Editorial: The Old Rock 02.12.11

The most severe global financial crisis since the Great Depression is getting worse. Yesterday’s call from the Bank of England for banks to raise more capital to protect them from the eurozone debacle was one of many signals that the risk of a repeat of 2008’s near-collapse of the banking system remains perilously high.

Living standards in this country, according to the respected Institute for Fiscal Studies, are set to fall dramatically. Real median incomes will decline by 7.4 per cent in the period 2009/10 to 2012/13 and will not be any higher in 2015/16 than they were in 2002/3. These figures, of course, conceal the likely growth in income inequality, which even the Liberal Democrats seem to have given up trying to reverse (despite claims to the contrary it is clear now that the Tories were never interested in the issue – 50p tax rate anyone?). Hence the bitterness heard so often during Wednesday’s strike about the public sector being forced to bear an unfair share of government cuts.

As widely predicted, the speed and depth of those cuts have pushed the British economy back towards recession. Paradoxically, the government is now going to have to borrow an additional £158 billion over the next four years – in part to pay for the unemployment it has caused – and will not be able to pay off the deficit until after the next election. Never mind though, folks, at least the cost of that borrowing will remain low.

Even if the pension dispute is resolved, further union action seems likely as members justifiably try to defend their standard of living from the government hatchet.

Meanwhile there is much talk in Whitehall about contingency planning for a collapse of the euro, which could precipitate the collapse of one or more British banks. Strangely, no-one is keen to discuss the detail. The crisis of 2008 is beginning to look like a prelude to a much greater disaster.