Martin Flanagan: Bankers show the politicians that action can be delivered

The co-ordinated steps of the Federal Reserve, the European Central Bank, and the central banks of Britain, Canada, Switzerland and Japan to inject strong liquidity into the global financial system is extremely welcome. It drove rattled stock markets sharply higher.

Market sentiment was also boosted by the decision of China to cut its banks’ reserve requirement ratios, the capital they have to back their loans, for the first time in nearly three years to try and curb the slowdown in growth of the world’s second biggest economy.

China is now virtually the last redoubt of optimism amid the welter of bad economic news in the west. Anything that buttresses that country’s growth is in our interest as well.

The central banks used a joint statement to say they had agreed to lower the cost of existing “dollar swap lines” by 50 basis points from 5 December among other measures. They have also agreed to support each other’s liquidity arrangements in their individual markets if deemed necessary.

The co-ordination has echoes of the Lehman crisis in 2008.

As people are talking about the possibility of a lost decade economically, the aggressive measures by central banks were needed. It is clear that the Bank of England, the Fed and their counterparts know the ante has been upped.

They are having to confront the financial black holes of sovereign states, not just the leveraged overreach of banks as in 2008.

With baleful synchronicity, the policymakers’ moves came as two million public sector workers in Britain walked out yesterday. It is the nearest we have got in this nation so far to public anger at savage state sector retrenchment, as typified by Greece.

Teachers, health workers, court and immigration staff are among those who withdrew their labour a day after Chancellor George Osborne turned his face against calls for a Plan B on the austerity programme.

It is easy to sympathise with the striking workers even while acknowledging such action is a shot to the body for an economy on the ropes.

Their take-home pay has been badly eroded by inflation, great numbers of public sector workers have been and will be made redundant, and they are being asked to work longer and pay more into ultimately less valuable pensions.

To which not a few private-sector employees who have already shuffled down this austere road might well say: “Welcome to the party.”

Against the stark backcloth, the central bankers’ concerted move will not be enough to ward off what looks set to be a very prolonged period of economic stagnation in much of the world. And we are likely to see further social protest as this truth dawns.

But the banks’ massive liquidity injection still partly lifts a very dark mood. Something was certainly needed as the eurozone politicians have almost made a fetish of not stepping up to the plate.

Auditors face watered-down reform but still complain

WHAT are company auditors for if they can’t guarantee the integrity of the numbers? As such, you could argue that a profession dominated at the top end by the “Big Four” has got away lightly with the watered-down reform proposals from the European Commission. The EC says: “The 2008 financial crisis highlighted considerable shortcomings in the European audit system.

“Audits of some large financial institutions just before, during and since the crisis resulted in ‘clean’ audit reports despite the serious intrinsic weaknesses in the financial health of the institutions concerned.”

However, the reform proposals look somewhere between a climbdown and a reining in of the oligopoly of PricewaterhouseCoopers, Ernst & Young, Deloitte and KPMG.

Mandatory joint audits to encourage competition to the Big Four from the mid-tier auditors have been shelved, disappointingly (even though companies that opt for joint audit can retain their auditors for up to nine years rather than the new limit of six years).

It is surely right that audit firms will be banned from providing management consultancy services to their audit clients to address conflicts of interest.

But EC internal markets commissioner Michel Barnier has rowed back on Europe‑wide supervision of audit, instead calling for the “co-ordination” of individual auditor supervision activities within the European Markets and Securities Authority.

The CBI and Institute of Directors have criticised the proposals as adding costs to business at a difficult time. But we shouldn’t put off all necessary financial regulatory reform with a kneejerk response that the need for business investment and economic growth trumps all.