John Cranage: Hit the banks, not the widow
Neelie Kroes, the Rotterdam-born European Union competition commissioner, is demanding a severe toll of the bust banks rescued by their respective governments (for which, read taxpayers) during the global crisis.
So severe, in fact, that some babies are likely to disappear down the gurgling plughole along with the bathwater.
Ms Kroes, an economics graduate who lists her first job as assistant professor of transport economics at Erasmus University, is creating ructions in the upper dovecotes by invoking Brussels’ state aid powers to break up the mendicants of the banking sector who seem hellbent on restoring their bonuses rather than their sanity and probity.
The most immediate manifestation of her tough approach has been the decision by ING to dismantle itself in exchange for regulatory approval of its 10 billion euros of state aid. The move will have executives of Lloyds and Royal Bank of Scotland, beneficiaries of even bigger aid packages, “quaking in their boots”, according to one insider.
Another maintains that the price the two UK banks will have to pay to satisify Ms Kroes is likely to be “quite penal”.
And quite right too, you might be thinking. Indeed, with the exception of the egregious Duke of York (a walking argument for republicanism, if ever there was one), hardly anyone who doesn’t have the word “banker” on their passport would disagree with the need to take such a dangerously overweening business down a peg or two.
Except one should always beware of the Law of Unintended Consequences, a close relative of Sod’s Law.
It appears that state-backed banks are in danger of being forced to cancel the coupon on their bonds until taxpayers get their money back. That would precipitate a crisis for life insurers and pension funds which rely on interest from corporate bonds (especially bank bonds) for a goodly part of the income out of which they pay policyholders.
Not only would it deprive the funds - and their innocent dependents - of many millions, it would also spark a meltdown of the bond market as investors scramble for other means of matching assets to long-term liabilities.
That would be a boost for every new investment nostrum. So-called longevity bonds are already being touted as the answer to every pension investment manager’s dream of ensuring there will be enough to keep paying out until the last pensioner’s widow dies.
Rival vehicles will soon be emerging in ever-increasing degrees of complexity and incomprehensibleness, all of which will be virtually guaranteed to implode.
So Ms Kroes, teach the bankers a lessons, but don’t forget the widows and orphans who don’t have European Commission pensions to live on.
