View Comments
Sir Richard Lambert. Picture: Michael Wilson/The West Australian.
Sir Richard Lambert. Picture: Michael Wilson/The West Australian.

Europe's economy has turned the corner but ongoing reform could be threatened by lawmakers using the fragile banking system as a political football, says renowned financial commentator Richard Lambert.

Drawing on his experience as former editor of the Financial Times and senior officer with the Bank of England and Confederation of British Industry, Sir Richard told a _WestBusiness _event at the Hyatt yesterday the eurozone was "not nearly as scary as it was".

Confidence was clearly on the rise because the financial system did not flinch when the Italian prime minister was recently usurped by a colleague.

"Had that happened a couple of years earlier there would have been dramas in the bond market, there's absolutely no doubt about that," Sir Richard said.

"On the day it happened the 10-year bond in Italy, which for me is the litmus test for what is happening in the eurozone, actually rose. The yields fell to the lowest level since 2008. That tells you something has changed.

"The big question mark remains France, where a very unpopular president is failing to deliver economic reforms.

"The UK feels stronger, we needed to. Our economy is still smaller than it was when the recession hit six years ago."

Sir Richard said European regulators coveted the robust capital requirements that inoculated Australia's banking system from the full ravages of the global financial crisis.

He applauded the "Four Pillars" policy, which is designed to preserve competition between Australia's main banks.

"A few years ago the governments of Europe came within an ace of losing control of their financial systems," he said.

"It was a truly shocking time."

He was concerned populist politics, driven by the public's distain for the institutions they blamed for Europe's woes, would interfere with the reorganisation of Britain's and Europe's banking system.

"The crisis had many different sources, including lousy policy-making by politicians and by central banks but politicians are not going to stand up and say: 'It's partly our fault' so it's really all down to the bankers and now it's retribution time. Bankers are obvious scapegoats.

"The leader of the Labour Party in the UK, Ed Milliband, has come up with a plan to break up all the banks into little pieces and put a cap on their market share.

"The regulators are pumping through all kinds of new laws, including a neat one which is called reversing the burden on proof."

Sir Richard warned that signs were emerging that banks were again rewarding executives with very big bonuses and the complex derivatives which sowed the seeds of the global financial crisis were again becoming popular.