Back from the Brink

by Alistair Darling

  A few minutes later, I’d said my piece and Gordon whispered out of the side of his mouth, ‘Is it bad? Do you think we should stop?’

  ‘No, if we stop now you’ll give them the headlines they want,’ I muttered.

  We stood where we were for the remaining few minutes of the photo-call before we were told that the driver of the car was badly shaken, but unhurt. Needless to say, our juxtaposition with a car crash was just what the media wanted before polling day. I returned to London, to what I thought would be my last day in No. 11.

  I then set off on a tour of marginal seats in the north-west of England, including a visit to Burnley, a seat we were to lose for the first time in eighty years. These were traditional Labour voters who had become completely disengaged from us. Nevertheless, having travelled the length and breadth of the country, on the eve of election day I sensed that we would lose but that it was not going to be anything like as bad as we had feared a year earlier, when the polls were predicting a Tory majority of perhaps a hundred.

  I spent polling day, as candidates do, going round the many polling stations in the constituency. I have an excellent constituency team, run by Andrew Burns, my agent. They make few demands of me and turn out to work in droves. The enthusiasm to help was moving: this year we ran out of leaflets to distribute the weekend before polling day. As usual, I asked Andrew to phone me from the count once it was clear what my result would be, so that I could enter the hall wearing a suitable expression. Knowing that the Edinburgh count always takes longer than most to declare, for some inexplicable reason, the family settled down to watch the results on television. It was clear it would be a bad night for us. Our majorities were down and seats lost in our heartland areas of the north-east of England and South Yorkshire. The results in the south of England outside London were terrible. Yet, overall, the picture was mixed.

  The Tories were not winning where they should be. The Liberal Democrats, despite Nick Clegg’s ephemeral success in the television debates, were starting to lose seats. By 2 o’clock in the morning I was concerned that Andrew hadn’t phoned. I was determined not to ring and sound worried. Both of us expected the majority to be down, but surely I couldn’t have lost the seat or be facing a recount? Eventually I could bear it no longer. It turned out the results in Edinburgh were very good for us. ‘You’ve increased your majority. There’s no problem,’ Andrew told me.

  On entering the city’s Meadowbank Stadium, where the election count takes place, I bumped into Ian Murray, who was standing in the now highly marginal next-door seat of Edinburgh South. He looked stunned. He had been selected as the candidate only a few weeks earlier and was defending a majority of just over four hundred. His two rivals, the Tories and Liberals, had spent three years and a small fortune between them trying to win back the seat. Ian told me there was a recount and I immediately commiserated, saying, ‘Never mind, you did your best.’

  ‘No,’ he said. ‘We’re in front.’ So it proved.

  I took Calum and Anna to the count for the first time. They had been too young in previous elections. I wanted them to feel the atmosphere, which is always exciting, even if you know the result (as candidates usually do, some hours before the returning officer announces it). I spent an hour and a half after my declaration doing a full media round. As Catherine said, if we were going, we were going with our heads held high.

  Back home a few hours later, on the Friday morning, it was clear that we had lost. But it was equally clear that the Tories had not won. They were some way short of a majority. After a couple of hours’ sleep, I spoke to my own campaign team and to some of my colleagues. I was exhausted. Once defeat was confirmed, the nervous tension that had kept me going through the campaign drained away. After three years in one of the most difficult jobs I’ve ever done, I wanted a rest.

  In Britain, in most elections, the result is clear by breakfast time. The Prime Minister takes his leave of the Queen by lunchtime. The new Prime Minister is in Downing Street by teatime. All very brutal, but efficient. The Queen’s government goes on. Not this time, though. It was obvious that if the Tories were not to form a minority government, they would have to do a deal with the Liberals. The awkwardness for us was that the constitution dictated that we remain in office until such time as a new government was formed.

  So, sitting in my garden on a sunny evening, glass of wine in hand, far from the burdens of office being lifted, I was still Chancellor of the Exchequer. As the Tories were the largest party, they had first option of putting together a deal with the Liberal Democrats. We had to some extent to sit on the sidelines, although on that Friday morning I think Gordon wanted to talk to the Liberals and see if we could put together some sort of deal.

  For my part, I did not see how we could. On any view, we had lost the election. We did not have the moral right or the high ground needed to form a government and then embark on highly contentious and deeply unpopular measures as we set about cutting borrowing. But that, if you like, was the principled objection. The practical one was that the numbers did not add up. Even adding the Liberals to the Labour MPs, we would still be short of a majority in the House of Commons. We would be at the mercy of the minority parties from Northern Ireland and the Scottish and Welsh Nationalists, who would be able to extract what they wanted on a daily basis.

  It is possibly because of my doubts that Gordon left me off the negotiating team he put in place that day. Far from being offended, I was relieved. He told me that Vince Cable was not on the Liberal team and he wanted me to speak to him when the time was right. Everything I saw on the news pointed to a deal being done between the Tories and the Liberals. There seemed to be a real chemistry there. I began to suspect that the alchemy had started at some level before the election result was known. That belief was to become much firmer in my mind the following week when I eventually sat down with Vince Cable for what was to prove a very short meeting.

  In the meantime, any thought of a restful weekend at home was shattered when the crisis that was inevitably going to hit Greece came to a head. One of the most astute decisions we ever took was to stay out of the euro. I am not against it in principle. It is possible that conditions will one day exist in which membership will be desirable. But the fact that we had our own currency, which could depreciate at a time of stress like this, was very helpful. It has always seemed to me that if you have a single currency, you need a single economic policy – which basically ties you into a political union, one way or another. That’s what happens in the US. It may comprise a strong federation of states, but it is just that: the United States of America, with a single currency and a single fiscal policy.

  Trying to maintain a single interest rate for seventeen very different countries is also difficult. The seeds of destruction in Ireland were sown by the very low interest rates maintained by the ECB in the early years of the last decade. That was precisely the time when higher interest rates in Ireland might have choked off the property boom which ultimately killed off first their banks and then their government. Similarly in Spain, although not affected in the same way, low interest rates fuelled an extraordinary boom in property development. Add to that the problems of a strongly growing German economy alongside weaker smaller countries like Greece and Portugal. How do you pitch the interest rate to suit everyone?

  Greece had a particular set of problems. It had joined the euro for political rather than economic reasons when it was far from ready to do so. It should never be forgotten that the euro is the culmination of five decades of political commitment towards not only economic union but an ever-closer political relationship between member states. Despite that, there is a reluctance amongst some eurozone members to accept that, just as in unitary states, the richer parts need to help the poorer parts. In a single currency area like the eurozone, countries need to help each other. Greece needed to make some big changes to its economy. Its ability to collect taxes was severely impaired, and the statistics it produced and on which assessments of its econo
mic health were made were of a highly dubious nature.

  One of the measures by which the economic health of a country can be gauged is how easy it finds raising money in the markets and how much it has to pay to do this. All governments raise money from time to time, usually in tranches, sometimes over a short number of years, sometimes over longer periods of twenty-five or thirty years. The average duration of these loans in Europe is currently around seven years. In Britain it is thirteen years. That is why we don’t have to raise quite so much on a regular basis. Countries in difficulties will typically end up paying a high rate of interest and will be able to raise money only for a very short time, perhaps just a year. That is what happened to Portugal just before it had to go to the European Commission to ask for help in the spring of 2011.

  It was evident at the beginning of 2010 that Greece would struggle to get through the year without international help. Tim Geithner had telephoned me in March, such was his concern that Europe wasn’t focusing on the growing Greek crisis. He rightly saw it as a problem not just for Europe but for the US too. The last thing the US wanted was a loss of confidence in one of the world’s major currencies, which is what a Greek collapse could precipitate. There was a reluctance, though, particularly on the part of Germany and France, to call in the IMF. Their objections were largely political. It was almost as if to call in the IMF to a eurozone member would be to admit that the euro project itself was in doubt. The Greek finance minister told me after one Ecofin meeting in February that if Europe did not help soon, he would go direct to the IMF himself.

  In the middle of the general election campaign, I had to attend what was to be my last meeting of the G7 finance ministers, and an annual IMF meeting, in Washington. The G7 ministers met for dinner on the Friday night under the chairmanship of Jim Flaherty, the Canadian finance minister, at the Canadian embassy in Washington. The purpose of the meeting was to try and persuade the eurozone members present to get on with it and put in place a rescue package for Greece. It was like wading through treacle. Everyone was agreed that something had to be done. But there was no agreement as to what. Christine Lagarde was especially insistent that the Germans had to act. Unfortunately, Wolfgang Schäuble, the German finance minister, could not be there for health reasons. His top civil servant was, but he could not agree to anything in the absence of his minister.

  The Greek problem rumbled on. It became acute at the end of what was, for us, election week. That Friday evening, when I was at home absorbing the results, I was rudely reminded that I was still in office. An emergency meeting of European finance ministers had been fixed for Sunday morning in Brussels, and I had to go. I was in a difficult position. We were still in government, but we had lost the election and it was more than likely there would be a new government. However, this was an occasion when we could not possibly leave an empty chair at the table. We had to be there, not just because it will always be in Britain’s interest that there is a stable euro, but because the Commission was mounting a major effort to involve us in underwriting the euro. That we could not do. Gordon and I were in agreement on that.

  Although British banks do not have so much direct exposure to Greek banks or to Greece more generally, many continental banks, German and French included, were exposed. Were they to be affected, that in turn would feed back into our banking system. Gordon and I were agreed that the IMF should be involved as a matter of principle. While I could see why President Sarkozy would not want his old rival, Dominique Strauss-Kahn, portrayed as the saviour of Europe, there was a principle at stake here. The IMF was designed precisely to deal with this sort of problem. What would be the point in replicating it with another, European mechanism, which would have no experience of dealing with a country in such dire straits?

  The following day, Saturday, I spoke by phone to Olli Rehn, the new European commissioner responsible for finance. He pressed me on making a contribution to the new eurozone support fund. He appeared to be taken aback when I said that there was no way that Britain could possibly underwrite the euro through the fund he was proposing to set up. I said that even if I thought it was a good idea, which I didn’t, I could not agree to such a major and controversial step when it was likely that there would be a new government in power next week. I warned him that if this was what he had in mind, we would remain implacably opposed. He agreed to reflect on it.

  I couldn’t get to Brussels in time for the Sunday morning meeting if I flew from Edinburgh. There was no alternative but to fly to London and spend the night in Downing Street. As I sat in the lounge at Edinburgh airport, my police protection team told me that Gordon was about to fly into the city for the weekend. I had thought he was in Downing Street, conducting negotiations with the Liberal Democrats. I later learned that he had wanted a break and had decided to come home, even it was only for one night. Because of flight times we couldn’t meet, and I flew back to London.

  It was disappointing: a day of recuperation in the early summer sunshine seemed infinitely preferable to going to London. Also, I hadn’t counted on going back to Downing Street. I had physically and mentally left it on the Wednesday morning before the election. Margaret and I didn’t think we would be coming back, whatever the outcome of the election. We had largely decamped from the flat. I really didn’t want to return, but I had to, arriving at the Treasury late on the Saturday evening to be fully briefed for the next day’s meeting.

  I knew that I needed to talk to both George Osborne and Vince Cable. There was no constitutional obligation, but it seemed a matter of courtesy and common sense. I thought there was every chance they would be in government the following week. I didn’t want to get myself into a position where I had imposed an obligation on them. The trouble was that, for as long as I was Chancellor, only I could take decisions on behalf of the UK – something both of them, fortunately, recognized.

  Arriving at our embassy in Brussels on Sunday morning, I spoke by telephone to both men. I explained that there was every reason to believe that the markets would be in turmoil on Monday morning if we didn’t sort this out. In separate conversations with each of them, I told them there was real concern that without action over the weekend the markets would also have a real go at Portugal and Spain. I explained that the previous night there had been a call between the G7 finance ministers in which I had participated and that there was international concern, particularly from the US. The fact that there was no consensus on what to do, or clarity on the part of the eurozone members, was making the problem worse.

  The European Central Bank was also meeting. It needed to provide money and support but wouldn’t do so unless the European member states put together a rescue plan. There were two proposals. The first involved a European stabilization fund amounting to about 400 billion euros, designed to stabilize the euro. In my view, that funding would have to come from eurozone members only. I made it clear to both George Osborne and Vince Cable that there was no way we could be part of this. The second proposal involved converting an existing fund, amounting to about 60 billion euros, which was available to noneuro area members to help with any balance of payment problems they might encounter on entering the European Union.

  The idea was to combine these two funds, mainly in order to bring the total level of support up to over 500 billion euros. The UK had been a guarantor of the smaller fund since its inception some years earlier. When I spoke to Vince Cable, he agreed with the position that I took and offered no objection. George Osborne, though, was understandably nervous about any new obligation – as, indeed, was I. He said there could only be one Chancellor and I had to do what I thought was right. But while he agreed with me on refusing to support the stabilization fund, he wondered whether we couldn’t abstain on committing to this second fund. Both of us recognized that, as the vote depended on a majority, we could not block it. We were in a minority of one and there was no veto. But in my view, an abstention would not stop the proposal going through, and we would lose bargaining power over the need to get
the IMF involved in an intervention.

  Our conversation was amicable and workmanlike. I had no wish to cause the incoming government problems. I did, however, want to get a deal that was in Britain’s best overall interest. Subsequently, both David Cameron and George Osborne sought to give the impression that I had done something against their wishes. That is not true. That’s why I’ve set out our conversations more fully here than I would otherwise have done. Neither George Osborne nor I wanted to be in this position, but there was no way out of it.

  There are two additional points to make. The first is that when it came to the Irish bail-out at the end of 2010, George Osborne rightly agreed not just to a bilateral loan to Ireland but also to the second European fund making a contribution. He did so because if he had abstained or even voted against it, he would have been outvoted – much the same as in May 2010. The second point, which the Eurosceptic wing of the Tory party finds difficult to accept, is that it is in Britain’s interest to have a stable euro, and to ensure the stability of our trading partners in Europe.

  There is something frustrating about meetings of ministers in Europe. In thirteen years I don’t think I ever attended one that started on time. This one certainly didn’t. On top of that, there is a very different tradition of governance in European Union affairs. In this country, ministers decide and the civil service implements the policy. In the European Union, it’s the Commission that comes up with proposals, to which ministers then have to react. This has always seemed to me to be the wrong way round, but it reflects the culture of some of the continental European countries. We had to engage in a battle with the Commission that was to last several hours: a prompt start would have helped.

  The Commission’s opening pitch showed that they were determined to dragoon the UK into supporting the euro. Time after time, over the course of several hours, I said that we were wasting time even discussing it when it was simply not possible for us. It wasn’t until nearly 8 o’clock that evening that eventually they agreed that the UK would not be part of the first European stabilization fund. Even at the last minute, they tried another draft which was so opaque that it could easily have been taken as having us in the fund.