Only Abba can save the world financial markets

08 October 2008

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Martin Vander Weyer says that the collapse in the markets reflects a loss of confidence that is out of proportion to all reason: a trip to Mamma Mia! is the answer to this hysteria

Meanwhile, it was not in the least surprising that the grossly overextended Icelandic banking system had descended into frozen chaos: that was the one feature of the week’s drama we could all have seen coming — and the Chancellor was right to say he would guarantee Icesave’s depositors rather than leave them to find out whether there’s any cash in Reykjavik to pay them out. Likewise, it was predictable that the artificial construct of a single European monetary regime would be swept aside in a rush by national governments — the Irish, Danes, Germans and Greeks so far — to reassure their own citizens that their bank deposits are safe.

The lesson so far, at least on this side of the Atlantic, is that citizens still have some faith in national governments, despite the fact that national governments are at least as prone to folly as commercial bankers. But the European Central Bank, without political traction or the support of a European fiscal authority, turns out to carry hardly any psychological clout at all. President Sarkozy’s cobbled-together summit last weekend, which produced a modest bail-out fund for smaller companies but no consensus on the way forward, merely served to emphasise the ‘every nation for itself’ mood and the fact that the fiscal rules for eurozone member countries may have to be scrapped or suspended sine die. Ardent Eurosceptics leapt on these developments as evidence that the euro is doomed (like the now forgotten late-19th-century monetary union between France, Belgium, Switzerland, Italy and Greece) for want of political underpinning. Objective observers might agree that its survival chances are now less good than those of our high street banks.