The outlook is tough, not bleak

IF a week is a long time in politics, then 24 hours can be a lifetime in the world of international finance. The turmoil that has taken place has shaken the very foundations of Edinburgh's success and prosperity.

Never before have we seen the kind of crisis that has gripped the Royal Bank of Scotland and the Bank of Scotland. For hundreds of years they have provided work and wealth for Edinburgh residents. They have been a solid rock upon which the prosperity of the city has been built.

In recent years, the Capital has experienced record job growth, with 55,000 jobs being created in the city in just 10 years. Only a year ago, unemployment fell below the magic two percent, the accepted definition of full employment.

Almost overnight, however, both organisations have found themselves under siege from markets gripped by fear and rumour. We may never know just how vulnerable our banks really were, but the Government does not nationalise whole chunks of the UK banking sector without reason – the problems, however they were caused, are deeply rooted, and delivering stability has driven unprecedented action.

So, why is this different and what does it mean for the people of Edinburgh? It is different because, in previous recessions, the Scottish economy was less integrated in the global financial system. Such has been the growth of RBS and HBoS that they were intimately entangled in the collapse in the American mortgage meltdown and all that flowed from it.

I well remember meeting RBS executives and congratulating them on their growth, but remembering the tragic demise of Ferranti in the 1990s. Ferranti was a world-class company who worked mainly in the defence sector and provided over 7,000 jobs in the Edinburgh area.

Then when they bought one of the major American defence companies it was seen as a major expansion of a home grown company.

Alas, the acquisition turned out to be a disaster. The company was International Signals Corporation, and turned out to be a financial millstone that wrecked Ferranti. The parallels, while not exact, are compelling.

It is easy to allocate blame and few will shed a tear for the financiers who have fallen on their swords this week, but they built successful organisations. Alas, the acquisitions they made fell foul of unprecedented economic conditions. Fred Goodwin and many others did their best to deliver for their companies, and in their time for Edinburgh and Scotland. To their credit, they have seen that in order to rebuild what they worked so hard to create, they needed to depart. Hopefully their decision will allow RBS to begin to stage its recovery from today.

Jobs will be lost and the economy will decline, but only with a period of calm and stability can confidence return. For Edinburgh, the threats are clear. The loss of HQ functions will affect employment at all levels of the economy. Whether a builder, lawyer or company executive, this will impact on your life. Less people in work means less money in the economy and less investment in all aspects of city life, from the Festivals to the built environment. We have had an great run of success in Edinburgh, but further success in the short term will be hard won.

So what do we do? Firstly, we must not dip our heads and make things worse. Economic development is still taking place, and in key sectors the outlook is tougher but far from bleak.

Tourism, long regarded with suspicion by many in the city, will have a key role to play in our recovery. Investors can see the long-term attraction of investment in Edinburgh. Hotel occupancy may be falling but it will recover and the underlying need for hotel beds is still there. New sectors of the economy such as biomedical science also have the potential to create jobs at all income levels and help achieve real growth. And our universities attract investment and income on a scale never before achieved.

In financial services we must redouble our efforts. The fight is on to present Edinburgh as an attractive location for as much of the corporate banking functions of HBoS/Lloyds TSB and for the HQ of RBS to stay rooted in Scotland's capital.

Edinburgh is still the best city in Britain – the greenest too, according to a recent survey. The city is home to some one of the most highly educated workforces of any modern economy. As a business location, Edinburgh remains competitive but we need to be hungry for development in a way we have not needed to be for many years.

With traditional hard work, integrity and intelligence we can make sure that prosperity continues and spreads further to all of the communities in and around the city.

Some of the great institutions of the world have been shaken and indeed some have fallen, but one of the world's great cities is ready and able to recover, reinvest and rebuild its fortunes.

• Donald Anderson is director of PPS Scotland and former leader of Edinburgh City Council