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Armageddon Jones

Posted by Richard Tuesday, February 17, 2009 , ,

We've kept off the financial crisis for a while, not least because it's too depressing. But another good reason is that, since no one seems really to know what is going on – still less what to do about it – we saw no great reason to add our ha'porth of ignorance to the pot.

Fully paid-up member of the sky-is-falling-in-brigade is, of course, Ambrose Evans-Pritchard, whose columns would have us permanently hiding our heads under the pillows.

Unfortunately, Ambrose is right enough times – albeit on a longer time-scale than he usually predicts – for it to be easier to mock than take him seriously. That way, at least, you don't see the bus that hits you and you can be happy right up to the time of your oblivion. That, I suspect, is the way most people feel about the gathering crisis. And hey! It might never happen!

What has a horribly ominous ring to it though is Ambrose's latest piece which tells of Eastern European currencies crumbling as a wave of fears take over, buoyed by a mounting of debt crisis. Where have we heard that before?

Putting form on the fears, Ambrose tells us that Hungary's forint fell to an all-time low on Monday, and Poland's zloty slumped to the lowest in five years on plunging industrial output. Half of all loans to the private sector in Poland are in foreign currencies so borrowers face a severe debt shock after the 40 percent fall of the zloty against the euro since August.

Then we get Hans Redeker, currency chief strategist at BNP Paribas, observing: "We're nearing the level were things could get out of hand."

The problem here is that the main backer of Eastern European debt is Germany, so the debt crisis has the potential to undermine what is traditionally Europe's strongest economy. And, as we all know, 'cos we're all experts on this, when German economies go down the tubes, the whole of Europe suffers in very nasty ways.

The sheer scale of the crisis, as it unfolds, is blunting the senses. The European Bank for Reconstruction and Development is saying that East Europe may need as much as €400bn to help it refinance its loans and inject fresh capital into the banking system. That is such a huge amount of money that it is beyond imagining, yet it is chicken-feed compared with some of the figures being touted.

No doubt, someone will come up with yet another imaginative rescue package, that no one understands and no one believes will work, all to stave off what everybody believes inevitable, the collapse of the monetary system and with it the euro.

It is getting to the point where it is rather like an crowd in the street, watching the interminable drama of a potential suicide standing on a roof above, threatening to jump. After a while, the crowd loses patience and the chant goes up: "Jump! Jump! Get it over with!"

The trouble is that we are all on that roof, shackled together – one goes, we all go. Let's hope there is someone out there with a bloody big net. Ambrose seems to think we might need it.

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