The whirligig in Cannes is better than the final episode of Spooks.  What will happen next ? Does Greece need Harry Pearce and his gang to save them from perdition?  Papandreaou soldiers on carrying burning resentment against Mrs Merkel and Nicholarse.  There have been so many “seminal ” moments so far in the European Debt Crisis that I am giddy with trying to sort out what might happen next.

However, I am puzzled.  I was under the impression that the major cause of the banking crisis in 2008 was caused by greedy and amoral bankers lending to people in a sector of the economy that could not afford to pay back their borrowings and defaulted.  The fact that this lending was mainly in the housing sector is immaterial, the moot point was that, given a reasonable amount of scrutiny, most of the loans should not have been made.  The only way the banks could mitigate their risk was to bundle them up in a modern smoke and mirrors act and flog them on with the net result that the possibility of default was far higher than would have been individually acceptable.  This led to huge short term profit bubbles as Fanny Mae’s and Freddy Mac’s of the American sub prime market fuelled the financial crash.  The history of the world since then is well documented and given time I would suppose even Baldric at the Treasury has now grasped that it wasn’t really Labour who killed the world – rather the opposite.

But here’s the conundrum, the banks almost bankrupted themselves and because  Governments would  not see runs on banks and bank failures with all the attendant misery that would have caused ordinary folk, they bailed out the banks.  We had Lloyd’s and RBS and (almost ) Barclays needing huge Treasury input.   So at the end of that all the governments were broke or in reality having to service a bigger borrowing requirement than they would have had if the banks had not failed.  The banks were bailed out and were undergoing “difficult trading conditions”,   bad enough to start paying big bonuses again though.

Well the banks and the subsequent credit crunch tipped the world into a recession and we all know what happened next.  Consumer confidence went and therefore did demand for goods and services.  Companies responded by cutting costs and therefore margins.  The usual way to cut costs is to cut manpower – thus unemployment rises and this means the governmental benefit bill rises as well.  Company profits dropped and so did purchases so tax income is less.  This is the governments perfect storm and it is forced to borrow more.  This costs more because of the credit crunch and its ability to repay.

So here is my problem, any help these governments get, from the EU or the IMF, is subject to them repaying the loans. So if the whole she-bang was triggered by lending unrealistic amounts of money to individuals in the sub prime market, who they knew would never repay the debt and inevitably, default, how come we are now back into another sub prime market situation only this time in sovereign debts.  Greece is never going to be able to repay the debts, but last week Sarkozy and Merkel were looking more like a couple of bullying mortgage sellers than leaders of a monetary union.  They knew Greece would default or if they didn’t then we really are in trouble.  Then another deal for Italy which by 2020 will still owe 20% more than it earns.  Is there any resonance here.  Are we really proposing to lend people money which their taxpayers are putting into the IMF to bail out countries who have no chance to repay.  On top of this the conditions that the Lenders are demanding these countries fulfil are based simply on cost cutting.  Public sector jobs to go, pensions chopped, pay freezes et al – further unemployment and bigger government borrowing costs – sound familiar?  Yes its the Baldric Strategy as devised by the brains in the Treasury.

Are we really serious in repeating another sub prime mistake – this time at country level?  For what?  So Sarkozy can protect the French banks?  Or because Merkel shares the German reluctance of having anybody else’s control of the German Piggy Bank?   I am secretly sure that Angel Face would love to leave the Euro and revert to the Mark in response to the less pan – European stance of younger German voters.  Whichever way it goes – this will rumble along and postpone any recovery for years if we continue to throw money at the IMF to bail out sub prime countries.  Isn’t it strange that the Big Forehead and Baldric announced today that they are going to up Britain’s contribution to the IMF.  Wonder how he will justify this to the Tory grandees?