Former Chancellor Alistair Darling has warned Europe and its plethora of problems continues to pose the greatest threat to the UK unless growth returns.
Speaking at Investment Week’s Senate in Monte Carlo, Darling (pictured) told wealth manager delegates there are “underlying problems that still need to be dealt with”.
He called for more work to be done to clean up Europe’s banking system, as happened in the UK and US.
“Unless, and until, people believe these banks have been cleaned up, there is always a risk they will think a crisis could happen again and this could hold back confidence in the eurozone in particular,” he said.
Darling said the eurozone must also try to find a solution for the peripheral countries that actually works.
“Any solution for Greece that means they have more debt at the end of the period than they did at the start is not a great solution. Further write-offs and restructuring are going to be necessary so they should just get on and do it.”
He also highlighted the “inevitable consequences” of everyone carrying out austerity measures at the same time.
“You can impose a tough regime provided you can show your people light at the end of the tunnel. I wonder in Spain, for example, how long people will put up with that if they cannot see any improvements are coming.”
Darling said he would be most worried about the impact of the eurozone’s problems on the UK as it sells so much into the region.
The former Chancellor told delegates he sees a “mixed picture” for the UK at present and there is a lack of business confidence in some areas.
He said he also has concerns about the government’s policies to stimulate growth, especially in the housing sector.
“It is understandable they want to help first time buyers, but if they don’t do anything about the supply of housing, we risk creating another bubble, particularly in London and the South East.”
Looking at other global regions, Darling said he was becoming more optimistic on prospects for the US, but has always been worried about the ability of the Chinese government to run a command economy.
“I think the clash between politics and economics in China over the next few years will be difficult,” he added.
Darling on QE
The unwinding of QE could be further off than people think, according to Darling.
Darling added: “In the UK, the jury is out on what good it is doing. It does help in relation to confidence, but it is not a substitute for fiscal policy.”
Until there are firm signs growth is becoming entrenched, Darling said it would be premature to remove a programme which has been one of the major influences in trying to restore confidence.
But he warned investors have to be aware QE could start to run at different speeds across the globe.
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