CRASH 2: Why has the Treasury revoked debt-trading sections of a 1939 Act – without telling Parliament?

How a hidden order could be used to bankrupt the UK

Those of us who spend too much time watching government at its dirty work know the phrase ‘statutory instrument’, or SI, rather too well. Oddly enough, they are not tools for poking statues of eminent Conservatives. They are what has become more commonly known as legal instruments. New Labour of not entirely blessed memory passed 37,218 of them…usually as a means of getting something done about which they didn’t want a debate.

A few diligent MPs (David Davis is one, Frank Field another) often scan the SI lists looking for things like the reintroduction of chimney sweeps, incarceration of Tom Watson, invasion of the Planet Mars and so forth. Most of the other 618 (or so…I can’t remember these days) never bother. Everybody seems to have missed – or is happy to keep quiet about – a brand new one. A week ago today, the Coalition Government told us all very quietly indeed that it was going to revoke some parts of an ageing schedule from The Trading with the Enemy Act of September 5th 1939. The latter was passed two days after the Germans last went visiting their neighbours.

It may seem odd that the Act is still in force; but the truth is, it’s a useful thing to have on the Statute Book just in case another unpleasant European episode starts. Most of the articles about not selling battleships to Italians and sinking the French fleet have been revoked over time. But one very important one hadn’t until seven days ago. Three days later, on 25th May, it became law.

Stautory Instrument No 1367 states that ‘1.  This Order may be cited as the Trading with the Enemy (Transfer of Negotiable Instruments, etc.) (Revocation) Order 2012 and comes into force on 25th May 2012. 2.  The instruments specified in the Schedule are revoked.’

And it is signed by two obviously very senior Treasury bods.

If you’re beginning to notice that there are enough instruments here to supply most of the Halle Orchestra, fear not: from here on, it’s mainly revoking stuff. And the revoking means that, as of four days ago, all of us can sell or trade negotiable instruments with former enemies. There are around twenty one-time enemies listed (which tells you something about British Foreign Policy) and spookily enough, almost all of them are EU Member States.

So: what are negotiable instruments? Well, although they come in all the sizes and colours, basically NIs are funny money: that is to say, the paper with which Draghi performs bailouts, and Geithner fills bazookas. Listed under the definition I’ve found most useful so far are Bills of exchange, Promissory notes,  Share warrants, Circular notes, Bearer debentures and – just to keep the reader awake – Railway Receipts.

Leaving aside receipts from the Rangoon Railway Company, they could loosely be termed ‘debt’, or even more accurately – bonds.

Now those of you who imagine the dwindling EU members in any kind of state to bail out other members actually do so with real cash readies would be in error. Every government in the world bar China and one or two others owes money bigtime. So all of us who are Brussels’ Little Helpers just issue more debt bonds in order to help fellow Sovereigns with unrepayable debt. (You can sort of see how all this nonsense got out of hand, can’t you?

In a nutshell, then, the government just revoked those parts of a 72-year-old act that forbade it from giving such NIs directly to former enemies.

And that’s what makes it potentially interesting. Because the EU (being only a current and future, rather than former, enemy) is the organisation to whom we normally chuck away hard-earned billions pointlessly donate this funny money to help out ClubMeds with an even worse funny-money habit.

Until last Friday, we couldn’t do that direct to EU States. Now we can.

What can it all mean?

It could be a smart trick to give EU States where our banks are heavily exposed this kind of paper to ensure they can then ‘pay us back’, which yes, I know is insane, but accountancy is an amazing profession…and it would stop UK plc from sinking immediately. The need to do this in the first place would arise from the ECB being insolvent at some point in time. Like next week, for example.

And if this is the reason, then I’m impressed, to be honest – because it shows somebody (probably in Threadneedle Street rather than the Draper’s gaff) is on the ball and giving this some serious thought beyond ‘contingency’ bromides.

But on the other hand – and with Homo sapiens, there are always two hands – there could be lots of other explanations. Some of the reasons could be innocent. Some of the excuses will be waiting for somebody like The Slog to spot this, so they can be churned out to the Financial Times and other challenged tabloids.

I fancy, however, that some of them are rather worrying. For example, a failure of the Euro….and Brussels then passing a statute to say we must pay up directly in NIs recognising another currency. Or even, Brussels having already warned the Treasury that they might do this.

Or perhaps, an EU member foreclosing on the money we owe them (like Germany, for example) and we – being borassic – needing the legal instrument on hand to pay them in Toytown paper.

No doubt some experts out there can come up with yet more terrifying interpretations. Perhaps the odd honest person in the BoE or the Treasury might even be happy to tell me ( if you’re up for it, Merv) why we just did this in something of a hurry. Only, the official Treasury isn’t getting back to me at the minute. Which, to be honest, doesn’t surprise me.

Dear Glen, Fancy this one for next Sunday’s Mail scoop?

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