Austerity policies will push Europe into renewed crisis, Darling warns

Hardline austerity policies being pursued by governments threaten to “freeze” economic activity and create more problems in the banking sector, he said.

Mr Darling warned countries across Europe, Asia and North America needed to start working together to ensure a return to growth and prevent a repeat of the circumstances which brought about the financial crisis in 2008.

He said: “It would be nice to think that what we are discussing is what happened in the past, and what we can learn from it, but my fear is that we are on the verge of slipping into exactly the same problems this autumn.

“It is very important that people understand what caused this crisis, because the banking crisis then became an economic crisis which is affecting everyone in this country, indeed nearly everyone in the world.”

He said he feared the policies being pursued by governments across Europe would result in growth slowing down, if not stopping, which could see the re-emergence of the problems seen in 2008.

“There’s a worry about the complete absence of leadership in Europe at the moment. You have a single currency, so you do need something at least approaching a single economic policy, but that’s not happening,” he added.

“The real problem is that people assume growth will come back if you cut public expenditure. But it’s a matter of judgment. If you slam the brakes on, the risk is the situation will be as bad as doing nothing at all.”

Mr Darling, the Labour MP for Edinburgh South West, was chancellor during the economic crash three years ago that saw both Royal Bank of Scotland and Lloyds Banking Group saved from oblivion by taxpayer-funded bailouts.

He was speaking after giving evidence to the Church of Scotland’s economics commission in the capital yesterday.

The commission has been set up to examine the issues of poverty and the use of wealth in Scotland in the wake of the 2008 crisis.

It is currently gathering evidence from expert witnesses such as Mr Darling and is due to report to the General Assembly next May.

Mr Darling added: “It is terribly important countries start to act together to ensure that we don’t end up with the present policies resulting in the complete freezing of economic activity and creating yet another problem within the banking industry – which frankly the world isn’t in a position to withstand again.

“I do think the policies being pursued by the present government will result in there being very low growth or no growth at all.”

He added: “I have always been clear that you need to get debt and borrowing down, but it needs to be done in a way that doesn’t crash the economy in the process.”

And although the former chancellor does not believe at the UK will suffer a double-dip recession, he insists the outlook is not rosy for the domestic economy.

“I’ve always thought this country would bump along the bottom, but that will have consequences of its own with issues like more unemployment,” he added.