Hamish McRae: Calm down Mervyn – this so-called global recession is really not that bad


It is about as alarmist as you can get. Sir Mervyn King, governor of the Bank of England, says: "This it the most serious financial crisis we have seen, at least since the 1930s, if not ever."

Ever? And anyway, is this sort of stuff a central banker should be saying? It is hard to imagine his predecessor, the late Eddie George, going in for this sort of hyperbole. But that is what the governor said and it deserves attention.

There are certainly a host of differences between now and the 1930s. One is that this is a period of global inflation, not deflation. Another is that the emerging world is still growing strongly – indeed, the so-called global recession was actually only in the developed countries, for the emerging world as a whole continued to grow. Thanks in part to those countries, world trade has recovered strongly. Another difference is that there has been no widespread collapse of the international banking system, though it did come close to that after the failure of Lehman Brothers. But perhaps the biggest difference is that the hatreds which existed then, the legacy of what was then called the Great War, do not exist today.

There is also a case to be made that the financial crisis of the 1970s was more serious than this one, for inflation and interest rates reached the teens in most developed countries. It seemed for a while that the social and commercial structure of the developed world would be destroyed by hyper-inflation. In Britain, inflation peaked at 25 per cent in 1975.

The general expectation now is that Germany and France may well experience mild recessions with some fringe countries having deeper ones. But the world economy is still expected to grow by more than 3 per cent and from a more parochial point of view Britain is also forecast to grow, albeit slowly.

So why the alarm? Well, we can only assume the governor is worried European politicians will fail to contain what markets now see as the inevitable Greek default. Taken in isolation, this should not be a catastrophe. European banks which hold Greek debt will be under pressure and some may need to be bailed out. But the numbers are not huge in the totality of Europe's economy or the resources of its two strongest countries, Germany and France.

The danger would be if a Greek default triggered a domino collapse of other and much larger bond markets, with a sequential collapse of the sovereign debt of Spain and Italy. Were that to happen – and it lead presumably to a break-up of the eurozone itself – then maybe it would qualify as "the most serious financial crisis we have seen, at least since the 1930s". It is hard to see any other circumstances that would justify such language.

It may well be that some countries will eventually have to abandon the euro. But in the short-term it should be possible to contain the pressures, assuming Germany and France co-operate and do so. Maybe the governor fears they won't.

German supporters (left) and Argentina fans
world cup 2014Final gives England fans a choice between to old enemies
Arts and Entertainment
Armando Iannucci, the creator of 'The Thick of It' says he has
tvArmando Iannucci to concentrate on US show Veep
Life and Style
Pepper, the 3ft 11in shiny box of circuits who can tell jokes and respond to human emotions
techDavid McNeill tests the mettle of one of the new generation of androids being developed in Tokyo
Arts and Entertainment
A still from the worldwide Dawn of the Planet of the Apes trailer debut
ebookA unique anthology of reporting and analysis of a crucial period of history
Four ski officials in Slovenia have been suspended following allegations of results rigging
sportFour Slovenian officials suspended after allegations they helped violinist get slalom place
14 March 2011: George Clooney testifies before the Senate Foreign Relations Committee during a hearing titled 'Sudan and South Sudan: Independence and Insecurity.' Clooney is co-founder of the Satellite Sentinel Project which uses private satellites to collect evidence of crimes against civilian populations in Sudan
Arts and Entertainment
Balaban is indirectly responsible for the existence of Downton Abbey, having first discovered Julian Fellowes' talents as a screenwriter
tvCast members told to lose weight after snacking on set
Life and Style
More than half of young adults have engaged in 'unwanted but consensual sexting with a committed partner,' according to research
Life and Style
A binge is classed as four or more alcoholic drinks for women and five or more for men, consumed over a roughly two-hour period
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Programme Support, Coms, Bristol, £300-350p/d

£300 - £350 per day + competitive: Orgtel: My client, a leading bank, is curre...

(Junior) IT Systems Administrator / Infrastructure Analyst

£28000 - £32000 per annum + pension, 25 days holiday: Ashdown Group: A highly ...

Finance Officer

Negotiable: Randstad Education Birmingham: Randstad Education are seeking a Fi...

Accounts Payable

£12 - £15 per hour: Cameron Kennedy Recruitment: Excellent opportunity to join...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice