Next month’s G20 summit must go beyond the usual rhetoric. Confidence in the eurozone’s banking system has to be restored through recapitalisation of its banks.By Telegraph View

8:04PM BST 07 Oct 2011

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Sir Mervyn King, the Governor of the Bank of England, this week called the current financial crisis “the most serious… since the 1930s, if ever”, in justification for a further £75 billion of “quantitative easing”. Since Sir Mervyn cited the chaos of the inter-war years, it seems appropriate to quote Winston Churchill: “Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusions of counsel, until the emergency comes, until self-preservation strikes its jarring gong – these are the features that constitute the endless repetition of history.”

We are at just such a moment again. Little more than two years ago, global leaders were happily congratulating themselves on having avoided the mistakes of the 1930s, thereby averting a depression. But now it appears that the difficulties of 2008 were but a foretaste of what was to come. With the European banking system again on the verge of collapse, there is a sense that politicians and economists are out of options, that governments and central banks are powerless before events. The best of the cavalry has been sent into battle, and it has come back in tatters. The fiscal armoury has been exhausted, the support offered by the boom in emerging markets such as China and India over the past two years seems to be on its last legs, and there is but the small rifle fire of the central bank printing presses left to defend us.

If it has been obvious for some time that we are caught up in an extreme financial crisis, the extent of its severity has acquired greater clarity in being described by the Governor of the Bank of England. Never before has the global financial system been so interlinked and integrated, which means that problems in one part of the world are capable of causing severe stress almost everywhere else. We once more face a perfect storm of cascading default, contracting credit and collapsing economic activity.


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