Former chancellor warns euro zone teetering on brink

ALISTAIR DARLING has called his memoir Back From the Brink, but the former British chancellor is pretty clear – the brink is where the euro zone still resides.

“Yes, I am worried, I’m very worried that we’re just letting the situation develop,” Mr Darling said yesterday. Speaking at the Mountains to Sea book festival in Dún Laoghaire, he expressed sharp criticism of the “austerity first” policies being espoused by European Union officials.

“It was tried in the early 1930s and it doesn’t work,” he said, warning that spending cuts in the name of austerity would prolong the economic crisis by years.

“The problem as I see it is that you have years of bumping along the bottom and it doesn’t have to be like that.”

If the troubled euro zone economies fail to grow, it will “feed back into the banking system” and could cause a “complete disorderly breakdown” of the euro zone, “which would be ruinous”, he said.

“In 2008, what got people to act was a good old-fashioned commodity called fear, but if you wait until that point, you’re taking a hell of a risk.”

Mr Darling said his book, which details his thousand days at Number 11 Downing Street, was “not just history – the problems that we had three years ago are still there”.

Economist David McWilliams, who chaired the event, tried to draw him out on whether “there is a drawer somewhere in Whitehall” containing plans to support an Irish pound should the single currency disintegrate.

“The answer is no,” Mr Darling said, conceding later that “they may have put a new drawer in after I left”.

Asked what he would do if he was in charge of the Irish economy, the Labour MP for Edinburgh South West said he was “still enough of a politician” not to answer that question. “It is a difficult situation to come into and the room for manoeuvre is very limited. I don’t know where the growth is going to come from.

“Things are difficult here, I know. They would be an awful lot more difficult if there was a disorderly breakdown of the euro.”

Back From the Brinkrecounts how he woke up at 6am on Tuesday, September 30th, 2008, to news on the BBC's Today radio programme that the Irish government had decided to guarantee all deposits held in Irish banks.

“This is the first we had heard of it . . . I knew full well that if the Irish government’s bluff was called they would be bankrupt,” he writes.

“You know, I was lying in bed and I thought, I should have been told about this,” he recalled yesterday. He and the late Brian Lenihan, then minister for finance, “had a lot of discussions” that September, and he had been assured by Mr Lenihan that he would not introduce a guarantee.

“I’d said to Brian, ‘don’t do it’ – for obvious reasons, because if you do it, we all have to do it.”

He spoke to Mr Lenihan later that day “and he was very apologetic”, he said.

“I knew he was having the odd ruction with his boss,” he said of the atmosphere between Mr Lenihan and Brian Cowen in the weeks leading up to the guarantee.

He could relate to this, as he was too. In his book, he describes former British prime minister Gordon Brown as “not an easy man to work with”, accusing him of “sometimes appalling behaviour”.

But Mr Brown wasn’t all bad, he conceded – indeed, he was “due a lot of credit” for keeping the UK out of the euro zone when Tony Blair wanted to sign up to the single currency.

About the euro zone, he had few words of comfort. “Greece is not going to deliver on this package,” he concluded. And the interconnectedness of the European financial systems meant it was not possible “to look at small countries and say they don’t matter”, he said. “It does matter.”