, then Portugal and Ireland, if the cost of issuing bonds keeps going up, eventually there comes a point at which private lending is no longer viable.  Seeing as there are an awful lot of bills coming into the Italian and Spanish treasuries over the next few months, which can only be paid by borrowing, what happens then?

Up until now, those who decide these things in Westminster and Whitehall have unquestioningly tagged along with the bail-them-out-and-hope-that-fixes-things approach. But as Greece has shown, you don’t help an indebted friend by pressing a high interest loan on to them.

We should offer assistance to our European neighbours in order to help fix their debt problem, rather than keep making it worse.

One idea an economist put to me last week would involve Britain - together with the IMF and wider West - offering debt stricken countries a way of establishing new, post-Euro currencies. Rather than give them more debt, we'd help them by guaranteeing to hold a certain percentage of our foreign exchange reserves in their new currencies.  Doing so would give the infant currencies a bit of ballast as they were devalued, the debts defaulted on and southern Europe's public sector downsized.

In reading this blog, you could well have thought about the policy alternatives for longer that the mandarins in the Treasury and the Cabinet Office.  That, perhaps, is the real problem.

Back to all posts