David Prosser: Merkel must fill the leadership vacuum at the centre of the euro crisis

Outlook: In Greece itself, the backsliding on the detail of the deal is such that negotiators have left the country so that all sides can cool off

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The Independent Online

Here we go again. If anyone thought the eurozone's financial crisis was a silly season phenomenon, yesterday's stock market sell-offs across Europe immediately shattered such illusions. On the financial markets, the back-to-school feeling of the first Monday in September was accompanied by a weary sense of déjà vu.

At first sight, there are so many factors driving the depressedsentiment on the markets that it is difficult to see the wood for the trees. Was it Christine Lagarde's demands for a change of tack from eurozone governments that drove down markets, or the complacency with which European Commission President José Manuel Barroso dismissed talk of a crisis? Was it the latest woeful economic data in the UK, or the new threat to the banking sector emerging from pending legal actions on both sides of the Atlantic? Or maybe the rumours of an impending credit rating downgrade for Italy?

In fact, one theme underpins all these and more: the ongoing lack of political leadership in the eurozone. Or, to be more specific, the ongoing failure of Germany – for only the bloc's largest economy can do it – to show that leadership.

One understands the dilemma facing Angela Merkel, the Chancellor of Germany: to put the eurozone on surer ground, she must embrace exactly the sort of policy initiatives to which so many in her own country – and her own party – appear to be vehemently opposed. Rather than do that, she has hoped to get by with a series of compromises – the promise of fiscal union for the future, with no eurobonds in the present, for example, or the announcement of an overhaul of the European Financial Stability Fund with no detail on the hotly contested fine print.

This approach is a breeding ground for further instability. The failure to agree the detail of the second Greek bail-out at the end of July, for example, has encouraged countries such as Finland to demand collateral in return for their support, a row which is now threatening the whole deal. In Greece itself, meanwhile, the backsliding is such that EU and IMF negotiators have left the country so all sides can cool off.

Ms Merkel can stop this, but it will require her to go on the offensive. Assuming tomorrow's constitutional court ruling on the legality of Germany contributing to European bail-out funds goes in the Government's favour, Ms Merkel will have a platform on which to campaign ahead of the Parliamentary vote on 29 September on whether to ratify the July reforms.

Her challenge is to seize the initiative: to explain to her domestic opponents that they must choose between ending this crisis or pushing her into more fudges that will eventually lead to the collapse of the single currency. She must, in other words, show leadership both at home and abroad.

New banks really can make a difference

Those who doubt that making banking more competitive – one of the challenges with which Sir John Vickers's report on the sector must wrestle next week – will provide tangible benefits should take a look at the new mortgage product launched by Aldermore yesterday.

Two years ago, there was a great deal of talk about new entrants to the banking sector but in the end Aldermore was one of only a tiny number of groups to actually get its act together and launch. The bank remains relatively small but has become an important source of new finance for small and medium-sized enterprises, and is slowly making more of a splash in the retail sector too.

Its latest effort is the first 100 per cent loan-to-value mortgage launched since the credit crisis – that is, a home loan that does not require the buyer to have saved a deposit for their property.

The deal comes with various strings attached – not least, the borrower has to find a guarantor for 25 per cent of the repayments – and at 6.48 per cent it is expensive compared to the cut-price deals available to those who are able to put down substantial deposits ona home.

Still, it is a breakthrough. We do not want a return to the days when 100 per cent mortgages were made widely available to borrowers who did not have the financial strength to take them on. But we do need mortgage products that recognise the peculiar circumstances of the housing market today: that long-term low-cost fixed rates make loans affordable for more people than in the past to service, but that high prices and the requirement for 5 or 10 per cent deposits are locking those borrowers out.

Established mortgage lenders have failed to provide thoseproducts, however, leaving it to a niche player to fill the vacuum. Let's hope the Independent Banking Commission lays the groundwork for the emergence of more Aldermores in the months and years ahead.



JJB Sports aims to raise its game

In a post-credit crunch world, "aligning the interests" of shareholders and executives is all the rage. In launching its new incentive scheme yesterday, JJB Sports is not the first company to talk in this way, nor is it the first struggling business to offer senior management a pot of gold at the end of the rainbow if they can restore its fortunes. Rentokil, for example, operates a similar scheme for its turnaround team, with even more eye-watering rewards dangled as a performance incentive.

To which one at least ought to acknowledge that rewards for success are preferable to the rewards for failure so commonplace in too many executive remuneration schemes. Still, is it churlish to ask what, for example, Keith Jones, the chief executive of JJB will now do for the business that he didn't feel able to when labouring under his previous employee benefit arrangements (which were worth £620,000 in totality last year)?

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