Page last updated at 16:45 GMT, Friday, 21 August 2009 17:45 UK

City Diaries: 21 August

Man looking at a falling graph

With the news that France, Germany and Japan are reporting slight growth in their economies, could they be taking the first tentative steps out of recession?

If so, is Britain being left behind? This week our diarists reflect on what this means for the City and the UK.

These diaries are written by people who work in finance and have had a front row seat as their industry goes through the biggest changes in decades.

They give us regular insiders' updates on the mood in the City of London and the dramatic changes in the world of finance.


Laura (not her real name) works for a commercial bank in London.

Shoppers in Printemps department store
Consumer spending has risen in France and Germany - will it help the UK?

Whether we are technically in recession or not is somewhat irrelevant to the real world at this point. People will continue to be laid off or enter into an individual voluntary arrangements even if we are back to economic 'growth' of tiny proportions.

It's also not worth worrying that much about Japan, Germany and France now being back into miniscule growth. France has much higher unemployment than us even when it is doing well economically. Consequently the secondary impacts of the crunch, which we and others like Germany face as a result of rising unemployment, do not affect the French economy in the same way.

It's not worth worrying that much about Japan, Germany and France being back into miniscule growth

Some financial commentators have extrapolated from the Bank of England's figures that we will be back to growth this quarter - whoopee doo! This is a macro indicator and the economy, banking sector and people's lives represent a series of micro transactions which feed into the whole. If the company based in the business unit next to yours managed to get an overdraft from a bank last week that is of no positive benefit to you if you still can't get one. The return of profitability and therefore bonuses at some banks is of absolutely no comfort or help to the thousands of staff laid off by the exact same banks over the last 18 months.

A container being unloaded in Hamburg
Germany is the world's biggest exporter

It is notable that the tax receipts for July were negative v expenditure for the first time in donkey's years.

Reduced tax means either:

1) Less income tax = people earning less = people with less money to spend in retailers + less ability to repay debt;


2) Less business tax = companies making less profit = fewer jobs being created / more redundancies + less ability to repay bank loans = more bank write offs and less money being lent + more of 1.

The number of people of working age being provided for by the state has now reached six million. This is not an easy number of people to shift back to work, leaving a longer term financial burden on the rest of us and a definite dampener to our ability to restructure the economy long term.

We really have to get back to making things that people across the world want.
Larry, London, England

The tougher international banking regulations, known as Basel 2, are turning into an excellent new way to distract yourself from lending money or putting credit back in their box. Over the coming months we will all be spending countless hours re-rating our lending portfolio, reviewing risk, changing how we monitor accounts and how we make provisions. Even how we price for risk and reflect capital held. If you think this sounds terribly dull, you are right - it is.

I would say most business bankers will be spending significant time on this until June next year, which coincidentally should also be when we see a levelling out of unemployment figures and everything else.

This is then the perfect time to start lending again, as we can always blame the lack of activity in the meantime on us complying with the shifting regulatory requirements of the government, the EU, the FSA and Bank of England etc.

Oh, and conveniently we will have a new government in place so we can have more certainty over tax and spending levels. Let's face it - the tax increases required to pay back the giant debt left by the current lot are going to be enormous.


Stephen (not his real name) has worked in the City of London for over a decade.

Prices of shares and houses have an irritating habit of crashing just when it feels like the party is never going to end.

Job centre queue
Talk of the recession being "over" is meaningless to the millions of unemployed

The same goes for economic data. This decade we became accustomed to rising Gross Domestic Product or GDP and falling unemployment. In early 2007 it was inconceivable that it was time to head for the exits. Recessions had been abolished, our leaders told us, and they dismissed the first tremor of the subprime crisis as "a blip".

With devastating power and breathtaking scope, the worldwide crash of 2008 changed all of that. A generation that had never seen anything other than "good times" was stunned. The conventional wisdom of the boom years was laid bare as a delusion.

Younger colleagues had only heard about recessions in textbooks or from their parents. Now, as they labour under enormous student debts, they are shocked to be living through one. Suddenly debt doesn't seem like such a good idea.

In recent days there have been news reports that Germany, France, Hong Kong and Japan are heading out of recession. The fix, perhaps, is in.

Suddenly debt doesn't seem like such a good idea

Let's think about what this means though.

Economic definitions of "recession" hinge on whether GDP is contracting. The end of a recession is signalled when this contraction halts. But this completely ignores the amount of damage that needs repairing.

To understand this, we need a more common-sense definition of recession: if I lose my job, then my personal recession only ends once I get another job of a similar standing. If I fail to find work or have to take a reduced role, then my personal recession carries on.

So talk of the recession being "over" is meaningless to the millions of people who are out of work. And public debate about "the end of recession" is frankly missing the point. Until unemployment not only shrinks but gets back to a more normal level, millions of personal recessions will continue.


In recent weeks I've been hearing rumours that our state-owned mortgage lenders are holding tens or even hundreds of thousands of repossessed houses on their books. The government cannot face the humiliation of dumping them on the market but at some point this inventory will need to be disposed of. Just what price this will occur at, nobody can say for sure.

So when "end of recession" is spoken of as a wishful shorthand for a return to "2007 levels of lending" and steadily rising house prices, the collective delusion of our times is laid bare. We seem to be hellbent on trying to forget the lessons of the crisis.

We seem to be hellbent on trying to forget the lessons of the crisis

In the most old-fashioned sense, there's only a few ways to create wealth: digging things up, making things or transforming things. Repackaging things and shuffling paper are no substitute and there is no period in economic history where house prices, rather than industry, were the engine of the economy. Yet this is apparently what we have learned to crave as normal.

I would like to advance a positive thought, though - one that I've not read elsewhere. It's common to lambast the UK for having few manufacturing industries and its over-reliance on financial services. In the short-term this may well be a problem.

But taking the experience of Germany and Japan after the Second World War, they were able to become the world's leading manufacturing powers precisely because they had been so decimated. They had to rebuild and this is what allowed them to leap ahead of us. Thankfully in this present era we have no such war to recover from, but the UK does have a unique way out: to build entirely new industries. Green energy, for example?

Do you agree with diarists? How significant is it that France, Germany and Japan have reported slight economic growth? Are we guilty of ignoring the lessons of the financial crisis? Send us your comments using the form below.


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