Alistair Darling: Beating Back Disaster

The timing of Alistair Darling's latest promotion was, at the very least, unlucky. A year ago he took over Britain's finances as chancellor of the Exchequer from Gordon Brown and, within weeks, the outlook for the British economy—once seen as a model performer in Europe—had darkened. With soaring oil prices, rising inflation and the credit crunch, an IMF report last week praised the country's record but cut its growth forecast for 2008 to 1.4 percent. In London, Darling spoke with NEWSWEEK's William Underhill. Excerpts:

UNDERHILL: By any standard, it's been a tough first year for a chancellor. Looking back, do you see the job as a poisoned chalice?
DARLING: If you wanted an easy life, you wouldn't be chancellor of the Exchequer. I chose to be here—and I'm very happy to be here.

This time last year the prime minister said the economy was in "as good as shape as could be" to weather the economic storm. Does that confidence seem justified now?
We are not complacent, but I think Gordon was quite right. Last year, this was the fastest-growing economy in the G7. Unemployment is as low as it's been since the mid-'70s. Although inflation is rising now, it's historically at a much lower level than we have seen in the past. In the '70s, it was in the high 20s [as a percentage] at one stage.

But your critics say that in the good times, your government failed to make provision for the future?
It's simply not true. If you look at the level of debt we inherited from the Conservatives in 1997, we have reduced it quite dramatically. At the same time we managed to triple investment in public services. And the same people who now criticize us were, in the past, urging us to spend more and more, not less and less.

Rightly or not, Gordon Brown acquired a reputation for economic competence as chancellor. Do you think, in light of today's economy, that's now diminished?
No, I don't. The IMF report says yet again that over the last 10 years of strong growth we have been able to build up many of the public services on which the economy depends. I remember 15 years ago that when we used to talk about returning to full employment, people would laugh and say it's ridiculous: high levels of unemployment were here to stay. Well, they weren't. I think we have made huge strides.

Given the global nature of the problems that the economy faces, how can a single nation hope to limit the fallout?
We do need to be alive to the fact that problems are no longer confined to one country or region. A problem like the subprime crisis, which in the past might have affected just America, affected the whole world within weeks. The other lesson I'd draw is about what we should not do. One of the biggest fears that many people have is that the reaction to what's happening now will be more protectionism, especially now the world-trade talks are becalmed. There is every incentive in the world for us to redouble our efforts to get the talks back on track. We can't allow economies to retreat into themselves and put up barriers in the hope that they can escape the consequences of what's going on. The world has changed fundamentally and dramatically.

Your government has already been forced to rescue one British bank. When it comes to the financial community, is there a way to prevent crises of this kind from recurring?
We want to see a bigger role for the IMF in monitoring what is happening. If you look at the subprime problem, there were a number of regulators—and, indeed, banks—across the world which didn't see it coming. The events of the last 12 months have demonstrated a far greater need for governments to work together, and not just to resolve the problems that we face at the moment. The world is going to be a smaller place, and we'll need more, not less, cooperation.

The economic crisis clearly has implications at home. Your colleague, Foreign Secretary David Miliband, said recently that the odds are against this government. Do you agree?
We are going through difficult economic times—and, by extension, difficult political times as well. But we can win, and we will win. We need to rediscover the confidence and the zeal with which we fought the last three elections. If we can do that, then we can recover.