:00:02. > :00:12.school building programme. That is the summary of the news, that's it
:00:12. > :00:13.
:00:13. > :00:18.from me tonight. It is now time for Just how close to meltdown is the
:00:18. > :00:25.eurozone? With Greece preparing for election which many see as a de
:00:25. > :00:33.facto referendum on a euro exit, the Continent's markets are awash
:00:33. > :00:39.with fear. Ankaras, contagion, systemic collapse. -- Bank runs.
:00:39. > :00:45.These are threats to the global economy. My guest today is Alastair
:00:45. > :00:54.Darling, who was the Chancellor during the financial crisis of 2008.
:00:54. > :01:04.Is there a way out for the economic hole that Europe has dug for
:01:04. > :01:17.
:01:17. > :01:21.Alastair Darling, welcome to HARDtalk. I want you, if you would,
:01:21. > :01:26.to compare the feelings that are brought now with those that you
:01:26. > :01:29.were so very aware of in 2008 at the height of the financial crisis.
:01:29. > :01:34.Is there more reason to be concerned about European and global
:01:34. > :01:37.economic stability now than there was then? In some ways there is
:01:37. > :01:43.more reason because here we are three-and-a-half years since the
:01:43. > :01:47.collapse of the banking system and there is still no end in sight. In
:01:47. > :01:51.fact we have now moved from a banking crisis into a situation
:01:51. > :01:57.where the world economy is did come together to get growth going, then
:01:57. > :02:01.we took the fat off the pedal. We still have this downturn in various
:02:01. > :02:05.stages across the world -- the foot off the pedal. In Europe, not only
:02:05. > :02:09.have you got Greece, but in the last couple of weeks there has been
:02:10. > :02:16.concern about the banks which is so similar to what was happening in
:02:16. > :02:20.2008. It is. You talk about Greece being at the heart of it, but is it
:02:20. > :02:25.fair to say that it is about so much more than Greece? There's a
:02:25. > :02:29.systemic challenge now to the viability of the euro as a common
:02:29. > :02:33.currency. Do you accept that? are three inter-related problems
:02:33. > :02:38.and you can't look at them separately. The overarching problem
:02:38. > :02:41.is that if you have a single currency then the economic and
:02:41. > :02:46.political necessities are that you come closer together, the richer
:02:46. > :02:51.parts have to help the poorer parts. That is part of the problem. One of
:02:51. > :02:54.the problems is Greece, whatever happens has to be some sort of
:02:54. > :02:58.settlement that enabled Greece to get through things and have some
:02:58. > :03:02.hope. Second the European and eurozone area did not clean up the
:03:02. > :03:08.banks in the way they should. Thirdly, this business of austerity
:03:08. > :03:13.alone been sufficient, this is complete nonsense. Until they put
:03:13. > :03:18.that behind them they are going to be stuck in this downward spiral.
:03:18. > :03:22.We have got Greece, the viability of Europe's banks, and a broad
:03:22. > :03:30.economic strategy across Europe. Let's take one by one and let's
:03:30. > :03:38.start with Greece if we make. I referred in the introduction, June
:03:38. > :03:44.17th election, many saw it as a vote as to whether to stay in the
:03:44. > :03:49.eurozone. If the answer is No Then Greece will be forced out. Do you
:03:49. > :03:54.believe the Germans and others are right to insist they can be no
:03:54. > :03:58.renegotiation of the bail-out deal? -- they can. I have always been
:03:58. > :04:02.critical of the deal because I don't think it will work. In eight
:04:02. > :04:08.years' time that will mean Priest will have a debt level higher than
:04:08. > :04:13.when they went into the crisis -- Greece will have. Can it ever get
:04:13. > :04:17.on its feet? That is one fundamental problem. The other
:04:17. > :04:22.side... Let me stop you there. If you take the position that this
:04:22. > :04:26.deal is incredible, and therefore not worth the paper it's written on,
:04:26. > :04:30.are you suggesting every creditor that is owed money by the Greek
:04:30. > :04:35.government has to write all of it off? That is a separate issue if we
:04:35. > :04:40.carry on much longer. Supposing there were no Greek elections at
:04:40. > :04:43.all, not for years, and the Greek government carried on as a
:04:43. > :04:47.technocratic government. When they signed off the last attempt to
:04:47. > :04:51.impose a settlement on Greece, everybody knows they will have to
:04:51. > :04:55.come back for more. The European Union knows that, the eurozone
:04:55. > :05:02.countries know that. This is a settlement that leaves Greece with
:05:02. > :05:05.debt levels of 120 % of its national income in a year's time.
:05:05. > :05:10.That is not the message coming from the pro bail-out deal Greek
:05:10. > :05:13.politicians and also the eurozone, either somebody is lying to the
:05:13. > :05:19.European public or you are overstating the case? If anything I
:05:19. > :05:24.am trying to understate it, because there are huge things at stake here.
:05:24. > :05:28.After this was signed it emerged that within the eurozone there was
:05:28. > :05:33.an acceptance it would have to come back for more. That is one side of
:05:33. > :05:37.it. On the other side you can't say to Greece, you are off the hook if
:05:37. > :05:41.you like. Equally I have no time for politicians in Greece who say
:05:41. > :05:49.they don't have to do anything, they can just forget everything and
:05:50. > :05:56.they will write off al our debts. If they stay in the eurozone there
:05:56. > :05:59.are issues, but if they leave, they will be pain in Greece. If they do
:05:59. > :06:04.leave the eurozone it will be inconceivable that Europe will not
:06:04. > :06:08.have to do something to help Greece transition into something it will
:06:08. > :06:13.then have to be. I take your point and there is going to be paying
:06:13. > :06:20.either way. Whether there's a way of keeping Greece inside the
:06:20. > :06:23.head of the IMF, said something very interesting hours ago.
:06:23. > :06:31."Everyone in Europe must analyse the costs and the benefits of both
:06:31. > :06:34.of these scenarios very carefully before deciding what to do". As a
:06:34. > :06:40.former finance minister, what do you think that analysis of costs
:06:40. > :06:44.and benefits leads you to conclude about Greece and the euro? I think
:06:44. > :06:48.it would be better if we could reach a settlement with Greece
:06:48. > :06:53.within Europe than out of Europe. So somebody else will have to pay a
:06:53. > :06:58.substantial amount of their current outstanding bills? Whatever happens
:06:58. > :07:02.there will be a cost. If it all goes wrong, suppose Greece is
:07:02. > :07:06.forced out, the risk is the contagion spreads to other
:07:06. > :07:10.countries, the countries, like Spain for example, where the cost
:07:10. > :07:15.to the remaining eurozone members is therefore much bigger. Greece is
:07:15. > :07:19.tiny in the scheme of things, it is 2% of the whole economy. When you
:07:19. > :07:23.talk about the bigger countries it is a different ball game altogether.
:07:23. > :07:28.I would like to say Greece signed up to a deal that could be made to
:07:28. > :07:33.work, so there's no way of getting out of it. But what I see in the
:07:33. > :07:36.deal they signed is one that is not credible. Part of the problem is if
:07:36. > :07:40.you impose a treaty on a country, where people don't believe there's
:07:40. > :07:43.a lot of pain yes, but at least there is a game at the other end,
:07:43. > :07:47.but they don't see that, and they see all the suffering not getting
:07:47. > :07:52.them anywhere, it is not surprising that they are seduced by people
:07:53. > :07:56.with simplistic arguments and pain- free solutions. Isn't there a
:07:56. > :08:00.credibility gap the other way, and let's move on from Greece, because
:08:00. > :08:05.you have already alluded to the fact there is deep trouble in Spain
:08:05. > :08:11.and the Spanish financial system, and real problems in Italy and
:08:11. > :08:15.Portugal as well. A lot of European politicians, and I am thinking of
:08:15. > :08:19.France while Holland in France and the Prime Minister of Spain, and
:08:20. > :08:23.others as well -- Francois Hollande. They are all talking about Euro
:08:23. > :08:29.bonds, as if this could be the solution to this spreading problem
:08:29. > :08:34.and spreading fear of contagion. Do you believe the idea that you
:08:34. > :08:38.collectivised the debt and use the full power of the European Union to
:08:38. > :08:48.guarantee the debt of sovereign nations in Europe on its, can that
:08:48. > :08:50.
:08:50. > :08:54.be a viable solution? It is certainly a solution -- European
:08:54. > :09:00.bonds. You might have some problems with the German constitutional
:09:00. > :09:04.court. They almost certainly would. As I said at the start of this
:09:04. > :09:09.programme the logic of a currency union is you get increasing
:09:09. > :09:13.economic and therefore political co-operation and ultimately Union.
:09:13. > :09:21.I don't think we want that yet. But the logic of that means something
:09:21. > :09:26.that allows you to swimming pool the cost of boring, so the rich
:09:26. > :09:30.carry the poor.... Germany will have to act as a guarantor?
:09:30. > :09:33.European Central Bank is pouring money into the banking system.
:09:33. > :09:37.Clearly it is a European central bank so all of the countries are
:09:37. > :09:40.standing behind it. The power of that Bank was used at the start of
:09:40. > :09:45.this year to stop what I think would be the collapse of some major
:09:45. > :09:52.banks. There's an example where the collector advising happens already.
:09:52. > :09:57.The German view is that if you give Greece an inch it will take a mile
:09:57. > :10:01.-- collect revising. I understand that and if you don't put your foot
:10:01. > :10:07.down there is a risk that they will say they don't need to bother. But
:10:07. > :10:10.if you impose something, it has got to be something that sticks. But on
:10:10. > :10:14.your central point, is there a value in Europe coming together?
:10:15. > :10:19.The United States is a fully federal country, the richer bits
:10:20. > :10:25.help the poorer bits. But it is a nation state, it is a federal
:10:25. > :10:31.nation. Is it your contention, I want to tease out the logic of this,
:10:31. > :10:35.that Euro bonds, which are already been talked about, can only happen
:10:35. > :10:41.when there's a clear commitment to full fiscal and in the political
:10:41. > :10:45.union? They cannot be separated. What you have got in the eurozone,
:10:45. > :10:49.everybody knows it is a fudge. If you go back to when it was set up
:10:49. > :10:54.at the end of the 1990s they had a thing called a stability and Growth
:10:54. > :10:57.Pact, which is there to keep the economy is in line. The first two
:10:57. > :11:01.countries that broke it were France and Germany and nobody did anything
:11:01. > :11:07.about it for these reasons, they were too big. Even in the situation
:11:07. > :11:13.you have got now, I kind of halfway house, you can still do euro bonds.
:11:13. > :11:18.What about a moral hazard? In 2008 you had to deal with that when he
:11:18. > :11:24.rescued the banks and in a sense that continued bad practice. Would
:11:24. > :11:27.it not be the same thing for sovereigns? If you are allowed euro
:11:27. > :11:32.bonds to rescue terrible decision making at the top in Spain, Greece
:11:32. > :11:36.and other countries, you would be exacerbating the problem of moral
:11:36. > :11:40.hazard. I understand the concept of moral hazard but let's look at
:11:40. > :11:46.Leeman Brothers. The Americans tried out something that had not
:11:46. > :11:49.been tried before, and you let a very large bank crash. You could
:11:49. > :11:55.say that is an a sample of moral hazard, it does not matter how you
:11:55. > :12:00.arrived at it, because it was an unfortunate accident more than
:12:00. > :12:03.anything else. But it brought the banking system within hours of
:12:03. > :12:09.collapse. You could say to the Greeks, you lot have completely
:12:09. > :12:13.screwed up, suffer the consequences. If Greece went out of the euro that
:12:13. > :12:18.weigh the consequences would be terrible for Greece, and we would
:12:18. > :12:21.not be able to sit back and say it does not matter. But it would be
:12:21. > :12:25.terrible for countries doing the right thing, countries that are
:12:25. > :12:30.trying to put their house in order. They would be hit by the backwash
:12:30. > :12:35.if you got this contagion spreading through Europe. Marach moral hazard
:12:35. > :12:39.is fine in peace time, but in a cute crisis which is what we are in
:12:39. > :12:44.at the moment, it is a brave set of governments that say let's see what
:12:44. > :12:49.happens. I hear your voice of experience from 2008 when you say
:12:49. > :12:53.that. But some quick-fire questions, how close are we right now to a run
:12:53. > :12:58.on at least one significant European Bank? You can never tell
:12:58. > :13:02.with these things. I have no reason to think it will happen in the next
:13:02. > :13:06.few hours. But as you saw last week, when stories start to spread, the
:13:06. > :13:11.Greek money has been taken out of the banks, the Spanish government
:13:11. > :13:15.had to deny there was a run on one of their banks. Look what happened
:13:15. > :13:21.with Northern Rock in 2007, everything is fine Monday and it
:13:21. > :13:26.isn't the next. In other words, this is what worries me, something
:13:26. > :13:30.could happen one morning that leads to panic. What I learned from 2008
:13:30. > :13:34.was that in order to stop this you have to do far more than people are
:13:34. > :13:38.expecting an you have to do it more quickly and that hasn't happened.
:13:38. > :13:43.You have to do it more and quicker, how can that happen in the European
:13:43. > :13:47.context when we see every day the differences between Francois
:13:47. > :13:51.Hollande, and Angela Merkel in Germany? We see all of the
:13:51. > :13:54.differences and confusions coming out of Greece as well. How is it
:13:54. > :14:03.possible to imagine the quick decision-making you're talking
:14:03. > :14:07.about coming out of the European I can only imagine it happening in
:14:07. > :14:11.one circumstance, and that is if everything absolutely goes wrong,
:14:12. > :14:15.and that finance ministers are scared stiff less. The chairman of
:14:15. > :14:20.RBS, one of the largest banks in the world, they say they are
:14:20. > :14:26.running out of money. They say they could last only to hide than three
:14:26. > :14:34.hours. If that bank shut its doors, that would spread through the
:14:34. > :14:39.entire system. Are you saying that we need that kind of deep crisis to
:14:39. > :14:43.force European leaders to find a viable and common policy? If I look
:14:43. > :14:48.at what has happened with the eurozone in Greece, they started to
:14:48. > :14:53.try to sort it out at the last meeting I went to in 2010, they had
:14:53. > :14:57.been consistently behind events, and when they needed to do
:14:57. > :15:02.something, they had done not enough, too late, and sometimes completely
:15:02. > :15:07.the wrong thing. They have got a month before we see the colour of
:15:07. > :15:14.the next great government. I hope they use that time to good effect.
:15:14. > :15:20.A final thought on the eurozone. The current Euro autumn Italy will
:15:20. > :15:30.have to go. It will be better it the eurozone broke up. -- the
:15:30. > :15:30.
:15:30. > :15:34.county record and Italy. I just wonder in the current climate,
:15:34. > :15:40.where there you could have an orderly break-up. Remember how long
:15:40. > :15:45.it took to put the euro to get there? It took decades. If you are
:15:45. > :15:54.breaking up, you are talking about acquiring a new currency that is
:15:54. > :15:58.good to use on Monday morning. If you are in tranquil times, it could
:15:58. > :16:03.well be that you reach the conclusion that the euro was never
:16:03. > :16:08.going to work, so let's recognise that ate it may be better off for
:16:08. > :16:14.everybody. But remember where we are now. The Continent, a large
:16:14. > :16:17.part of it is in recession, and coming back to the UK, it is very
:16:17. > :16:27.important to us. If you are going to start that kind of thing, you
:16:27. > :16:32.have to be sure where you are going to end up. You mention the UK. I
:16:32. > :16:38.want to talk more about the UK. There is a continuing and important
:16:38. > :16:41.debate about economic strategy. The Government is committed to the
:16:41. > :16:47.strategy of austerity, putting it front and centre, getting the
:16:47. > :16:53.deficit down and cutting national debt. The Labour Party, your party,
:16:53. > :16:58.has consistently said that they are doing it too fast and too quickly.
:16:58. > :17:02.That they would moderate the cuts. Christine Lagarde said, when I look
:17:02. > :17:06.back to 2010 and what could have happened without the sort of fiscal
:17:06. > :17:16.consolidation the current government has taken, I shiver.
:17:16. > :17:16.
:17:16. > :17:21.What she actually said, if then that -- if there was not a credible
:17:21. > :17:26.plan, she would shiver. She is referring to the David Cameron and
:17:26. > :17:32.George Osborne plan. Nobody is arguing that they needed to be a
:17:32. > :17:37.plan. She backed their plan. The kind government's emphasis on
:17:37. > :17:47.austerity, on slashing the deficit quickly as possible, is the right
:17:47. > :17:50.
:17:50. > :17:56.strategy. She endorsed the Government's plan. But she also
:17:56. > :18:02.said, as the iMac said 12 months ago, the risk is that we are
:18:02. > :18:08.institutionalise an economy of low growth. If it does not work, we
:18:08. > :18:13.need a Plan B. It is not our government's plan. George Osborne
:18:13. > :18:18.says he has created the space, in the end it is about confidence,
:18:18. > :18:22.because of the programme that he has taken, he has got the
:18:22. > :18:29.confidence of the ratings agencies, the bond markets, to allow him some
:18:29. > :18:35.space to take measures such as boosting the construction industry.
:18:35. > :18:39.You need a credible plan to get your borrowing down. I wanted to do
:18:40. > :18:49.that, the Government is doing that as well. But he is borrowing more
:18:50. > :18:58.
:18:58. > :19:03.than he said he was in 20th June 10. -- June 2010. He cannot say that he
:19:03. > :19:06.is on course. We do happen to be back in recession in this country,
:19:06. > :19:12.something that I did not think would happen, that he did not think
:19:12. > :19:17.would happen, but we are back in recession. I am in favour of all
:19:17. > :19:20.the infrastructure projects. The problem is that there is a long way
:19:20. > :19:26.between announcing and that contractors being engaged, jobs
:19:26. > :19:31.being created, and the projects being completed. A lot of the
:19:31. > :19:35.projects have not been started. The IMF was making the point, that out
:19:36. > :19:41.government, may well have to do far more than they bargained for, if we
:19:41. > :19:46.do not get growth going again. they say that for right now, the
:19:46. > :19:50.Government is on the right track. I want to tease out the Labour Party
:19:50. > :19:56.economic strategy. We have a crisis in the eurozone, a recession at
:19:56. > :20:04.home, but the Labour Party has not decided what it wants its economic
:20:04. > :20:14.policy to be. Would you agree with that? There are a few voices more
:20:14. > :20:15.
:20:15. > :20:18.influential than yours when it comes to the debate. The present
:20:18. > :20:22.government did not tell us what they were planning before the
:20:22. > :20:27.election. But there are signals that can be sent. You can look
:20:27. > :20:33.around Europe and have views on what is happening elsewhere.
:20:33. > :20:38.Francois Hollande has made it clear that he is going to attacks 75% on
:20:38. > :20:43.people earning over one million euros. He is going to regulate the
:20:43. > :20:48.banks on a very pro active way. He is going to talk about a financial-
:20:48. > :20:53.services tax. Those are signals being sent about where he puts his
:20:53. > :21:00.economic priorities, which Ed Miliband is not prepared to take.
:21:00. > :21:09.He set it out in deep as it -- the election campaign. Which he
:21:09. > :21:15.happened to win. Is there not a message for Labour? The time is to
:21:15. > :21:22.set it out when we approach the election. I'm not asking for every
:21:22. > :21:26.dot to be signed off one, but I am asking for the Labour could -- the
:21:26. > :21:32.Labour Party to restore the 50% tax rate, which the Tories had decided
:21:32. > :21:38.to reduce? In my view, and I cannot speak for my party, in my view is
:21:38. > :21:43.that you will have to take that decision closer to the time. I
:21:43. > :21:47.would not have taken it off this time. Because at a time when people
:21:47. > :21:50.are still finding their income squeezed, it seemed wrong that the
:21:50. > :21:55.first place that you go to take taxes off our people at the top end
:21:55. > :21:58.of the scale. He has made that clear. We have made it clear that
:21:58. > :22:05.the Government ought to be doing more to bring forward the
:22:05. > :22:12.infrastructure programme. You will not be painted into a corner in
:22:12. > :22:20.give too much Pacific, but let's talk about the Greek radical left,
:22:20. > :22:24.the leader, going around the European capitals, saying that they
:22:24. > :22:28.have to stand up to corporate capitalism. They have to fight for
:22:28. > :22:37.a better economic system that represents workers better, and are
:22:37. > :22:47.not simply in the interests of the capitalists. I think it is a Greek
:22:47. > :22:48.
:22:48. > :22:53.situation. I think if you look at the broader lessons that need to be
:22:53. > :22:55.drawn, the system for banks failed, it needs to be tightened up, these
:22:55. > :23:01.institutions are so important to the economy that you cannot leave
:23:01. > :23:09.it to chance. On the economy, the fundamental difference between us
:23:09. > :23:13.and the Conservatives, we believe that governments cannot define the
:23:13. > :23:18.forces of gravity, but they can make a difference in terms of
:23:18. > :23:22.fairness and the way that you'd cut the deficit, and to get economic
:23:22. > :23:26.growth going again. When Ed Miliband made a speech about
:23:26. > :23:30.predatory capitalism, very soon afterwards Tony Blair appeared in
:23:30. > :23:34.the press and according to sources close to him said, we have to be
:23:34. > :23:39.credible with business, we cannot go into the election without a
:23:39. > :23:45.single CEO from a big company backing us as we did in the last
:23:45. > :23:54.election. If you want to win, you have to win from the centre ground.
:23:54. > :23:59.I agree with that. It is a trip in the UK that you cannot win
:23:59. > :24:04.elections did he come from the centre. -- a truth. You have to
:24:05. > :24:09.have a policy that makes sense for businesses. But if you are running
:24:09. > :24:14.an economy in such a way that business cannot flourish, they are
:24:14. > :24:21.not going to do the things that you want to do in order to help people.