About the most dangerous phrase in the political lexicon is Something Must Be Done. Politicians have an inordinate fear of appearing inactive. They can’t bear to admit that they don’t control events. So, when things occur that are bigger than they are, such as a meltdown of the banking system, their first instinct is to legislate against them.


Something Must Be Done! A $700bn bail-out package? Never mind how it’s supposed to work; it’s Something, so let’s Do it. An extra £500bn in Britain and another €500bn in the eurozone? Alright, let’s Do that, too. 


We should be clear about what is happening. Governments are taking money from their taxpayers to give to the banks who can then lend it back to the taxpayers at interest and for a fee.


The financial crisis was a correction to years of easy credit. Interest rates were kept too low for too long in the United States, Europe and Japan. That was a political decision not a market one, by the way: as late as this year, Congress was telling Fannie and Freddie to make more loans available. 


If politicians were honest, they would admit that a recession was coming and that there was nothing much they could do about it. But they can’t bring themselves to accept their powerlessness. When the bail-out failed, they turned to Keynesianism. If throwing money at the problem didn’t work, they would throw more money at the problem! Like so many Nick Leesons and Jérôme Kerviels, our leaders are seeking to move the markets with other people’s cash. Anything rather than confess to the hubris of thinking they had abolished the economic cycle.


The one thing that our leaders could usefully do is to help the rest of us through the downturn by cutting taxes. Instead, they are doing the opposite, raising taxes, not only to pay for the bail-out and part-nationalisations of failing banks but, if President Sarkozy gets his way, to set up an EU fund to purchase solvent companies. Then again, if the EU accepted the case for tax cuts, what would it be for?


Daniel Hannan is the Conservative MEP for South-East England