An Englishman's Castle

It was clear from the start that some form of nationalisation would inevitably end the Northern Rock saga. But yesterday's announcement, far from ending this fiasco, threatened to push the Gordon Brown even deeper in the hole he has dug....

He should have announced that Northern Rock would be nationalised not to keep it in business, but to close it down; that the bank would stop lending new money or accepting new deposits as of tomorrow; that all the company's retail deposits would be shifted immediately to the National Savings system, while all the wholesale bonds would be replaced with Government gilts. The company would then be put into run-off, with the Treasury recouping its money gradually as existing borrowers repaid their mortgages over the years.

Nationalisation, in other words, made sense only as a necessary legal stepping-stone to the orderly liquidation that Northern Rock required as soon as it ran out of money in September. ...

To judge by previous provisional and inchoate Treasury announcements, at least since Mr Darling became Chancellor, there can be no presumption that Government legal and financial “experts” have thoroughly checked the compatibility of yesterday's announcement with EU rules on state aid. And even in the unlikely event that the Commission does approve this unprecedented state subsidy, the Treasury's problems will only just have begun.....

If the Government tells the European Commission that Northern Rock was a fundamentally viable company, capable of long-term survival without state support, then the same argument will be used by Northern Rock shareholders to accuse the Government of unjust expropriation and of deliberately engineering the company's failure. And behind, in the long queue of potential litigants and self-avowed victims of Government incompetence and conniving will stand the citizens of Newcastle, deprived of their largest charitable institution, as well as the Northern Rock workers, who sooner or later will surely lose their jobs.