EU prepares the ground to force us to bailout other countries' banks

September 07, 2010 11:39 AM

Allister Heath, Editor of City AM, makes an important point this morning:

"One of the problems with Gordon Brown’s idiotic tripartite regulatory system was that powers and responsibility were divided; it is absurd, therefore, that the coalition is willing to sign up to a similarly fudged solution on a European level. Nobody will be in charge. Worse, EU regulators will take decisions but it will be national taxpayers, not Brussels, that foot the bill. Countries won’t have a veto over decisions by the supervisors – they will only be able to appeal those with a “significant or material” impact on public spending. But supervisors’ decisions will only be overturnable by a majority vote in the Council of Ministers. So one can easily imagine everybody ganging up on the UK to punish the dreaded City.

Countries could have to bail out a bank against their will, saddling taxpayers with a huge bill. EU regulations are harder to understand or quantify than a tube strike – but their long-term impact will be immeasurably more costly for London’s economy."

I've written before about how politicians and regulators need to get to grips with the real issue behind the financial crisis, systemic risk.  In other words, they need to ensure we have a better understanding of how banks can pose a risk to the rest of the financial system.  That way, they can properly manage risk to avoid a crisis and respond appropriately when things do go wrong.  Read the post I wrote back in May for more detail on that issue.

We should be trying to rebuild the stability that meant no serious failures at British deposit taking banks through well over a hundred years of wars, recessions and depressions after the City of Glasgow Bank and the West of England & South Wales District Bank failed in 1878.

Unfortunately, the politicians are instead trying to set up systems to enable future bailouts.  In particular, it looks like in future British taxpayers could find themselves in the same situation the Germans have faced recently, being forced to bailout irresponsibility in Greece.  Anne Applebaum has written for the Washington Post about how the current arrangements force the Germans to take responsibility for fiscal cultures very different to their own, Britain avoided that fate by staying out of the Euro, we shouldn't fall into the same trap now.

Allister Heath, Editor of City AM, makes an important point this morning:

"One of the problems with Gordon Brown’s idiotic tripartite regulatory system was that powers and responsibility were divided; it is absurd, therefore, that the coalition is willing to sign up to a similarly fudged solution on a European level. Nobody will be in charge. Worse, EU regulators will take decisions but it will be national taxpayers, not Brussels, that foot the bill. Countries won’t have a veto over decisions by the supervisors – they will only be able to appeal those with a “significant or material” impact on public spending. But supervisors’ decisions will only be overturnable by a majority vote in the Council of Ministers. So one can easily imagine everybody ganging up on the UK to punish the dreaded City.

Countries could have to bail out a bank against their will, saddling taxpayers with a huge bill. EU regulations are harder to understand or quantify than a tube strike – but their long-term impact will be immeasurably more costly for London’s economy."

I've written before about how politicians and regulators need to get to grips with the real issue behind the financial crisis, systemic risk.  In other words, they need to ensure we have a better understanding of how banks can pose a risk to the rest of the financial system.  That way, they can properly manage risk to avoid a crisis and respond appropriately when things do go wrong.  Read the post I wrote back in May for more detail on that issue.

We should be trying to rebuild the stability that meant no serious failures at British deposit taking banks through well over a hundred years of wars, recessions and depressions after the City of Glasgow Bank and the West of England & South Wales District Bank failed in 1878.

Unfortunately, the politicians are instead trying to set up systems to enable future bailouts.  In particular, it looks like in future British taxpayers could find themselves in the same situation the Germans have faced recently, being forced to bailout irresponsibility in Greece.  Anne Applebaum has written for the Washington Post about how the current arrangements force the Germans to take responsibility for fiscal cultures very different to their own, Britain avoided that fate by staying out of the Euro, we shouldn't fall into the same trap now.

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