Another week begins with a panicky market marking down value across the board. Even though the UK banking system has now largely reverted to the Pre-liberalisation big four: Barclays, Lloyds, Natwest (RBS) and Midland (HSBC) plus the government and the large Spanish bank, Banco Santander, there is still pressure on the British government to follow Germany, Denmark and Ireland and issue an unlimited guarantee to British bank depositors.
Now, this is getting silly.
Firstly the scale of the guarantee is much bigger for the UK banking sector than it is for the others- largely because the UK depositor base is much bigger, so it is more difficult for Britain. Yet paradoxically the larger base is a sign of the relative strength of UK banks- they are able to fund relatively more from deposits than from the money market and in the current circumstances that is a good thing.
Despite the fall out of the Lehman collapse, the British bank sector has now consolidated dramatically and although RBS faces problems with their acquisition of ABN Amro and the impact of the crisis spreading to Asia will also hurt HSBC, the fact is that all UK banks are now solvent enough to cope with the crisis, at least for the next few months. Meanwhile, Banco Santander has substantial resources and the banking of the Bank of Spain and the ECB. Despite the twitterings of Ambrose Evans Pritchard that the European financial system would fail, in fact the united European political will to deal with the crisis is growing- as indeed it must.
It is quite clear that the actions of a lone government to deal with the crisis, even when that government is the United States, are now insufficient. The British government, despite being outside the Euro zone, recognises that it must co-ordinate its actions with the rest of the European Union. As Iceland, faced with economic catastrophe, now pleads to join the European Union, the Anti-European vision of a "buccaneering Britain" outside the EU now looks like the absurd bravado that its always was.
The fact is that in the face of the emerging economic meltdown, the governments of the EU have no alternative but to increase the scope of their co-operation. The difficulties hit by first the US and then the UK are no less serious in Europe, and potentially even Asia will face the same crisis, although perhaps to a lesser degree.
In the end, this remains a matter of confidence. The UK banking system is clearly pretty sound, yet it could still be undermined by a failure of confidence. The incompetence of the Bush administration has a global impact, but one that can be off set by the Congress behaving more responsibly but also by a concerted approach in the EU and in Asia. The Brown government has made several missteps, however the time has come when a clear vision from Downing street could have a positive effect, not just in London, but in European Union and in the wider world.
When "the only thing we have to fear is fear itself", the presence of clear headed leadership is critical. It will not be found in Washington. Can it be found in London?
The next six weeks will decide whether we are looking at a 1981 Recession or a 1931 Depression.
The omens are not looking good.