By Civil Service World

19 Oct 2011

He said: "We're never going to get out of the mess that we're in unless there's some international solidarity: but at the moment, there's not much sign of it, there's none of the leadership that you need."

Darling added that "the economic conditions are far, far worse than they were three years ago. Okay, [in 2008] the economy was crashing, but there was a reasonable expectation that by acting together, we were going to come out of it; whereas now, we could be like this for five, maybe 10 years, and that's a very bad place to be - unless there's a change of direction."

He said it was "utter madness" that the euro zone didn't stress-test its banks to assess their resilience to a Greek default. "That's where politics trumped reality, because everybody knows it's a matter of time before Greece defaults," he said. "The austerity package imposed on it was never going to work because Greece doesn't have the ability to service its debts, let alone start repaying them."

Greece needs be allowed to default "in an orderly way," he said - and all European banks need to be adequately capitalised beforehand, or there will be feedback through the system as there was in 2008.

"It's expensive, I know, but it's an awful lot cheaper than the alternative," he said. "The trouble with banks is that, in a time of crisis, they don't fall in ones and twos. There is a risk of the domino effect."

In the UK, Darling said, banks are in a much stronger position than on the Continent - but he warned that the economy will continue to stagnate and unemployment will increase unless the rate of spending cuts is reduced. "If you [cut] so fast that you crash the economy, you don't end up with any growth and you have to borrow more," he said.

Darling argued that the Bank of England's new round of quantitative easing and the Treasury's plans for credit-easing show that the coalition is beginning to pursue a plan B, but warned of a long time-lag before these measures have an impact.

For the full interview, click here.


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