Darling holds his nerve

The Chancellor's refusal to panic has won him respect, but his biggest test still lies ahead

So the government has ripped up the new Labour rule-book with a return to redistributive taxation, nationalisation and work-creation schemes. The same spinners who once laid burnt offerings at the feet of the gods of the free market now sing the praises of state intervention.

In this world turned upside down, one government figure has been consistent in his reading of the situation. From the early summer, Alistair Darling has been saying that we are living through the gravest economic crisis the country has faced since the first half of the 20th century, and that the government must do all it can to protect the British people from the effects of the storm.

The Chancellor began his statement on this week's pre-Budget report in apocalyptic terms, speaking of an "unprecedented global crisis". There was a time when he would have been accused of talking down the economy. Such an idea now seems absurd. At the end of August, during his infamous interview with the Guardian's Decca Aitkenhead, the Chancellor merely said that economic conditions were "arguably the worst they've been in 60 years". The only quibble now with Darling's assessment would be that he ever judged that it was "arguable". At the time, the sky fell in on Darling, with a series of attacks that included disgraceful briefings from Gordon Brown's allies against the Prime Minister's most loyal lieutenant. In fact, Darling had been warning of the seriousness of the situation for almost three months. In an interview with the New Statesman in early June, he said: "If you ask fundamentally what's changed . . . self-evidently it's the credit crunch . . . The IMF has said that it is the biggest shock to the world's economic systems since the 1930s."

It is hard to think of a historical political figure who has survived such a battering, from oil price rises to a bank collapse

Watching Darling's performance in the Commons on Monday, what was striking was his extraordinary calm. Some have put this down to his background as an Edinburgh lawyer, but this isn't an adequate explanation. Just before the £500bn banking bailout in October, a journalist was overheard asking Darling how he remained so unruffled in such turbulent times. He said it was the wrong question, adding: "Now is not the time to panic." He has not panicked, yet. At the height of the briefing campaign against him, he also held his nerve. Darling is popular among political journalists and despite his identification as a "Brownite", he is seen as a non-sectarian figure in Westminster.

There is still the distinct possibility that the PBR will unravel (and the news that the Treasury considered raising VAT to 18.5 per cent does not help matters). Some within the Labour family salute the aims of giving the economy a £21bn boost, while wondering whether it will be enough. But few are turning their fire on Darling himself. For example, Frank Field, the leader of the 10p tax rebels, said he believes the fiscal stimulus may yet turn out to be inadequate. But he recognised that Darling had been clever not to put a limit on how long the measures would take to work. "Alistair has given himself all the time in the world," he said. "Now he will just keep saying that the measures need to be given the chance to work."

There is no doubt now that Darling stays calm under pressure. It is hard to think of a historical political figure who has survived such a battering. Quite apart from the collapse of the banking system and a vicious campaign to undermine him from within his own party, the Chancellor has dealt with Northern Rock, the loss of computer disks from H M Revenue & Customs containing the personal data of 25 million individuals, fierce criticism of his decisions on capital gains tax and corporation tax, the stagnation of the housing market, wild fluctuations in the prices of oil and huge rises in the cost of household fuel.

There is at least one area where Darling remains vulnerable, however, and that is over the policy to abolish the 10p tax rate, which he inherited when his predecessor left for No 10. In the PBR, Darling announced an increase of personal tax allowances by £130 a year to soften the impact on those who lost out. But the real question for the Labour high command should be whether this will be enough. If backbenchers feel renewed pressure from their constituents on this issue, the possibility of a rebellion over the Budget in the spring will re-emerge.

The revival in the fortunes of the man at No 11 coincides with a new sense of direction throughout Downing Street. The National Economic Council has helped open up dialogue between departments and there is no longer the feeling that cabinet ministers are huddled in their individual silos. The increasing influence of the affable MP for West Bromwich East, Tom Watson, since his appointment to the Cabinet Office at the start of the year, has helped stamp out some of the more thuggish briefings. And despite differences over the emphasis of the PBR, the Treasury and No 10 are said to be working well together.

A new test of Darling's nerve will come in the new year when unemployment begins to bite. If the news bulletins are led every day by job losses up and down the country, Labour backbenchers are already talking about being afraid to show their faces in public. Darling has demonstrated his integrity over the course of the past year and consistently delivered a brutally honest assessment of the economic crisis. But if unemployment hits three million in 2009, these qualities will count for nothing.

This article first appeared in the 01 December 2008 issue of the New Statesman, How safe is your job?

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Why Angela Merkel's comments about the UK and US shouldn't be given too much weight

The Chancellor's comments are aimed at a domestic and European audience, and she won't be abandoning Anglo-German relationships just yet.

Angela Merkel’s latest remarks do not seem well-judged but should not be given undue significance. Speaking as part of a rally in Munich for her sister party, the CSU, the German Chancellor claimed “we Europeans must really take our own fate into our hands”.

The comments should be read in the context of September's German elections and Merkel’s determination to restrain the fortune of her main political rival, Martin Schulz – obviously a strong Europhile and a committed Trump critic. Sigmar Gabriel - previously seen as a candidate to lead the left-wing SPD - has for some time been pressing for Germany and Europe to have “enough self-confidence” to stand up to Trump. He called for a “self-confident position, not just on behalf of us Germans but all Europeans”. Merkel is in part responding to this pressure.

Her words were well received by her audience. The beer hall crowd erupted into sustained applause. But taking an implicit pop at Donald Trump is hardly likely to be a divisive tactic at such a gathering. Criticising the UK post-Brexit and the US under Trump is the sort of virtue signalling guaranteed to ensure a good clap.

It’s not clear that the comments represent that much of a new departure, as she herself has since claimed. She said something similar earlier this year. In January, after the publication of Donald Trump’s interview with The Times and Bild, she said that “we Europeans have our fate in our own hands”.

At one level what Merkel said is something of a truism: in two year’s time Britain will no longer be directly deciding the fate of the EU. In future no British Prime Minister will attend the European Council, and British MEPs will leave the Parliament at the next round of European elections in 2019. Yet Merkel’s words “we Europeans”, conflate Europe and the EU, something she has previously rejected. Back in July last year, at a joint press conference with Theresa May, she said: “the UK after all remains part of Europe, if not of the Union”.

At the same press conference, Merkel also confirmed that the EU and the UK would need to continue to work together. At that time she even used the first person plural to include Britain, saying “we have certain missions also to fulfil with the rest of the world” – there the ‘we’ meant Britain and the EU, now the 'we' excludes Britain.

Her comments surely also mark a frustration born of difficulties at the G7 summit over climate change, but Britain and Germany agreed at the meeting in Sicily on the Paris Accord. More broadly, the next few months will be crucial for determining the future relationship between Britain and the EU. There will be many difficult negotiations ahead.

Merkel is widely expected to remain the German Chancellor after this autumn’s election. As the single most powerful individual in the EU27, she is the most crucial person in determining future relations between the UK and the EU. Indeed, to some extent, it was her intransigence during Cameron’s ‘renegotiation’ which precipitated Brexit itself. She also needs to watch with care growing irritation across the EU at the (perceived) extent of German influence and control over the institutions and direction of the European project. Recent reports in the Frankfurter Allgemeine Zeitung which suggested a Merkel plan for Jens Weidmann of the Bundesbank to succeed Mario Draghi at the ECB have not gone down well across southern Europe. For those critics, the hands controlling the fate of Europe are Merkel’s.

Brexit remains a crucial challenge for the EU. How the issue is handled will shape the future of the Union. Many across Europe’s capitals are worried that Brussels risks driving Britain further away than Brexit will require; they are worried lest the Channel becomes metaphorically wider and Britain turns its back on the continent. On the UK side, Theresa May has accepted the EU, and particularly Merkel’s, insistence, that there can be no cherry picking, and therefore she has committed to leaving the single market as well as the EU. May has offered a “deep and special” partnership and a comprehensive free trading arrangement. Merkel should welcome Britain’s clarity. She must work with new French President Emmanuel Macron and others to lead the EU towards a new relationship with Britain – a close partnership which protects free trade, security and the other forms of cooperation which benefit all Europeans.

Henry Newman is the director of Open Europe. He tweets @henrynewman.

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