rescue plan for banking system

Steadying the nerves of investors

Published:

IT’S a little too early to crack open the champagne, but the drastic rescue plan to prevent Britain’s banking system from collapse appears to have steadied the nerves of investors. After a week in which the stock market declined at record levels, yesterday’s 8% rise in share prices was a welcome indication that confidence, albeit brittle, is returning. All eyes will now be focused nervously on the events of the next few days, which should determine whether this is, to paraphrase Gordon Brown’s graveyard humour, light at the end of the tunnel or simply another express train hurtling towards us.

If, and it is a big if, the concerted efforts of the European nations have now brought the economic situation back under control, it will be a personal triumph for Mr Brown, whose prime ministerial stock will rise along with the FTSE 100. He has emerged from the events of the last two weeks with his tattered reputation partially restored and at least a fighting chance of remaining in power until the next election. That seemed scarcely possible prior to the onset of October. Not that he, or the economy, is out of the woods just yet. Investors had barely begun to react to the bail-out of banks than warnings began to emerge that the recovery plan comes at a cost. And it will be the British public who will feel the pain through higher taxes, reduced public spending, or possibly both. That, however painful it might be, is for another day. The priority now is to ensure that, by taking a major shareholding in the banks most seriously at risk, the government does not put a straitjacket around their prospects of recovery. Banks should be run by professionals, not by government ministers.