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Alistair Darling Warns Germany To Change Course On Its Eurozone Rescue Policies Or Risk 1930s-Style Depression

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DARLING SPLASH
The former chancellor believes current debt management plan for Greece is untenable | PA/Getty

Alistair Darling has strongly criticised the German government's policies towards recovery in the eurozone, suggesting a failure of leadership by Angela Merkel and other European politicians risks political upheaval similar to that seen in the 1930s.

In an interview with The Huffington Post UK the former Labour chancellor expresses his fears that European politicians will continue to kick the can down the road, despite predictions that the Greek debt crisis will come to a head in September.

Building on comments at the weekend in which Darling attacked George Osborne and the coalition's economic policies, he now turns his fire on the German government, suggesting only an "extraneous shock" will spur them into taking substantive action.

"If we carry on like this, the only thing that's going to change people's minds is another severe shock," he told us. "It could be a banking crisis, a default, it could be that someone wakes up one morning and decides to have a real go at one of the larger economies in Europe. And people will find the fund they have works for small countries, but if Spain had problems it would hoover it up in a few hours.

Darling dismisses predictions that next month will see a denouement to the eurozone crisis, despite speculation that the ongoing uncertainty surrounding Greece's future in the single currency will come to a head in September.

Next month is likely to see both Greece and Spain having to go cap in hand to Europe for bailouts, and while concerns about the eurozone have been subdued over the summer the next few months are expected to see further negotiations as Greece struggles to meet the austerity requirements of its rescue package from the European Central Bank. The eurozone psychodrama is likely to resurface by the end of this week, as talks on Greece's austerity timetable are expected to resume.

Darling believes the current debt management plan for Greece is untenable.

"You've got to have a settlement than is credible," he says. "One that leaves the Greeks with more debt in 2020 than they started with is not credible. Their prime minister [Antonis Samaras] is not a firebrand, he won the election saying there was no alternative.

"And it's not just him," Darling goes on. "Spain, again a right of centre government, one that is following almost to the letter Mrs Merkel's prescription, is saying this is not working. [Italian prime minister] Mario Monti, who is more mainstream if you like, could only persuade Italians to take the pain if there is some gain.

"What you see in Europe at the moment is policies being pursued that are manifestly not working," Darling concludes, "And this is like the 1930's, they carried on pursuing policies which weren't working. How much is it going to take to make them change their minds?

"Does Germany remember the history of the 1930s, when people claimed it was high inflation that brought in fascism? It wasn't. It was the depresssion that brought in the despair into the then-Weimar Republic that allowed people who were absolutely vile to take over," Darling told HuffPost on Thursday.

"If you take the economic lessons of the 1930s, the prescription that is being advocated now is not disimmilar to the prescriptions that were being advocated by the British and US treasuries in the early 1930s, and it didn't work."

"It took a new deal and ultimately re-armament. I think people have forgotten it."

In a broadside against the coalition, the Bank of England and the European Central Bank, Darling suggested leaders were creating the impression that they've given up, and that this was politically dangerous.

"I am more despairing now than I've been since this crisis started," he says. "If you go back to 2008, people are now openly saying we were right. I recently saw one of the present government's chief backers who said that to me, as if he'd never said anything different.

"Our influence is much reduced, and we need to co-operate with the eurozone," Darling insists. "Politicians will get it wrong from time to time, but at the moment everybody looks like they've given up trying, and that creates disillusionment, and that's what you've got to worry about. People feel that no-one's showing the lead, they become open to ideas that most people would normally want to give a wide berth to."

Asked whether he thought European geopolitics are still more malleable than people commonly assumed, he replied: "It is. People forget 2008, never mind the 1930s, or the 1920's. It really is very depressing.

"I think the best we can hope for is a continued muddling through for a few more crises, but there will come a time when something will happen, and my guess is it will happen in a way they weren't expecting, and they'll be caught with their trousers down.

"The one thing they are agreed on is that they're not going to agree. It will take some extraneous shock to the system that will achieve that."

In terms of Labour's response to the economic crisis, Darling stuggests that Ed Balls needs to "put down markers" at the Labour Party conference. "Both Eds will be aware of it," he told us.

"You can spend your first year looking back, your second year taking stock, but in the third year Ed Balls will want to develop that, and I think he will."

But Darling counsels the current generation of frontline politicians to stay their hand in terms of bashing the banking industry.

"What we have to do is find that fine line between putting things right without trashing something, because there are people in other parts of the world who'd dearly love to get their hands on it," he says.

Darling referred to the attacks on Standard Chartered by regulators in New York state earlier this month, which the former chancellor described as "political", in line with other Labour politicians.

"Bashing banks can be superficially good politics, and bashing other people's banks cleary is very attractive. It looked like a classic American pose, to accuse the bank of all sorts of things, and get them to settle.

"If I was an American politican or regulator, I'd say be careful. One thing that's terribly important in fiancial services is certainty. You don't want a degree of arbitrariness about how it goes.

"It's a difficulty place to occupy, but I think because I'm no longer in frontline politics I can better occupy it than if I was," he concludes.

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