George Kerevan: Euro sticking plaster covers a myriad of serious injuries

YESTERDAY’S crisis summit in Poland was partly theatre, designed to give the financial markets a few straws to clutch while the squabbling eurozone members try to deliver the Greek rescue package they announced back in July.

On Wednesday, Austria became the latest country to throw a spanner in the works by delaying till October the vote on its commitment to increasing funding for the European Financial Stability Facility (EFSF) – aka the Greek bail-out kitty.

The Polish gathering was enlivened by the appearance of the US Treasury secretary, Timothy Geithner. He jetted in to suggest to eurozone finance ministers that they leverage the (still nebulous) £385 billion EFSF in order to make it stretch further. The EFSF aims to provide precautionary sovereign loans and buy back bonds in the secondary market. But the £385bn – in contributions and guarantees from all eurozone members, including those with no earthy possibility of paying up – is too small to help anybody except Greece and possibly Portugal.

The markets are aware of this defect – which helps explain the drying up of interbank lending in Europe. Hence Thursday’s intervention by European central banks to provide emergency, three-month dollar liquidity facilities for commercial banks. But this move is a sticking plaster, so Geithner was in Poland with his Plan B.

Instead of EFSF cash being given directly to Greece et al, it could be used to underwrite debt bought by the European Central Bank, or provide partial guarantees against first losses by other lenders. That sounds fine in theory but it would mean leveraging the EFSF, whose individual state contributions are already leveraged (being merely guarantees rather than hard cash). The Europeans thought Geithner’s idea patronising. They also rejected his hint they should introduce another fiscal stimulus package.

However, the Polish conclave seems to have done enough to ensure the Greek government gets this month’s billions in sustaining finance from the IMF and EU – the purpose of the meeting. Ministers agreed to Finland’s awkward demand for Greek collateral (the Acropolis?) in return for Helsinki’s EFSF contribution. The Finns will pay a fee to discourage anyone else demanding collateral Greece doesn’t have.

But the markets won’t stay quiescent and the EFSF could arrive too late to stop contagion. This week it became apparent that Spain is failing to control borrowing, chiefly in the devolved regions. Spain’s 17 devolved administrations saw their collective debt rise to 12.4 per cent of national GDP, up from 11.6 per cent. Memo to Alex Salmond: Fitch has downgraded the credit of five Spanish regions including Catalonia.

EFSF or not, Greece will default and I can’t see it staying in the eurozone. But this week also saw a hardening of sentiment in Europe towards resolving the crisis through greater political integration. On Wednesday, the Italian foreign minister, Franco Frattini, announced that Rome “is ready to give up all the sovereignty necessary to create a genuine European central government”, if that resolves the debt issue. Geithner’s attempt to lecture Europe may have wider consequences than he imagines.

Mixed messages from Scottish retail figures

There was a lot of gloom about the latest Scottish retail figures. Total shop sales in August were down 0.7 per cent on the same month last year, compared with a rise of 1.5 per cent in the UK. Like-for like sales (eliminating new stores) were worse, down 2.4 per cent. Has consumer confidence collapsed north of the Border?

I’m not ready to call time just yet, especially as this week’s job figures showed an extra 23,000 folk in work in Scotland in the three months to July, compared with 78,000 fewer in England.

The latest shop vacancy count in Scotland is under 14 per cent. That’s up since February but still less than the UK’s 14.3 per cent. In Edinburgh, shop vacancies are only 10.8 per cent.

Over the past 12 months, the number of shoppers in the British high street dropped 2.6 per cent.

The hardest hit locations were Wales (-9.2 per cent), the West Midlands (-6.6) and the east of England (6.2). But Scotland had a 0.2 per cent increase. Are we a nation of window shoppers?

My suspicion is that Scottish consumers are pessimistic but no more so than in the rest of the UK.