Edinburgh International Book Festival: Robert Peston
The BBC’s Business Editor Robert Peston, who has also been a stockbroker, certainly knows a thing or two about money. He reported extensively on the banking crisis of 2007/2008, which won him The Royal Television Society’s Journalist of the Year and Scoop of the Year awards. In this talk about his new book, How Can We Fix This Mess?, Peston gives his prognosis of how he sees the portrait of Britain’s financial landscape in the future.
Before diving into a worrying ocean of numbers, a passionate Peston admits he’s in a “filthy mood” because his beloved Arsenal lost the first game of the season. Giving his audience fair warning he says: “More or less anything could happen here!”
Peston believes that there are several fundamental structural causes of this “financial mess,” one being globalisation and the fact that Britain buys more than it sells. Using a scatter graph, he explains that lending exploded in the 90s with the economy growing 3% a year from 1992 to 2007. These apparently amazing years “were being fuelled by an unsustainable rise in borrowing.” In contrast, Japan and Germany generated surpluses of $1 trillion a year from 1998 to 2008.
Peston says the banking crisis came as a result of banks taking greater risks, and the “US economy recovered faster because they have other sources of credit and aren’t just reliant on banks.” At this point a seagull caws through the tannoy and Peston jokes: “It’s good to know even the bird kingdom is gripped by this.”
In Europe, 80% of finance comes directly from banks, whereas the US figure is 20%. Peston says we all know how close we came to becoming bankrupt by bailing out banks and thinks it’s strange that “banks are being forced to hold a lot more capital,” rather than limiting the overall size of them.
It gets heavier still when Peston determines that the challenge for Britain is greater than any other developed economy. Millions of people in the UK are trapped by their debts, and we are at the beginning of a “savage reduction” in living standards. He declares: “One of the reasons I’m pessimistic about the outlook in the Eurozone is because technically we are out of recession but pressure on living standards is immense.”
A little positivity is regained by the laid-back expert when answering a question on the controversial subject of fracking. It’s making the UK Government “wildly optimistic” as it has been a major contribution to the economic recovery of the United States and has produced a huge amount of energy for years. Peston stresses: “It is true that fracking has transformed the US.”
Unfortunately it’s impossible for this talk to end on a cheery note. It only gets gloomier as Peston tells the well-informed bankers, economists and equation-enthusiasts which make up the majority of the audience, that our education system is not yet producing the young people we need to turn the economy around. “The outlook remains bloody uncertain,” he concludes.