Markets continue to slide and pressure on Greece increases

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One disaster UBS had earlier

When the banking crisis and recession hit, politicians claimed that they did not expect the disaster. When it hit, even the dimmest politician could not fail to see the size of the problem or see how long it had been developing.

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History, still relatively recent history, provided all the lessons politicians needed to take onboard. The earlier UBS disaster and the failure of Barings Bank received a great deal of coverage and politicians cannot claim that they were unaware of the examples these two banks provided of a serious structural problem in corporate governance and fraud management in the banking industry. The run on Sterling that was possible by the British membership of the currency snake, that was intended to lead Britain in the Euro Zone, demonstrated exactly what currency dealers could do to exploit opportunities, to crash any individual currency in a loose group of nominally sovereign economies working towards full union. When Britain withdrew from the currency snake, the economy rapidly recovered and the boom that was to be inherited by the disastrous Blair Brown Regime began. That should have taught politicians the dangers of the Euro and shown why Greece would have suffered less by an early withdrawal.

When the banking crisis blew up, all the signs were there, but politicians in the UK and US had claimed to have removed economic cycles and replaced them with a permanent boom. That prevented them from taking necessary steps ahead of the crisis blowing up. When the crisis was there for all to see, politicians in the UK and US took the softest options which involved the taxpayers accepting all of the losses while the banks pocketed any profits and their employees pocketed golden bonuses. At the end of the bailouts, bankers carried on as before, except they began to exploit their customers further, while the taxpayers had to pull in their belts as their salaries froze or shrank and inflation ripped ahead. The most vulnerable suffered most, with pensioners seeing their savings shrink while the banks, that paid them less than 0.5% interest on savings, happily charged borrowers more than 14% and the loan shark became a legal alternative lender charging over 2,500%.

While this was happening, Germany and France sneered at the UK and the US, telling their own voters that the crisis was only an Anglo American problem, but that the Euro one would stand unaffected. At the time the politicians must have known that the Euro Zone was in deep trouble, but they also knew that any admission of the serious situation risks a domino effect that would remove country after country from the Euro Zone. As the Euro Zone was primarily a political device, rather than an economic solution, they also knew that the EU Federal State would implode if countries were forced out of the Euro.

Today, countries around the world have borrowed in an unsustainable manner and the worst examples can be seen within the Euro Zone. The failure of the Euro Zone members to deal decisively with their problems has made the situation far worse and placed the global economy on the brink of depression.

Each time the Euro Zone finance ministers meet, they produce warm words but no positive action. Economists will argue over whether or not the Euro could have been protected by early action without any countries being forced out, but the markets now clearly believe that Greece will default and that other countries may follow. If Greece defaults, Portugal, Spain and Italy will have great difficulty in remaining within the Euro Zone and even Ireland, where positive debt reduction has begun, may then be forced out also. At that stage the situation will be like a run on a bank. Creditors will begin to scramble out of Euros and some are already moving into Sterling which vindicates the tough decisions taken by the British Coalition Government. The danger is that once a panic begins it has difficulty in finding a stopping place.

The most serious risk is that civil disorder will begin to spread. Eventually, every financial crisis runs out of steam. This is a combination of some countries taking positive steps to deal with the problems and the financial markets becoming exhausted and looking for positive things to hold onto. The danger with civil disorder is that it starts to take on a life of its own and begins to spread into relations between countries

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