[Markdogas]

From The TimesMarch 28, 2009

George Soros: Britain may have to seek IMF rescue

George Soros said there was a possibility that Gordon Brown would have to beg for billions of pounds in international aid

Alice Thomson, Rachel Sylvester and Philip Webster
Britain may have to go to the IMF for a huge financial bailout, the influential investor George Soros warns today.

The man who made $1 billion on Black Wednesday in 1992 told The Times that Britain was particularly vulnerable to the economic crisis.

Mr Soros – speaking days after an auction of government bonds failed for the first time in 14 years, ringing alarm bells about Britain’s ability to fund its growing debts – said that Gordon Brown might have to go begging for billions of pounds in international aid. He also warned that next week’s G20 summit in London was the last chance to avert a full-scale depression that could prove worse than that in the 1930s.

“You have a problem that the banking system is bigger than the economy . . . so for Britain to absorb it alone would really pile up the debt,” he said. Asked about the chances of Britain having to seek help from the International Monetary Fund, he said that if the banking system continued to collapse, it was “a possibility”. At this stage, he added, it was “not a likelihood”.

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He was not optimistic about the G20 meeting, saying the odds were that it would fail because there were so many differences of opinion. The price could be years of economic devastation worse than the Great Depression. “It is really a make-or-break occasion.”

It would be a disaster if the meeting were allowed to turn into a talking shop, he said. “It’s not enough to state general principles. You’ve got to come up with practical measures that are going to provide protection to the developing world, periphery countries, against a storm that originated from the centre, against a calamity that is not of their own making.”

He spoke amid more gloom over the British economy after official figures showed that output shrank by a worse-than-expected 1.6 per cent in the final three months of 2008. It was the biggest fall since April-June 1980.

Mr Soros refused to blame Mr Brown for failing to prevent the crisis. “He underestimated the severity of the problem but so did most people. Part of the perceived role of a leader is to cheerlead so you can’t really blame him for that.”

Britain has not sought IMF help since 1976 when, with inflation approaching 27 per cent, Denis Healey, then the Chancellor, applied for a loan, shredding confidence in the Labour Government

[orgagsUpsepsy]

Doubtful. I would be exceptionally worried for the global economy in such an event however if it did happen. One reason being that Britain hasn't been the only country to have a failed bond auction; Germany had seven last year, and another two so far this year. The same has happened in the Netherlands, and I think Spain and Belgium didn't even bother with auctions, anticipating that they would fail. That said, the day after the bond auction failure, another UK one took place that was 3x oversubscribed.

The other factor is while Britain has a large banking sytem relative to its economy - there were only two bad apples (HBOS and RBS), Lloyds (took over HBOS), Barclays and HSBC are in far better positions. Most importantly HSBC - the largest UK bank hasn't imploded (otherwise we would really be the brown stuff).

The last factor is that inflation isn't willy nilly.

I find it quite interesting that calls for Scottish independence have evaporated recently. Interesting considering that most of the bad apples are Scottish - a Durian part II scenario.

[Optosypoeds]

I think that alot of of the people calling for Scottish independance have woken up a little bit to reality, thankfully. An independant Scotland would have had no chance of coping with this crisis. Luckily only one crazed party wants independance for Scotland and I think alot of the populace is recognising their incompetence.

[Valdoyes]

Sadly, the UK is in very serious trouble. Also, since regulation of financial markets is imminent, its one strong sector will be greatly eclipsed. It's really a shame.

[funnyPasds]

Britain is one of those countries which never stays down so Im not concerned, we've been through it all. We have great human capital that isnt just numbers and percentages.

[Sthjrderfida]

True, but we need more than mere hope. For example, if you consider all of the industries in France and Germany, they seem better poised for the future. Britain really only has finance and that was based on Thacher's derugulation/big bang. In fact, Britain was nearly broken in the '70s and had a short-term, illusory fix caused by Thacher's ill-fated deregulation. That is now over, and work will go from London to places like Shanghai. I hope that Britain reinvents itself, as it is my favorite country. It would be nice if Brown and Cameron offered concrete plans for the future.

[CathBraunn]

They have the advantage of being poised between the U.S. and the E.U., plus they have a good national language.

[tramdoctorsss]

Britain wont sit on its laurels on one industry, it will adapt as it always has. The UK is still a magnet for people from all over the world. I think the whole world is going to have to deal with the regulation which ultimately will result from this crisis and that includes Shanghai, I dont think it has an advantage over London in that respect. London has been an established financial centre for many years and will continue to be so after this debacle is over. This country has been up and down so many times there is no question that it will reinvent or do whatever it needs to do. The fundamentals the UK is based on are great and that doesnt just disappear.

[Xzmwskxn]

Shanghai will eclipse London as the world's No. 2 financial center within 25 years (if not sooner). Like NY, it is the financial center of an enormous economy. Moreover, it will become so huge and sophisticated that it likely will become dominant in all of Asia. (Some will try to compare the EU to the US, but the EU is not a country, and it's not even cohesive with respect to economic policy. Moreover, the Continent's suspicion of the Anglo-American model will benefit other regional financial centers like Frankfurt and Paris to London's detriment.)

With respect to the UK, I'm afraid that unless the government comes up with a plan, it will be reduced to a regional financial center like Frankfurt that also relies on tourism and film-making. I'd like to see Cameron offer proposals for the future.

[Janarealiti]

I dont agree that Frankfurt will benefit considering German banks were some of the first to falter and Paris Im sure was complicit although no major French bank has been hit badly (not counting Societe general but that was fraud) Other so thought steady Euro countries like Switzerland have also been hit badly so all of Europe is in the same boat in my opinion. As for China it dont believe it will ever be that powerful as long as it is communist and I dont care how liberal they pretend to be. Their economy only just recently eclipsed the UK's, a country 20 times smaller than China. Shanghai will be a major centre but whether or when it will eclipse London is something that will only be answered a long time in the future. I would also refer to the fact that London has held its own against NY until the collapse and was even being considered to have surpassed it. If it can hold its own against the US' top city then why not China's also?

[Arexytece]

I'm not as optimistic as you, though I hope that you're right.

I think that this crisis has shown how fragmented Europe is, and it clearly heightened Continental suspiscion of Anglo-American ways. This, in my view (and that of many economists whom I know), will result in greater nationalism in Europe and, in turn, the strengthening of Europe's other regional centers like Frankfurt. People in France and Germany and elsewhere are suspicious of the casino culture that pervaded London and was epitomized by the AIM. (in fact, most of AIG's most reckless conduct eminated from its London office.) Indeed, Thacher's big-bang went from praise to an anathema in the course of one year.

Given the foregoing, I'd like to see the UK develop a plan to become a leader in green enery or technology of some sort. If it were just a regional financial center, it would be a disaster. It needs more high tech and high end manufacturing like the US, France and Germany have.

[cajonnmu]

Sadly, the UK is in very serious trouble. Also, since regulation of financial markets is imminent, its one strong sector will be greatly eclipsed. It's really a shame.

I think we would be deluding ourselves if we aren't all in serious trouble, although by some measures it could be argued that the US is in a far more precaious position, ie the higher unemployment rate and the possible sector-wide collapse of the US car manufacturing industry.

Tougher regulation didn't and won't stop any cockups. Compare London's light-touch regulation to the more abrasive New York regulation, and I think you will find that it was New York that had to endure the Madoff episode, the capitulation of the entire US investment banking scene, and the collapse of its largest financial institutions (AIG/Citi). Even anti-anglo-saxon France had to succumb to the Kerviel affair at Soc Gen.

Also let us not forget that the advent of some sort of crazy 'global' regulation will only go to exacerbate the current economic climate by freezing flows of capital. Never mind the problem with putting theory into practice.

True, but we need more than mere hope. For example, if you consider all of the industries in France and Germany, they seem better poised for the future. Britain really only has finance and that was based on Thacher's derugulation/big bang. In fact, Britain was nearly broken in the '70s and had a short-term, illusory fix caused by Thacher's ill-fated deregulation. That is now over, and work will go from London to places like Shanghai. I hope that Britain reinvents itself, as it is my favorite country. It would be nice if Brown and Cameron offered concrete plans for the future.

I'd be interested to hear how France and Germany are better positioned, considering these countries elected leaders to try and bring about changes to their respective labour markets and adopt policies very similar to those brought about by Thatcher.

I also presume you are talking about the same industry that is so easy to move to the developing world?

The way I see Shanghai isn't as a competitor as you may view them - but as a business partner in a rapidly expanding market.

Shanghai will eclipse London as the world's No. 2 financial center within 25 years (if not sooner). Like NY, it is the financial center of an enormous economy. Moreover, it will become so huge and sophisticated that it likely will become dominant in all of Asia. (Some will try to compare the EU to the US, but the EU is not a country, and it's not even cohesive with respect to economic policy. Moreover, the Continent's suspicion of the Anglo-American model will benefit other regional financial centers like Frankfurt and Paris to London's detriment.)

With respect to the UK, I'm afraid that unless the government comes up with a plan, it will be reduced to a regional financial center like Frankfurt that also relies on tourism and film-making. I'd like to see Cameron offer proposals for the future.

Shanghai could very well become the number one financial centre, but I suspect it won't because (fortunately for London) financial centres aren't defined by the size of the population and/or the economy of the 'home' country.

Of course I do find it interesting what figures you are using to procaim that the UK has the largest/second largest economy to base your theory for correlation of financial centre strength.

Naturally the future is never set in stone, but London had the same question asked of itself after WW2, and then with the introduction of the €.

[Soulofpostar]

LL, you are right about emphasising tech. The UK is a small player in the ESA which is not acceptable in my eyes. We need to push high tech industry, we have arguably the best education system in the world so it makes sense. Scotland is probably number one in the world at the moment for developing wave technology and other offshore methods of energy production.

Re: David Cameron, dont hold your breathe he hasn't pulled a coherent policy out of his *ahem* in his whole time as leader.

My opinion is based on my instinct which proved reliable in my opinion of the Irish economy and Dubai. I just think the UK has been through too much to be kept down by anything. London has been destroyed over and over and it keeps coming back.

[smazibummigue]

Tougher regulation didn't and won't stop any cockups. Compare London's light-touch regulation to the more abrasive New York regulation, and I think you will find that it was New York that had to endure the Madoff episode, the capitulation of the entire US investment banking scene, and the collapse of its largest financial institutions (AIG/Citi)

What abrasive regulation are you referring to?

Not this, I hope?

The Madoff scandal didn't cause the financial collapse. It's just a poster-child for a free wheeling time of non-existent regulation.

[orbidewa]

...

Tougher regulation didn't and won't stop any cockups. Compare London's light-touch regulation to the more abrasive New York regulation, and I think you will find that it was New York that had to endure the Madoff episode, the capitulation of the entire US investment banking scene, and the collapse of its largest financial institutions (AIG/Citi). Even anti-anglo-saxon France had to succumb to the Kerviel affair at Soc Gen.....

Nick,

I like you, but I'm not about to get into a debate with you point for point as you have more free time than I do. I log onto this site during lunch, short work breaks and when my infant is sleeping....

Anyway, we both love London so let's hope for the best.

[Joircarm]

....

Re: David Cameron, dont hold your breathe he hasn't pulled a coherent policy out of his *ahem* in his whole time as leader.....

I'm not a big fan of Cameron, but he will be the next PM, so he needs to lead Britain out of this mess. He needs to focus on improving education and on developing high tech jobs.

[BWJfEkOB]

He will do none of those things unfortunately, and the idiocy of voting for the person who isnt the person you dislike by the masses will inevitably put him in power. I dont like Gordon Brown but Cameron will be a disaster.

I will be very surprised if London emerges from this anything less than Paris or Frankfurt's equal and the UK will never sink as far as Spain and Italy.

[tpdirorg]

Alonzo,

Who do you think will emerge as the Labor leader after Brown loses the next election?

Cameron might turn out to be decent.

[Avoireeideree]

There is talk of David Miliband and Harriet Harmon both of whom I think will be inadequate. Labour needs someone completely new.

Id be very surprised if the Tories did anything good. Especially under Cameron. He has been in god knows how many PMQs that Ive watched and I cant remember him ask a question that wasnt pointless BS.

Ideally Labour will push Brown out and give themselves a chance next time, or even less likely the Liberal Democrats might do well.

[oxixernibioge]

From BBC

Brown dismisses IMF bailout talk


Mr Brown said the UK was "not proposing" to go to the IMF

Gordon Brown has rejected speculation the UK might have to seek a bailout from the International Monetary Fund.

The G20 summit in London agreed to increase resources available to help troubled economies to $500bn (£340bn).

Treasury minister Stephen Timms and Business Secretary Lord Mandelson said this would remove some of the "stigma" of using the facility.

Asked whether the UK would go to the IMF, the prime minister said he was "not proposing to do so".

The Conservatives seized on the ministers' remarks about "stigma".

'Not first in queue'

During a Commons debate on the G20, shadow chancellor George Osborne asked: "What exactly did the financial secretary [to the Treasury - Mr Timms] have in mind when he said it?"

The Tories have warned that spiralling state debt could force the government to follow in the footsteps of Labour former chancellor Denis Healey, who approached the IMF for a bailout as the economy struggled in the 1970s.

Questioned on Channel 4 News over whether the UK might access this funding again, Lord Mandelson replied: "I don't think we are going to be first in the queue."

He added: "I don't think we are going to be in the queue."

At the G20's closing press conference, Mr Brown said: "Countries have offered that they will take up the IMF facility - I think Mexico has yesterday - but we are not proposing to do so."

Mr Timms was quoted as telling a meeting earlier at the G20 that Mexico's move showed "we have gone beyond the era of stigma."

The remarks echo those he gave in a Commons debate on 17 March, when he said that "there needs to be reform of the instruments through which the IMF can lend.

"In those ways, we want to overcome the problem of stigma that has been attached to IMF programmes in the past, to the extent that some countries feel it is politically impossible to contemplate approaching the fund."