Grown-up stuff, Part 1: Economics for Intelligent Punters

[Gordon McIvor Wilson]

Urgent dispatch from Our Correspondent in The City:

Well, as we can see the Governor has had a few digs at the European Central Bank ('ECB') - not, as has been reported, digs at the Chancellor.

As you know the ECB is meeting at the moment to sort out regulation and with the connivance of the French and German finance ministries is trying to put the fear of God into the British finance services system. They will not succeed, they need our system more than we need theirs.

One thing new from the Governor was that our finance services industry as a percentage of GDP is five times that of the US. That makes it even more incredible that our finance services industry hasn't been harder hit.

When it comes to regulation we should be very careful. One thing that isn't being publicised at the moment is the fact that many of the private Swiss banks are doing very nicely thank you. The fear of many Swiss people and foreign account holders is that the major Swiss banks are going to have to open up their secrets to the world, this has resulted in a flight of capital from the major Swiss banks to the private Swiss banks. Julius Baer, for example, is working flatout to overcome its sudden influx of new accounts. This is where the regulators are going to fall down again, they will allow Switzerland to continue with its 'beggar thy neighbour' economics, as long as the money looks all right we don't mind where it comes from. You can avoid paying your tax where you are domiciled as long as it benefits our banks and our economy.

As you can see, the Fed, ECB and Bank of England are all scrabbling around to find the most amenable way to regulate the banks. What is certain is that whatever the Fed comes up with we will follow with some influence from us but the Fed will not take any lessons from the ECB. [Quite right, bunch of Euros - Ed].

This is the first of an occasional series of informed comments from our Economics specialist, Neil von Runkel [that's enough Euro stuff now - Ed].

[NEIL RUNKEL]

Now we know that the goveanor of the boe has the undying support of hm opposition as long as he can say anything slightly contrary to the chancellor - this gives him a free hand to show how hard line he can be and improve his credentials for a future move to the IMF. Unfortunately King's drive for extra power has exposed him to further political manipulation. Historically his position does not look too good as pre bank independance they had lots of control and the lap-dog politicians followed them into the black wednesday crisis, that was one reason that some bank powers were devolved. Don't forget that KIng has presided over the largest Keynsian stimulus in uk financial history and appeared to accept the line which has admittedly been the opposite of the bank's position in the early 90's where the Hawk's and the IMF's view that the clen out of financial institutions would have a cleansing effect and all would recover much leaner and stronger - unfortunately this view turns politicians into unfeeling, uncaring stereotypes where unemployment stays high and prevents growth even where state benefits are relatively low - having been slimmed down in the previous fifteen years. I am not advocating the Japanese cure which went over the top and caused prolonged stagflaqtion but there is a reasonable alternative which most of the developed ec onomy's appear to be attempting - bcome more politically unstable even the Germans with their PR trying to show a hard line but it is a much softer line than ours - they are using the glacial ECB as cover but the ECB actions will help our economy out before the rest of Euro area by unnecessarily holding up the strength of the Euro. History of the German currency collapse appears to continue to haunt the ECB hierarchy. Interestingly the Swissare giving everyone a one way bet by selling the franc. for the gamblers this is erfect news, also look out for the Yen which has become politically unstable and may become a one way bet against the dollar.