The full financial impact of the coronavirus pandemic remains to be seen – but one thing is certain, it presents the greatest challenge to global markets seen in a generation. The 2008 financial crash had a shattering, devastating effect on the world economy – but the fiscal damage of the current crisis is unprecedented in recent memory. High streets are shut, warehouses are empty and even pubs, bars and restaurants have been decimated by the economic implications of lockdown measures forced by the deadly virus.
Prime Minister Boris Johnson reassuringly states that Britain is “over the peak” of the pandemic but, with that, comes more challenges.
As with his hero Winston Churchill’s famous quote “the Battle of France is over, the Battle of Britain is about to begin”, Mr Johnson now faces his own metaphorical battle: what next?
The elephant in the room here is the economy as the Government faces the unenviable task of restarting the engines and putting people back into work.
The engine room for this is Britain’s financial sector but relying on it for a post-coronavirus recovery could be a dangerous route.
Former Governor of the Bank of England Mervyn King
Prime Minister Boris Johnson is under pressure over how the UK eases lockdown measures
The difficulty here is that the City of London – arguably the financial capital of the world – is only just coming out of its very own identity crisis.
Lord Mervyn King pointed out exactly this when he said: “Of all the many ways of organising banking, the worst is the one we have today.”
Ominously, his comments came two years after Lehman Brothers’ collapse, in a speech given in New York on October 25, 2010.
Chancellor Rishi Sunak will oversee the economic response
This begs the question, did the banking sector learn from its mistakes? Not, it seems, according to Lord King.
Calling for a reinvention of the sector, he said: “What we cannot countenance is a continuation of the system in which bank executives trade and take risks of their own account, and yet those who finance them are protected from loss by the implicit taxpayer guarantees.”
He also explicitly stated that maintaining the status quo was not an option.
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George Osborne was Chancellor of the Exchequer when Mervyn King made his comments
However, it appears Lord King’s warnings might not have been heeded – and former Greek finance minister Yanis Varoufakis believes he can explain why.
In a video posted on his YouTube channel DiEM25 earlier this year, he said: “Don’t let anyone tell you that the 2008 crisis ended and that now you have a new one.
“That crisis never ended. It just moved in different forms, travelled from one continent to another.
“But nevertheless it has always been with us.
“The world never went back to some kind of equilibrium after 2008.
“What coronavirus has done, it has deepened and accelerated this never-ending non-stop crisis that began in 2008.”
Mr Varoufakis claimed the reason behind the illusion of a recovery after 2011 was because central banks and governments took it upon themselves to reflect the financial markets.
He added: “They printed trillions and trillions of notes and threw them at the 0.1 percent at corporations that were already full of money. For example, Apple, Google and so on.
“They boosted inequality massively and stabilised financial markets. But at the same time, they depleted all serious investments in good quality jobs in labour, health, education.
“This is why there has been so much discontent even before COVID-19 arrived on the scene.
“When coronavirus arrived on the scene it found a global capitalism that was sitting on a gigantic bubble of private debt that had been minted by central banks on behalf of financial capital.
“COVID-19 has pricked the bubble on which financial capitalism was sitting up until now.
“So even if the financial markets are eroded once more, the level of investment is going to be even lower than it was.”