Only drastic action can begin to fix this mess

DESPERATE times require desperate measures and it’s time to stop tinkering, kicking the can, or hoping for a miracle. The Chancellor, George Osborne, has warned his eurozone counterparts they have six weeks to sort themselves out or face another recession that could prove long and deep.

First we need a leader. No-one seems to be in charge and we all know that trying to run anything by committee is like herding cats. The result of 50 years of “coming together” is a European Disunion in which national self-interest still dominates.

Second, and as I said here on 7 August after one of the worst routs on the stock market since 2008, the global economy will make no progress until it de-leverages. The West has for too long lived beyond its means and the debt counsellors are telling us the party is over.

In fact, re-reading that column reveals that so little has changed in the past six weeks I could virtually reprint it. There has been no progress whatsoever. Meanwhile, billions have been wiped off the value of companies and their pensions schemes.

As for desperate measures, we have to be radical. Throwing more high yielding loans at the problem is not going to solve it. That is like offering another loyalty card to a deeply-indebted shopaholic. We have to call in the credit cards. Yes, if necessary, precipitate a failure or two. I said six weeks ago that we may have to endure another Lehman Brothers. I stick by that and it seems others have come round to accepting that Greece must default.

There is much talk of a “Credit Crunch 2”, except in the original horror story the taxpayer was called upon to bail out failing companies. In the sequel there is no-one to bail out the taxpayer. That’s where we are right now and it’s no use closing our eyes until the scary bits are over. The show is being repeated night after night.

Should Greece default there needs to be some form of ringfence or guarantee around other vulnerable nations and the recapitalisation of the stronger banks so as to prevent the crisis spiralling out of control. Another run on the banks has to be avoided at all costs.

Fundamentally, we have to take actions that in normal times may be unthinkable such as a tax and national insurance holiday or differential base rate policy so as to help smaller companies and consumers.

George Osborne’s austerity package has to be part of that plan, but only a part. His and other governments have to stimulate confidence and demand.

SSE exit not just about being green

WHEN news leaked last week that Scottish & Southern Energy was pulling out of the NuGeneration project to build nuclear power stations it was cheered by the green lobby who saw it as a vindication of their position.

But this had more to do with money than environmental matters. Friday’s statement from the company that it had “always adopted a cautious approach to the financial and other issues associated with nuclear power development” confirmed that SSE is worried by the costs it would face and had pulled out now ahead of a major commitment to be made in 2015.

Interestingly, SSE made it clear that it was not closing the door on nuclear, only that it was choosing for now to invest in renewables. But its boss has always been keen on value and on minimising the downside risk. He clearly sees a better return from windmills.

n [email protected]