U.K. government could end up like Iceland

U.K. government could end up like Iceland
April 1, 2011, (EIRNS) - The United Kingdom government could "find itself
in a situation like Iceland," in the not-too-distant future, a
City of London analyst told {EIR} today. With the international
markets even worse-prepared now for crisis than they were before
2008, the United Kingdom could find itself hosting a group of
huge, bankrupt international banks based in the City of London.
There is a good possibility that the U.K. government will
impose a policy enforcing internal separation of retail and
merchant banking--known as "ringfencing" on its banks, the
analyst said. This is being promoted by Bank of England Governor
Mervyn King, and there are a lot of indications that the
Independent Commission on Banking will call for such a policy
when it issues its preliminary report April 11. These measures
would protect customer deposits, small and medium-sized
businesses, and other essential functions, from the disasters of
the 2007-08 credit crisis, and commit the government only to
bailing out these functions.
This is by no means any full scale Glass-Steagall banking
reform, but the whole banking system is so rotten, that even
tentative measures such as ringfencing are causing friction in
the City of London. The big international bankers want absolutely
no changes whatever from the pre-2008 situation, the analyst
said: nothing that would in any way inhibit profits, especially
their personal profits. There is a faction, however, including at
the Bank of England, which wants to get back to "old style"
central banking, akin to what Paul Volcker has been promoting in
the United States.
In the run-up to the Independent Commission's report, there
is a lot of politicking in the City, most notably Barclays
publicly flirting with shifting its headquarters to Wall Street
(New York Mayor Bloomberg gave a press conference March 30
"welcoming" them any time they want to come). The Commission will
make its final report in September. UBS has put out a report
earlier this week, claiming that "Rather than Barclays being too
big, it may well be that the U.K. is too small." UBS made the
point that Barclays balance sheet is about the same size as the
entire U.K. economy, the {Daily Telegraph} reported March
30--bailout would be impossible. Barclays is essentially anyway a
U.S.-capitalized operation, since its marginal profits come from
Barclays Group, the result of its takeover of Lehman Brothers in
2008.
London could "hive off" retail banking, which is not large
in comparison to other operations. RBS would be the biggest
concern, but it is already 80% government owned; Lloyds is 45%.
Another factor is the widespread outrage in the population
at the excesses of the banks, and the scale of the bailout, as
drastic cuts are being imposed on every vital social service
across the board. The David Cameron-Nick Clegg coalition
government is making big political mistakes. They are imposing
20% cuts on the police force, which will obviously undermine
police support for the government. The scale of the cuts was
reflected in the huge TUC demonstration in London March 26, which
brought out not only public sector unions, but also constituency
groups from all over Britain, many of them conservative, ie, not
pro-union, but outraged at the deep cuts in social services.
Because of differences between the Tories and the Lib Dems over
pet programs, the agreement has been to impose across-the-board
cuts, to avoid a battle that could bring down the government.