ALISTAIR Darling, the former Chancellor of the Exchequer, has urged European governments to “look again” at their austerity programmes or risk a deepening of the economic and political crisis engulfing the eurozone.
Speaking at a financial services industry conference in Manchester, the Labour politician called on leaders to rebuild the “doomed” fiscal treaty and work together to increase infrastructure spending and introduce quantitative easing.
Mr Darling said the existing treaty “has the same lack of foresight as the Treaty of Versailles” and will “institutionalise a downward spiral in those countries that are at or near recession and is bound to cause political problems as well as economic problems”.
He warned that a Greek exit from the single currency would carry “a very strong risk of contagion”.
“What would people’s reaction be to Italy, Spain, Portugal, Ireland if they saw Greece going? That sort of instability is the last thing any of us need,” he said.
Mr Darling, who was Chancellor during the 2007-08 financial crisis, said that “Governments cannot defy gravity but they can make a difference” and instead of borrowing to offset falling incomes, Governments should “borrow to invest in things we will need for the recovery”.
He added: “You do need to make sure you are giving people some sense of hope that things will be better for them and for their children, otherwise the political consequences will be difficult.”
Mr Darling said Europe should be “very apprehensive” of pushing countries to “such a state where there is no hope” in case electorates “turn to people who have got simplistic and in some cases downright nasty solutions”.
He described the election of Francois Hollande in France as “an opportunity for the eurozone to look again”.
Mr Darling, who was keynote speaker at the Building Societies Association annual conference, praised the mutual sector for avoiding the problems that beset the wider financial services industry by concentrating on what they were set up to do – taking deposits and providing mortgages.
Although he did not directly name Bradford & Bingley and Halifax Bank of Scotland, he criticised former building societies that “over-reached themselves, made bad judgements and came to grief” in the financial crisis.
Yorkshire is a heartland for the mutual movement and its three main societies, Yorkshire, Skipton and Leeds, are profitable and employ more than 12,000 people.
Mr Darling admitted that the Labour Government should have done more to support the sector and he urged the coalition Government to deliver on its promise to make sure that mutuals thrive and provide more choice on the high street.
He said: “I don’t think if you leave it to chance it will happen. There is every chance matters will proceed as before and there will be more consolidation and (they will) simply be gobbled up.”
Mr Darling appeared to criticise Sir Mervyn King who used a speech last week to bemoan the Bank of England’s loss of regulatory powers after Labour came to power in 1997.
He said: “I will not repeat what the Governor of the Bank of England said and attempt to blame everyone under the sun. There was fault all round.”
Aside from Mr Darling’s warnings over the crisis in Europe, the mood among delegates at yesterday’s conference was fairly upbeat.
Peter Griffiths OBE, the outgoing chairman of the Building Societies Association, told the audience that he felt positive about the future of the sector because societies can afford to take a long-term view without having to keep shareholders happy.
But he added building societies must invest significantly to keep up to date with accelerating technological advances.