Leader: Clear minds needed to see us through the financial fear

IN RECENT years, as financial crises have darkened the sky, that famous line from the 1933 inaugural address of President Franklin Roosevelt has been invoked to steady our nerves: “The only thing we have to fear is fear itself”. That we should draw comfort from a phrase so redolent of the Great Depression almost undoes the comfort it is meant to bestow.

In 2008 the world stood on the brink as bank lending froze and Lehman Brothers collapsed. Royal Bank of Scotland and Lloyds/HBoS buckled soon after. These fears have returned. Yesterday the banks’ shares plunged to 12-month lows. And this time the stakes are higher than a banking crisis: the stability of the eurozone and beyond. According to a systemic risk survey of 68 financial firms by the Bank of England, more than half – 54 per cent – thought the risk of a “high-impact event” was high or very high, while nearly 90 per cent felt the chance of a high-impact event, such as the collapse of the euro, happening in the next year has increased in the last six months.

A collapse of the eurozone is by no means the only “event risk” of concern. There is the prospect of a downgrading of US sovereign debt, a hard landing in China and a chain of bank failures in Europe. But the fears are concentrated on those rising sovereign debt yields in the eurozone. In the increasingly polarised stand-off between German chancellor Angela Merkel and the European Central Bank (ECB) on the one hand, and on the other a growing chorus of political leaders and finance ministers urging Germany to allow the ECB to fulfil its responsibilities as lender of last resort, fear has taken root.

Because of the uncertainty of the outcome, a mood of febrile apprehension prevails, and with it the sense of an approaching denouement – either a dramatic intervention by world central banks or an “event risk” that could unleash a devastating chain of sovereign defaults and bank failures. Already, social unrest and rising unemployment are evident. Add to these the likelihood of a return to recession, and it is not hard to see why fear of what might unfold in Europe is sapping business confidence and freezing investment. Fear is laying a deadly trap of self-fulfilling prophecy.

Businesses and households across the land feel helpless in the face of momentous events that seem beyond our control. In these circumstances, it is vital that we do not allow fear of the worst to blind us to our strengths: those reserves of resilience that will in time nurture recovery. Daunting though the future may look, there are many companies still investing, expanding and taking on staff. Across the economy as a whole, 29 million people are still in employment, 70.4 per cent of the working-age total. This is not the 1930s. But there is a mountainous task ahead in working down debt and pursuing ways to boost jobs and activity. All of this requires calm, clear minds and a courage not to succumb “to fear itself”.