One might regard yesterday's surge in bond and share prices as a gentle cuff from the markets to those in high places who have forgotten their place. Britain's little local difficulty – the small matter of who will govern the country – is a sideshow in the story of the sovereign debt crisis. That's why we saw the European Union finance ministers' overnight agreement prompting a day of gains, rather than the failure on Sunday of Messrs Clegg and Cameron to do a deal presaging a sell-off.
Looking forward, let us note what is more important to the markets. Particularly as the fiscal challenges facing the eurozone and the rest of the European Union look even harder to resolve than the dynamics of the next government of the United Kingdom.
Yesterday's positive response to the finance ministers' announcement reflects widespread relief that the European Union has at last come up with a credible response to Greece's debt crisis and the contagion that has been spreading across the eurozone.
The size of the bailout and the extent of the policy response are important. The €720bn (£620bn) of emergency funding now in place represents the equivalent of a year's worth of eurozone government bond issuance. There will thus be no liquidity crisis. The German government has finally put aside its political equivocation to sign up to the deal. The European Central Bank, complacent until now, has woken up. Only four days ago, its president, Jean-Claude Trichet, was saying that the ECB had not even considered buying up government bonds as an emergency response to the crisis – now that is its policy.
But while these developments seem, finally, to have drawn a line under the immediate crisis, the rescue package is simply a gigantic sticking plaster. The EU has bought itself some time to heal its wounds – self-inflicted in too many eurozone countries – but now has to prove that it can do so.
Taking comfort from a package worth the same as a year's issuance of eurozone bonds is the glass-half-full response. More gloomy analysts are already asking what will happen in the equivalent of a year's time – the €720bn is just 10 per cent of total eurozone government debt; it would quickly be wiped out in the event of serial defaults throughout the single currency zone.
The question now is to what extent can the most indebted nations in the eurozone put their house in order? The social unrest seen in Greece over the past 10 days underlines just how difficult it will be for these countries to push through the deficit-busting reforms necessary. The choices facing Spain and Portugal are equally bleak.
Moreover, these are difficulties that are beyond the control of Brussels. In the absence of a single fiscal policy – the ECB may control monetary matters in the single currency zone, but taxation and spending decisions are for national governments to make – the long-term success of this agreement will depend on the will of individual politicians and the extent to which the people of Europe are prepared to bend to that will. Crisis simply postponed?
The price-fixing case that did not fly
If only the Office of Fair Trading had stuck after handing down a £121.5m penalty almost three years ago to British Airways for colluding with Virgin Atlantic on fuel surcharges, rather than twisting and seeking criminal prosecutions too. That's the obvious response to the collapse yesterday of the trial against four former and present BA executives relating to the case.
The regulator must bear a heavy responsibility for committing the taxpayer to spending millions on this case only to see such an unsatisfactory outcome. It would have been disappointing enough had these men been acquitted on the basis of the evidence presented by the prosecution. Even worse that they could have been spared years of this legal threat hanging over them had the OFT done its job properly by assessing all of the potential evidence before the proceedings got going.
This case also provides yet more reason to feel uneasy about the store the OFT sets in its procedure of granting immunity to the first party in a case to come clean about wrongdoing. This is not to suggest that Virgin should be blamed for yesterday's events – it insists it has done everything the OFT has asked of it since it applied for immunity. But the OFT's reliance on evidence from one party is high-risk and leaves its cases open to attack from the defence.
All this said, the obvious response to the collapse of the BA case is not the right one. When it launched a criminal prosecution of these four men for price-fixing, the OFT believed it had the evidence to secure a conviction. Having reached that conclusion, the regulator would have failed in its duty had it decided not to pursue the case. And if we want British business to be less corrupt, we should encourage our regulators to take a hard line when they believe they have uncovered evidence of wrongdoing.
Tube Lines PPP consigned to history
One pleasing symmetry in the timing of Gordon Brown's resignation was that just hours previously Boris Johnson, the Mayor of London, had finally signed the death warrant for a policy designed personally by the Prime Minister. In securing the £310m deal to take over Tube Lines, the private consortium doing up the London Underground, Mr Johnson succeeded yesterday where his predecessor, Ken Livingstone, had failed, killing off a public private partnership that has proved so costly and complex.
Whatever the final verdict on the rest of Mr Brown's premiership, there can be no arguing that the London Underground PPP he designed as Chancellor has been anything other than a failure. The contracts to maintain the Tube will now be back where they belong: fully under the control of London taxpayers' elected representatives.Reuse content