The political stagnation in Europe is putting the eurozone at “huge risk” – and the global leadership needed to solve the crisis is in short supply, Alistair Darling has warned.
The former Labour chancellor called on the government to do more to "get the G20 process underway" to tackle the economic crisis, saying: “I don’t see any leadership coming out of Europe”.
And he said global leaders who could get the G20 around the table were in short supply:
“The only one who could possibly do it at the moment is president Obama and, unfortunately, he’s got an election to fight which is inevitable in the United States is that the fourth year in any presidency is one where the president stays at home rather than goes abroad.
“But I think actually president Obama could do himself a lot of good at home if could he showed that he was also helping get other countries round the table to try and resolve these problems because the American people want hope as much as the people living in this country or Europe or anywhere else for that matter."
In an interview with the Huffington Post, Darling claimed Friday’s proposed eurozone meeting “look like being a political agreement to provide cover for the ECB.”
“I think the situation’s very turbulent at the present time and frankly I also do not share the optimism that is around at the moment in relation to the latest Franco-German deal which is apparently to be agreed on Friday.”
He warned that the timetable for solving the eurozone crisis was too slow, saying: “I just think that one of the many things that worries me about the eurozone is that they announced a plan that’s part of the latest package, this is the end of October, to recapitalise their banks but not until the summer of next year and just seems to be taking a huge risk”.
And the Labour MP said after a decade he thought the euro would exist – but there was no certainty it would be in its current form.
Darling claimed Angela Merkel and Nicolas Sarkozy’s proposed renegotiation of EU treaties to prevent countries running up large budget deficits would only deal with “the symptoms of the problem”.
“It wasn’t high borrowing that caused countries to get into difficulty, Ireland and Portugal were running surpluses in 2008, we know the Greek problems were different, but what this looks like is a recasting of the Stability and Growth Pact that was introduced when the euro was set that basically says that countries can’t exceed a certain debt level an various other criteria.”
And as credit agency Standard and Poors put 15 eurozone countries, including France and Germany, on credit ratings downgrade warning, Darling said any credit downgrade would almost certainly push Britain into recession.
“If Standard and Poor’s could do that to Germany then they can do it to other countries as well.”
He added: “Downgrading of that scale is a bit like foot and mouth, it spreads very, very rapidly and uncontrollably, let us hope that doesn’t happen because it would not be in our interest at all because it would simply make an unstable situation in Europe even less stable.”
Darling accused the government of seeing the Eurozone crisis as “manna from heaven”, arguing that it should not “let them off the hook”.
“What would worry me if Europe was downgraded as a whole the risk of contagion is always there. And George Osborne said himself last week, if Europe went back into recession, it’s almost certain Britain would be dragged back into it as well."
Darling warned that the Greek settlement “is not going to stick” – adding that in retrospect Greece “certainly” should not have joined the euro.
“As things stand at the moment, unless Europe is prepared to intervene more, probably with greater write-offs in Greek debt, then it’s going to find it progressively difficult because the agreement between France and Germany doesn’t actually deal with the issues such as transfers from the richer countries to the poorer countries, the help with restructuring and so on.
“I think the good thing about this German and French agreement is that it will provide cover for the ECB to start doing what people have been wanting it to do for several weeks now, and that is to start buying up bonds and start acting as a lender of last resort and that actually is what I suspect a lot of this is about...
“To say that Germany and Greece for example were on the same track was absolute nonsense. One is a highly-developed, strong economy, the other is not.”
And as the internal conflict within the Conservative party over Europe flares up again, Darling said a debate over repatriating powers could leave the UK “marginalised.”
In the face of warnings from the respected think tank the OECD that Britain could slip back into recession, Darling claimed that governments were not “helpless” in the face of international crises.
“I do think governments can make a difference but they all stand wringing their hands then there is a risk that the world economy, our own included, bump along the bottom at best, and worst, start going back into recession again.”