German deposit guarantee sets up a German-British row
The Guardian is reporting that Gordon Brown and his Labour Government are increasingly on the defensive as the number of governments in Europe guaranteeing deposits increases.
The first problem for the Prime Minister was that Building societies started complaining that Irish banks were advertising their government guarantees to British savers in a way that engendered unfair competition as Britons poured money into high interest Irish savings accounts denominated in Sterling.
Now, a fresh row with Germany is developing as Brown appears to have been blindsided by the German savings announcement guarantee. Labour have a lot of explaining to do. If I were in Government, I would suggest the UK do as the Germans have done before Britons begin fleeing the British banks.
Brown is under intense pressure to match Merkel’s actions or face an exodus of cash from British financial institutions. Britain has only extended protection to £50,000 – up from £35,000 – in UK banks.
But Brown’s official spokesman insisted: “Our understanding of the situation is that the German government will not be bringing forward legislation for a legally-binding guarantee of bank deposits.”
He added that it was “really a matter for the German government to explain their position”.
“We have been in the process of seeking clarification from Germany as to what they have committed themselves to,” he said.
Brown is due to talk to Merkel later today. Brown has been involved in “intense” international discussions over the crisis.
Downing Street confirmed that in the past 24 hours Brown has held discussions with the prime ministers of Iceland and Denmark, the managing director of the International Monetary Fund, the head of the European Central Bank and Nicolas Sarkozy, the French president.
Asked whether the government had contingency plans to partially or completely nationalise the banking sector, Yvette Cooper, the chief secretary to the Treasury, said Brown and Darling had promised to do “whatever it takes” to ensure the banking sector remained safe.
“The chancellor said yesterday that of course that does mean looking at a whole series of pretty big steps that you might not take in ordinary times,” she told BBC Radio 4’s Today programme.
But she said the government had already taken action through the special liquidity scheme and support for individual banks.
“We always look at all the options and I think you would agree that it’s right in these sorts of unprecedented global times, the kind of events we are seeing right across the world, it is right that we should look at all of the options.
“However, you would also I think understand… that it would be completely wrong for me to speculate about the pros and cons of individual approaches.
“We have also made clear that if we think additional action is needed and additional measures need to be introduced, then we will do so.”
Asked whether Germany had informed Britain of its plans before its announcement, Cooper said: “We are still expecting clarification from Germany this morning about what their arrangements are, so we don’t have the full details yet.”
British officials were furious with Merkel. They said she gave no indication of the move at a summit in Paris on Saturday designed to coordinate a European response to the economic crisis.
Speaking of the decision by the Greek and Irish governments to offer blanket guarantees, the new business secretary, Peter Mandelson, said yesterday: “It would be better while operating on a country by country basis, we did so in a coordinated way and we brought a collective European view. We are all interlocked. We are in this together.”
Mandelson said every option, including recapitalisation to take a non-controlling stake in a bank rather than a government takeover, would have to be considered.
In a significant shift in position, the Tory leader, David Cameron, said he favoured a recapitalisation to strengthen the banking system.
Europe’s banks: ‘Darling under pressure to guarantee 100% of savings’ with mp3 commentary – Guardian
Q&A: Savings guarantees – Guardian
FAQ: What is guaranteed where? – Guardian