Economy needs surgery not sticking plasters

Banks bore the brunt of the bloodbath as US regulators began running the rule over the Stateside operations of European banks for possible debt contagion.

Yet moves by politicians and central banks to stem the rot have proven futile.

In their attempt to apply a sticking plaster, German chancellor Angela Merkel and French president Nicolas Sarkozy only managed to inflame the wound – announcing plans for a tax on financial transactions that helped drag already battered banking stocks lower.

“A crisis of confidence,” is how one US investment manager summed up a fourth week of heavy losses on Wall Street.

That fear has helped drive up gold by almost $200 over the past fortnight to nigh on $1,900 an ounce. A push through $2,000 is almost certain if investor confidence is further dented when traders drag themselves back to their desks tomorrow morning.

The “R” word looms large over all of this, yet the more optimistic believe recession can still be avoided. A return to “negative growth” in the US or Europe need not spell disaster on a global scale. With their double-digit growth rates, the emerging nations churning out goods by the container load for Western consumers have a long way to fall.

Trouble is, there ain’t that many optimists out there right now. Fear is stalking fear and a descent into bear territory – a 20 per cent slide from recent market highs – looks inevitable. Both London and New York ended last week teetering on the brink.

Decisive intervention is needed to restore investor confidence. That could come next weekend at the annual banking bash in Jackson Hole, Wyoming. Both US Fed chairman Ben Bernanke and European Central Bank president Jean-Claude Trichet will be in attendance. Expect fiscal stimulus, in the shape of fresh quantitative easing, “eurobonds”, possibly tighter market controls, to be on the menu.

A week, however, is a long time on the markets. Some are forecasting a modest bounceback in the next couple of days, yet the patient remains critical. It’s not sticking plasters that are needed but open-heart surgery.

Trams a costly farce

IN LESS than a fortnight, the annual circus that is the Edinburgh festivals will have packed up and gone home. Residents, though, will have little time to catch their collective breath. Work on the city’s troubled trams project is due to restart in earnest with the sound of the jackhammer replacing the fireworks.

Having meant to be up and running earlier this year, we now learn that the cost of the much-delayed scheme is likely to top £1 billion, roughly twice as much as originally estimated. And the route will be half the planned length.

If the latest funding proposals are given the green light at next week’s full council meeting, additional borrowings of more than £200 million will be repaid at some £15.4m a year over the next three decades. It’s a huge price to pay for what has long since turned into utter farce and makes a mockery of the original business case.

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