UK Politics

Ken Clarke: US and Europe paralysed by financial crisis

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Media captionKen Clarke said governments had been "overwhelmed" by the scale of the crisis

Political leadership in Washington and Western Europe has suffered "paralysis" in the face of the financial crisis, former Chancellor Ken Clarke has said.

He told BBC Two's Newsnight that governments had been "overwhelmed" by the scale of the crisis.

Mr Clarke, now justice secretary, said the UK's fate partly depended on "how these people sort it out".

His comments come as EU finance ministers meet in Poland on Friday amid fears for the global economy.

US Treasury Secretary Timothy Geithner is also due to attend the gathering in the city of Wroclaw.

The meeting of finance ministers comes after five central banks announced a co-ordinated move to ease the European banking crisis and as the European Commission predicts that growth in the eurozone will come to a "virtual standstill" in the second half of 2011.

The banks involved in the market co-operation are the US Federal Reserve, the Bank of England, the European Central Bank, the Bank of Japan and the Swiss National Bank.

Their intervention is aimed at ensuring lenders, especially those in Europe, keep providing money to each other.

Mr Clarke told the BBC: "The political leadership in the United States of America and large parts of Western Europe has been totally overwhelmed by the dimensions of this global financial crisis, it's not able to cope.

"You have paralysis in Washington, and you have paralysis in large parts of Europe because they are incapable of agreeing, everybody's fighting short-term politics.

"I don't think the British government comes out too badly when you make that comparison. But our fate partly depends on how these people sort it out."

Credit rating

Ahead of the Ecofin meeting on Friday, current Chancellor George Osborne will tell a business conference in Manchester that the UK is "not immune" to the economic issues in Europe and the US.

"America and the Eurozone are our two biggest export markets", Mr Osborne is expected to say, but he will add he is confident the UK can "weather this storm".

Mr Osborne is also expected to say that the current problems in the world economy will not lead to a change in the government's efforts to cut the deficit.

Image caption Mr Clarke was UK chancellor from 1993 - 1997

"Our deficit reduction plan has delivered lower interest rates and protected our credit rating... If we abandoned it now there would be a collapse in that confidence and a surge in interest rates," Mr Osborne is due to say.

Labour has accused Mr Osborne and Prime Minister David Cameron of "standing on the sidelines" rather than delivering the "global economic leadership" needed.

On Thursday Christine Lagarde, head of the International Monetary Fund, warned of a "dangerous" new economic phase, adding there was a "lack of resolve" among policy-makers to tackle longer-term problems.

Ms Lagarde said the level of indebtedness among European countries was "knocking the wind out of the recovery".

Deputy Prime Minister Nick Clegg warned this week that the international situation had "changed dramatically" - due to severe external pressures such as the eurozone debt crisis and rising oil prices - and the economic context was "much worse than before".

In the US political wrangling over the debt ceiling brought the country to the brink of default and caused much consternation in the financial markets.

And the markets have been alarmed at inaction in the eurozone amid fears that Greece will default on its debt.

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