'This is the worst recession for over 100 years'

Ed Balls, the British PM's closest ally, warns that downturn is ferocious and says impact will last 15 years


Britain is facing its worst financial crisis for more than a century, surpassing even the Great Depression of the 1930s, one of Gordon Brown's most senior ministers and confidants has admitted.

In an extraordinary admission about the severity of the economic downturn, Ed Balls even predicted that its effects would still be felt 15 years from now. The Schools Secretary's comments carry added weight because he is a former chief economic adviser to the Treasury and regarded as one of the Prime Ministers's closest allies.

Mr Balls said yesterday: "The reality is that this is becoming the most serious global recession for, I'm sure, over 100 years, as it will turn out."

He warned that events worldwide were moving at a "speed, pace and ferocity which none of us have seen before" and banks were losing cash on a "scale that nobody believed possible".

The minister stunned his audience at a Labour conference in Yorkshire by forecasting that times could be tougher than in the depression of the 1930s, when male unemployment in some cities reached 70 per cent. He also appeared to hint that the recession could play into the hands of the far right.

"The economy is going to define our politics in this region and in Britain in the next year, the next five years, the next 10 and even the next 15 years," Mr Balls said. "These are seismic events that are going to change the political landscape. I think this is a financial crisis more extreme and more serious than that of the 1930s, and we all remember how the politics of that era were shaped by the economy."

Philip Hammond, the shadow Chief Secretary to the Treasury, said Mr Balls's predictions were "a staggering and very worrying admission from a cabinet minister and Gordon Brown's closest ally in the Treasury over the past 10 years". He added: "We are being told that not only are we facing the worst recession in 100 years, but that it will last for over a decade – far longer than Treasury forecasts predict."

The minister's comments came as the Chancellor, Alistair Darling, admitted the global economy was "seeing the most difficult economic conditions for generations". Writing in today's Independent, Mr Darling said his plans for shoring up Britain's finances included "measures to insure against extreme losses" as well as separating out impaired assets into a "parallel financial vehicle". Unemployment figures out tomorrow are expected to show the number of people out of work has passed two million. The Bank of England's quarterly inflation report, also released tomorrow, is expected to include a gloomy forecast for economic growth.

Yesterday, the Financial Services Authority warned that the recession "may be deeper and more prolonged than expected", adding that the global financial system had "suffered its greatest crisis in more than 70 years".

Speaking to Labour activists in Sheffield, Mr Balls conceded that the Government must share some of the blame because it had failed properly to control the banks. But he accused the Tories of blocking Labour's attempts to tighten financial rules.

He said: "People are quite right to say that financial regulation wasn't tough enough in Britain and around the world, that regulators misunderstood and did not see the nature of the risks of the dangers being run in our financial institutions – absolutely right."

The other great depressions

*Long Depression, 1873–96

Precipitated by the "panic of 1873" crisis on Wall Street and a severe outbreak of equine flu (Karl Benz's first automobile did not chug on to the scene until 1886), it was remarkable for its longevity as well as its global reach. In Britain, it was the rural south rather than the rich cities of the north that suffered. The UK ceased to be a nation that relied in any way on farming for its livelihood.

*Great Depression, 1930s

The "Hungry Thirties" were rough on many, at a time when welfare systems were rudimentary. The worst period was from the Wall Street Crash of 1929 to about 1932, but in places such as Jarrow, the unemployment rate hardly dipped below 50 per cent until the economy was mobilised in 1940. However, for many in the south and for the middle classes, the times were relatively prosperous.

Mr Balls said the economy would define politics for 10 to 15 years

The current global recession is "the most serious for over 100 years", cabinet minister Ed Balls has said.

Mr Balls, a former economic adviser to Gordon Brown, said it was "more extreme and more serious than that of the 1930s", the Yorkshire Post reported.

He told a Labour conference that these were "seismic events that are going to change the political landscape".

Shadow Treasury minister Phillip Hammond said the remarks were "staggering and very worrying".

Mr Balls, the schools secretary, made the comments at Labour's Yorkshire conference at the weekend, the newspaper reported.

The BBC's political editor Nick Robinson said Mr Balls and Downing Street have attempted to play down the significance of his remarks, insisting he had been pointing out the unique nature of the global financial crisis and was not predicting that the impact on ordinary people would be worse than that experienced during the Great Depression of the 1930s.

Ed Balls speaking at Labour's Yorkshire conference

According to the Yorkshire Post, he said: "The economy is going to define our politics in this region and in Britain in the next year, the next five years, the next 10 and even the next 15 years.

"These are seismic events that are going to change the political landscape.

"I think that this is a financial crisis more extreme and more serious than that of the 1930s and we all remember how the politics of that era were shaped by the economy."

Mr Balls, MP for Normanton, added: "We now are seeing the realities of globalisation, though at a speed, pace and ferocity which none of us have seen before.

"The reality is that this is becoming the most serious global recession for, I'm sure, over 100 years as it will turn out."

'Unprecedented'

For the Conservatives, shadow Treasury minister Phillip Hammond said: "This is a staggering and very worrying admission from a cabinet minister and Gordon Brown's closest ally in the Treasury over the past 10 years.

"We are being told that not only we are facing the worst recession in 100 years, but that it will last for over a decade - far longer than Treasury forecasts predict."

He added: "Is Ed Balls spilling the beans here and telling us that the government sees the situation as slightly more serious than they have tried to portray?"

Government ministers are oscillating between complacent optimism and this doom-laden picture of Armageddon
Vince Cable, Lib Dems

Nick Robinson's blog

Liberal Democrat Treasury spokesman Vince Cable contrasted Mr Balls' assessment with comments from fellow minister Baroness Vadera, who recently said she could see "green shoots" of economic recovery.

He said: "Instead of giving clear and consistent leadership, government ministers are oscillating between complacent optimism and this doom-laden picture of Armageddon. Surely the truth lies between the two?"

A spokesman for Mr Balls insisted that the prime minister and Chancellor Alistair Darling had highlighted the "unprecedented speed and ferocity" of the crisis "time and time again".

He said: "The unprecedented global nature of this crisis and its impact on the global financial sector is affecting every single economy in the world.

"The Bank of England agrees with this analysis. As the deputy governor of the Bank of England, Charlie Bean, said in October: 'This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history."'

He added the minister had been referring in his speech to the differences between Labour and the Conservatives on the economy.

Last week, Mr Brown used the word "depression" during prime minister's questions, but his spokesman later said this had been a slip of the tongue.

The Conservatives urged him to clarify his comments and be careful with language.

The Commons Treasury Select Committee is due to question the bosses and former bosses of the UK's biggest banks on Tuesday and Wednesday over the causes of the financial crisis.

http://www.independent.co.uk/news/uk/politics/this-is-the-worst-recession-for-over-100-years-1605367.html

Commission assesses Stability and Convergence Programmes of Ireland, Greece, Spain, France, Latvia and Malta; presents reports under excessive deficit procedure

Today the European Commission has examined the updated Stability and Convergence Programmes[1] (SCPs) of Ireland, Greece, Spain, France, Latvia and Malta. Against the background of the ongoing sharp economic downturn, budgetary positions are estimated to have deteriorated markedly in 2008 and to continue deteriorating in 2009 in Ireland, Spain, France and Latvia. In Spain and France this also reflects significant economic stimulus packages adopted in line with the European Recovery Plan that called for timely, targeted and temporary fiscal measures in Member States with fiscal room for manoeuvre. Ireland and Malta have taken a number of measures to support the economy as part of a broader consolidation effort, which seems adequate in light of the macro-fiscal and competitiveness challenges in these countries. Greece has not adopted fiscal stimulus measures, an adequate posture in view of still positive growth and its high debt and large economic imbalances. Latvia also refrained from adopting short-term fiscal stimulus measures given the need to re-balance its economy and restore investor confidence. As all six countries had a budget deficit of more than 3% in 2008, the Commission also adopted reports under the corrective arm of the Stability and Growth Pact. In accordance with Article 104.3 of the Treaty, the reports analyse the reasons for the breach of the 3% reference value, taking due regard of the economic background and other relevant factors. The Commission examined another 11 SCPs today, but in all cases the budgetary position remains within the limits of the Pact (see IP/09/273).
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/274&format=HTML&aged=0&language=EN&guiLanguage=en