He added: “We are rolling up our sleeves and doing everything possible to protect British families and firms.”
The bank funding scheme will allow high-street banks to temporarily “swap” their assets, such as their mortgage books, with the Bank of England in return for money they can loan to customers.
It is the latest attempt – following the cut in interest rates to record lows and the £325 billion quantitative easing scheme – to kick-start the British economy following the start of the financial crisis four years ago.
The scheme should also help British banks shield themselves from the impact of the eurozone crisis – as they will not have to rely on international finance markets to raise money, which is currently difficult.
Sir Mervyn said that the “euro area crisis” has created a “large black cloud of uncertainty hanging over our economy”.
He added that the “ugly picture” had created “formidable challenges” and that despite trillions of pounds being pumped globally into the economy over the past two years “we are back to where we were”.
Speculation mounted that the Spanish government will require a full-blown government bailout after the country’s borrowing rates rose above the psychologically-important rate of seven percent.
The country has already been offered a 100 billion euro “line of credit” to help Spanish banks by their European counterparts – but international investors do not believe this is sufficient.
This weekend, Greece will again hold elections and there are fears that parties refusing to support austerity plans will win the balance of power – which could lead to the country being forced out of the euro.
World leaders will meet for the G20 summit in Mexico next week when Angela Merkel, the German Chancellor, and other European leaders will be under intense pressure to solve the ongoing crisis in the single currency.
Mr Osborne reiterated warnings that Greece may have to leave the euro before the economic chaos can end.
“The political paradox Europe faces right now is this: some or all of these things are needed for the existing countries in the eurozone to make their currency work, but it may take Greek exit to make it happen,” the Chancellor said. “That is a decision for the eurozone and the Greek people. One thing is for sure: if exit is the chosen route then the eurozone must have a very good plan in place to prevent contagion.
“The worst case for everyone would be exit without a sufficiently ambitious response. But carrying on with the current uncertainty and instability is not much better. A time for decisions has come.”
Also appearing at the Lord Mayor’s banquet for bankers, Sir Mervyn also set out the damaging impact of the ongoing crisis.
“The euro-area crisis has had more dramatic moments, in which the ultimate resolution seems to be at hand only to be confounded by subsequent events, than there are episodes in The Killing,” the Bank Governor said, referring to the Danish crime drama.
“The effect of the euro-area crisis has been to create a large black cloud of uncertainty hanging over not only the euro area but our economy too, and indeed the world economy as a whole…The black cloud has dampened animal spirits so that businesses and households are battening down the hatches to prepare for the storms ahead. The result is that lower spending leads to lower incomes and a self-reinforcing weaker picture for growth.”
However, Sir Mervyn echoed assurances from the Chancellor that the situation would improve with Government action.
He added: “Leaders of the G20 will next week confront formidable challenges. In the United Kingdom, we can and will get through this. But it would be naïve to pretend that any of us can know when the storms from overseas will have passed over our shores and the economic skies begin to brighten.”
The Treasury and Bank of England unveiled plans for two different schemes to help provide funding for banks.
The “funding for lending scheme” will “provide funding for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending”. Although backed by the Treasury, the scheme will be run by the Bank of England and will not therefore add to Government borrowing.
Ministers hope that the scheme will lead to a cut in the cost of mortgage borrowing. Over the past six months, two-year fixed mortgage rates have risen from 3.22 percent to 3.66 percent. Many banks have also increased their standard mortgage rates.
It is understood that the bank funding scheme will be introduced rather than increasing again the size of the quantitative easing programme, as some economists have recommended.
The scheme was first discussed at the quad of senior ministers – David Cameron, Nick Clegg, Danny Alexander and Mr Osborne – about a month ago. The decision to only announce the programme may spark allegations that the Government was seeking to overshadow the Prime Minister’s appearance at the Leveson Inquiry.
Syrian economy “will not collapse” claims finance minister - ArabianBusiness.com
Despite the sanctions inflicted on Syria, the country's economy will not "collapse,'' outgoing Finance Minister Mohammed Al Jleilati said in an interview with Arabian Business today.
Jleilati, speaking from Damascus, claimed that GDP growth this year will be between 0 and 2 percent while the fiscal deficit "remains within normal estimates" and on target of 6 to 7 percent of GDP.
The minister also said that Syria is close to finalising an agreement within the coming month that will allow it to export crude, while also partially offsetting diesel and gas shortages brought on by international sanctions.
"There is a serious attempt to secure the export of our surplus and we might be able to export oil after 20 days or a month," Jleilati said.
The output of Syrian refineries used to account for about 70 percent of crude consumed in the country, while cooking gas, diesel and other derivatives were imported. The US and European Union (EU) imposed sanctions on Syria last year after President Bashar Al Assad's government began to crack down on a popular rebellion.
"Sanctions have negatively impacted the Syrian economy by forbidding it to export oil and not allowing ships to transport or for insurance companies to cover ships transporting to and from the country." Jleilati said. "When they sanctioned our ability to import we had to use the state's money to secure imports to meet local demand. We have a shortage of gas and we're trying to secure the 40 percent shortfall from various sources and we will have enough shortly."
The oil industry accounted for 20 percent of gross domestic product before the uprising began and the EU used to buy 95 percent of Syria’s oil exports. The country's economy has lost US$4 billion in revenue as a result of the oil sanctions, Jleilati said.
International sanctions have slowed the pace of economic growth, while fifteen months of political unrest in the country has so far claimed more than 10,000 lives, according to United Nations estimates. European and US sanctions have increased pressure on Assad's administration as fuel shortages and a depreciating currency further threaten the stability of the country.
The Syrian pound is trading at about 70 to the dollar in the black market compared with 47 before the rebellion began in March of last year. Inflation rose to 31.5 percent in April compared with the same month a year ago, as the cost of food products increased, the government's Central Bureau of Statistics reported last week. Syria’s economy contracted 3.4 percent in 2011 largely due to the unrest, while GDP is expected to shrink by 8.1 percent in 2012, according to the Economist Intelligence Unit.
"There's a slowdown in the implementation of projects," he said. "Tourism projects have slowed down. I can't tell you that there are foreign investors coming, of course no foreign investor is coming now and putting their money in a project amid the current conditions," he added.
In a letter to the United Nations General Assembly last month Syria’s UN permanent representative Bashar Al Ja’afari said hotel occupancy had dropped from an average of 90 percent before the crisis began in March 2011 to less than 15 percent, adding that 40 percent of those employed in the tourism industry have lost their jobs.
Total unemployment has increased from about 12 percent to 25 percent, Jleilati said, adding this was "natural" given the current conditions and the fact that about 200,000 people enter the workforce each year.
"We have been impacted in general and by the sanctions but that doesn't mean that our economy will collapse and it won't because we in Syria depend on our own resources," Jleilati said. "We have enough to cover our agriculture, grain and wheat demands."
The sanctions and inflation haven't "really affected the state per se but the lives of citizens," he added.
German minister rejects plans to pool eurozone debt - BBC News
The German deputy finance minister Steffen Kampeter has ruled out eurobonds, saying "debt is a national responsibility"
Germany's deputy finance minister has ruled out "eurobond-lite" plans to pool part of eurozone countries' debt.
Speaking exclusively to the BBC, Secretary of State Steffen Kampeter said "debt is a national responsibility".
"I don't see any strategies where we socialise and redistribute the bad political decisions made by some who are over-indebted."
The German government has already ruled out full "eurobonds" for now.
That may disappoint investors on international markets whose hopes had been raised by reports that the Germany might be inching toward the compromise mutualisation plan.
The plan, from Germany's so-called "wise men" group of private economic experts, would let countries with debt above 60% of GDP such as Greece issue eurobonds for debt above that level, which would then be paid down over a maximum of 25 years.
In effect, indebted governments struggling to borrow at affordable rates in the commercial markets would be able to take advantage of lower borrowing costs offered to countries within this joint bond, such as Germany.
It was put forward as an alternative to full eurobonds, which would involve eurozone economies clubbing together to issue bonds representing all 17 member nations.
Merkel warningEarlier, Chancellor Angela Merkel said world leaders should not "overestimate" Germany's ability to resolve the eurozone debt crisis.
She told Germany's parliament that the country's options for rescuing the eurozone were "not unlimited".
Mrs Merkel called for more regulatory powers for the European Central Bank, and repeated that growth should not be financed by more debt.
Her speech came ahead of a meeting of G20 nations in Mexico this weekend.
Germany has been central in driving changes within the eurozone and backing the financial support given to debt-laden nations.
But, referring to the G20 meeting, she said: "I say to them Germany is strong, Germany is an engine of economic growth and a stability anchor in Europe... but Germany's powers are not unlimited."
She expected the debt crisis to be the main issue at the summit. "Our country will be the centre of attention. It's a fact, all eyes are on Germany because we are the biggest European economy and a major exporter," Mrs Merkel said.
But Europe would only find a way out of the crisis with a strong "political union" that mandated greater fiscal co-ordination and oversight to put member countries on a "solid foundation", she said.
Mrs Merkel has resisted calls that austerity measures in the eurozone should be relaxed in the hope that it would boost growth. "We must all resist the temptation to finance growth again through new debt," she said.
She also called for the European Central Bank to play a "bigger role" in overseeing banks to avert further turmoil in the industry.
'Misguided'"We need a more independent supervisory authority," she said in an apparent criticism of the European Banking Authority.
Berlin has said the current system is too dependent on national regulators and, in particular, under-estimated Spain's banking problems.
"The EBA conducted stress tests on all European banks a year ago, and the national oversight bodies were very involved," Mrs Merkel said.
"We are now seeing the result. Spanish banks are in quite a different situation than the tests appeared to show."
She said that national banking authorities, on which the EBA relied for its information, had provided results that were as positive as possible "out of misguided national pride".
Mrs Merkel has long argued against what she called "miracle solutions" to the debt crisis, saying that only closer political and fiscal union can solve the problems - something she accepted was a "Herculean task".
Worries in the financial markets that there is still no clear roadmap towards a solution for the eurozone were underlined on Thursday when Spain's borrowing costs hit at a new euro-era high, just days after the country agreed a bailout of its bank sector.
Italy's borrowing costs also jumped sharply amid fears that the country's debt woes were deepening.
Meanwhile, the Prime Minister of Slovakia has said that Greece should quit the euro bloc if it fails to honour its commitments.
Robert Fico said Europe should do all it could to keep Greece within the bloc, but that the country had to adhere to the terms of its bailout package.
With anti-austerity political parties expected to do well in Greece's general election on Sunday, Mr Fico told a news conference: "If the Greeks do not meet the commitments they have made, do not meet their financial commitments, do not repay loans, Slovakia will demand that Greece leaves the eurozone."
The remarks echo similar comments made by the European Council President, Herman Van Rompuy. "We will do our utmost to keep Greece in the eurozone while it is respecting its commitments," he said.
A strong showing for Greece's increasingly popular left-wing and anti-austerity party Syriza is likely to strengthen expectations that the country will leave the eurozone.
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