It is nearing midnight in Paris as this copy is being written. A joint press release has just been issued following an emergency meeting on Sunday between the leaders of the 15 Eurozone (single currency) nations and UK Prime Minister Gordon Brown. Acting EU and French President Nicholas Sarkozy said he expected one and all to act in unison.
"The crisis has over the past few days entered into a phase that makes it intolerable to opt for procrastination and a go-it-alone approach," he said.
A round of talks will be held in Brussels on Wednesday, but last night the bankers were still at work — literally burning the midnight oil. By all accounts, Europe and England now seem to be marching in lock step toward the creation of partly nationalized banking systems.
Sarkozy announced that all parties had agreed; “no big institution would be allowed to fail.” Loans between banks would be guaranteed until the end of 2009, with governments putting the capital in by purchasing preference shares. Greedy financiers would be prevented from finding ways of benefiting from this intervention. Managers to whom blame could be assigned would be dismissed from their positions. The French love gilt and military displays, but Sarkozy made it clear that there would be no more golden parachutes. Non.
But it remains to be seen if this plan will prevent continuing panic in the world’s markets.
Britain introduced a similar rescue plan last week. Over the weekend, an influential Sunni Muslim cleric took pleasure in claiming this crisis proves Islamic economics are superior to capitalism. Usury — charging excessive or unbridled interest on loans — is not permitted under Islamic law. And Allah apparently frowns on sub-prime mortgages. The cleric’s gloat was underscored by a rather macabre news item. British funeral directors were out complaining to the press that dead bodies were starting to pile up because the government was “dragging its feet” in sending out checks to cover burial expenses for poor families. The government claimed that checks were going out in 16 days “on average.” The statistics here are staggering. 27,000 people claim a total of £46 million for burials every year in Britain. This apparently includes handling and transport fees, a coffin, and up to £700 for a vicar to give the send-off. There’s fiduciary responsibility for you!
As for the retired and elderly, one financial specialist speculated that £150 billion has been wiped off the value of British pensions in the past year alone. John Maples, a deputy chairman of the Conservative (Tory) Party, said that half a dozen chairmen and chief executives from among major British banks should do the "honourable thing" and leave their jobs.
It seems neither comforting nor convincing that the British bureaucracy — already so bogged down in paperwork and inefficiency — can now suddenly rise to meet the unprecedented economic challenges it faces. By the way, the Tories have demanded an emergency Commons debate on the funeral problem. Talk about ghoulish reality TV.
European Commission President Jose Manuel Barroso expressed his hope that the EU plan would end “the excessive pessimism of the markets.” But other experts are not persuaded that this worldwide meltdown can be halted in time to prevent a continuing cascade, which will hurt the poor in developing nations. World Bank President Robert Zoellick asserted the most vulnerable nations could still sustain “serious — and in some cases permanent — damage.”
His fears were supported by what happened to the highly sophisticated, albeit tiny, nation of Iceland. Far from being a developing nation, Iceland was seen as a model of modernity and enterprise. But when its banking system all but failed last week, the British went ballistic. It emerged that small British investors and some local British authorities and charities had invested billions of pounds in one particular Icelandic bank.
For a few days, the two island nations teetered on a near war-like footing until a financial détente — a promise to make these losses whole — was achieved through diplomatic efforts. Who could have imagined Iceland and England at each other’s throats? Or that Russia (determined to re-create a new world empire) would offer to bail out Iceland’s banks? We are truly in uncharted — and very dangerous — territory.
More gloating was heard from those who had it in for Maggie Thatcher. They pointed out that her government had let the dogs of deregulation loose in “The City” (as the financial square mile in London is known). To socialists and unionists, seeing any portion of the UK renationalized is sweet justice. The Royal family has remained utterly silent. So much for British fireside chats.
Just a week ago, the Prime Minister of France, Francois Fillon, looking decidedly glum and existential, lamented that the world was now on the edge of an abyss. The Sunday Times’ headline carried a dire warning from Dominque Strauss-Kahn, President of the International Monetary Fund. He predicted that world markets could still collapse by another 20 percent before things were stabilized.
BBC TV reporters took a knock for not keeping a stiff upper lip. Their brethren in the print media chastised them for rushing out with stories of disaster and default at the top of every news cycle.
Market reactions and the Brussels meeting on Wednesday will provide the next chapters in this unbelievable saga.