The financial position of manufacturing industry is deteriorating rapidly. The EEF employers’ organisation reports a massive contraction in activity and business confidence, particularly among car manufacturers. It is urgently lobbying the Government for help to withstand the recession.

The call is understandable, but it should be rebuffed. The crisis in the global economy was born in the private sector, as banks irresponsibly exploited opportunities afforded by an easy credit regime. And governments have an essential role in stabilising the economy against the consequent damage. But there are limits to how far intervention will work rather than store up problems for the future. Intervening in lending decisions to specified industrial sectors marks one of those limits.

The business leaders’ call is grounded not just in the extent of the crisis – they predict the loss of 90,000 jobs in manufacturing next year – but in its unique character. The financial maelstrom that has swept through the global economy is not a normal cyclical downturn. It is not even comparable to previous financial crises, where isolated sectors of the financial system have collapsed. This crisis involves the freezing-up of the entire basis of economic activity: the allocation of credit to enterprises that can profitably use it.

This is why the crisis is so threatening and government action essential. It is also why calls for exceptional policies are not frivolous. The only principle that matters is to stabilise the economy and financial system, and thereby contain the collateral damage, while minimising the cost to the taxpayer.

The most exceptional policy so far adopted by the Government is the rescue of banks facing a solvency crisis. This newspaper has supported the Government’s actions, including the acquisition of direct equity stakes in three banks on behalf of the taxpayer. But the reason for the bank rescue was not to support a particular corporate sector: it was to recapitalise the banks so that they could start lending once more. Manufacturing industry is not in the same position. Manufacturing involves the production of particular goods. But the provision of credit is an essential utility, without which the economy cannot function and now risks catastrophe.

This crisis is being tackled by Western policy-makers in three ways. The first is to stimulate demand. The fiscal expansion being planned by the incoming US administration will be crucial, and the quality of President-elect Obama’s economic appointments is encouraging. The second is for central banks to flood the financial system with liquidity; the third is to recapitalise the banks.

The UK Government’s ability to stimulate the economy has been constrained by poor fiscal management, but the Government deserves credit for its rescue of the banks. A further recapitalisation may be required and should be supported as the economic contraction intensifies. Industries facing a squeeze on liquidity must be helped – but by this means, not by guarantees of lending. If the Government targets particular industrial sectors in order to assist them through the crisis, there is no limit to the potential drain on public funds as other sectors seek aid too. This would merely make eventual recovery more difficult.