12  BIS Review 139/2009  Tucker, P (2009), “Regimes for Handling Bank Failures: Redrawing the Banking Social Contract”, available at http://www.bankofengland.co.uk/publications/speeches/2009/speech396.pdf. ANNEX  Table 1: Support packages $ Trillions)  UK  US  Euro  - “Money creation”  0.32  3.76  0.98  - Collateral swaps  0.30  0.20  0.00  - Guarantees  0.64  2.08  >1.68  - Insurance  0.33  3.74  0.00  - Capital  0.12  0.70  0.31  Total (% GDP)  74%  73%  18%  Central Bank  Government  Source: Bank of England Financial Stability Report, June 2009. Figures for UK updated to November 4th 2009. Notes: (1) Exchange rates used: FSR Euro / US dollar exchange rate of 0.710. Sterling / US dollar exchange rate of 0.613. (2) Money creation includes both monetary and financial stability operations. Table 2: Capital provision in past UK crises Date  Crisis  1977  Secondary Slater Banks Walker  1984  1994  2008  Support Reason for recipient(s) capital provision  Johnson Matthey  Johnson Matthey  Small banks  National Mortgage Bank RBS, LBG, Northern Rock  Current crisis  Orderly resolution (wind down) Orderly resolution (wind down) Orderly resolution (wind down) Mitigate systemic risk and promote lending  Did UK clearing banks receive direct capital support?
Someone has to pay the bill. The rapid growth in government debt in Europe and the US is consistent with a well known historical pattern. Fiscal policy was used actively in most countries to curb rising unemployment. The mistakes of the 1930s were not to be repeated. The intention was good and the policy was most likely appropriate, but weak public balances became even weaker. On top of this, some countries provided substantial government funding to banks. The situation came to a head in several euro area countries, initially in Greece, which had allowed deficits to creep up during the growth period. In the next round, Ireland, Portugal and Spain came under pressure and had to payer higher interest rates on new loans. The UK also ran a government budget deficit in the favourable pre-crisis years and when tax revenues rapidly declined and social security spending rose, the deficit increased to more than 10 per cent of GDP and government debt doubled. The authorities in many countries must now tread a difficult balance. Controlling debt requires an economy with a back strong enough to carry it. It is not certain that low interest rates are sufficient to sustain the nascent recovery if fiscal policy is tightened. Credible  2  BIS central bankers’ speeches  reforms that limit public spending in the long run, combined with moderate tightening in the short run, could be an appropriate strategy. Governments that saved during the expansion may have the scope for pursuing that approach. Greece did not save.