On 7 October 2008 the world’s banking system came within hours of collapse. That morning one of the biggest banks in the world, RBS, a truly global bank with its headquarters on the outskirts of Edinburgh, was in trouble. Its chairman telephoned me to say that the bank was running out of money and would have to close its doors that afternoon - and for good measure, he asked what was I was going to do about it.
I knew that if RBS closed its doors, switched off its cash machines and stopped making payments inevitably the banks would come under pressure. People panicked at the prospect of having no access to cash or credit, and if the British banks went down then within hours the American and European banks would follow.
We were truly on the brink, and it was only because we took immediate action - far greater than people expected - that the banking system stayed on its feet. But of course, the complete collapse of confidence in banks led to an economic crisis; the consequences of which we are still living with today.
The eurozone is in a crisis because it didn’t take action quickly enough to resolve the problem that Greece was facing. It took far too long and then came up with a compromise which, although better, I don’t think will work. They should have taken action decisively as soon as it was obvious that Greece had problems in 2010, and at the same time taken action then to shore up Europe’s banks as we did two years earlier.
And the fundamental reason why the policies in Europe and here at home won’t work is because governments today have forgotten the lessons not just of three years ago but of the 1930s. Simply put, if you pursue a policy of austerity, taking money out of the economy when it’s not growing, you’ll make a bad situation worse.
And here at home it’s quite wrong for the Government to blame Europe for all our troubles. Our economy was growing from the end of 2009 right through the general election into the Autumn of 2010. It was doing so because of the action we took to stop recession becoming depression. Every other major developed country did exactly the same thing.
Today though the picture is very different. Our economy stopped growing about a year ago. Growth has completely stalled and indeed my successor as Chancellor, George Osborne, has had to downrate his forecasts four times since he became Chancellor. The Bank of England is now extremely worried that the recovery is off track and that the economy has stalled.
If we carry on like this we will consign ourselves to perhaps five or ten years of lost opportunities and higher unemployment as eastern economies continue to grow.
What’s needed now is a resolution to the euro crisis once and for all, but above all a coherent plan to get borrowing down in a way that doesn’t jeopardise future growth. Failure to do so will be to consign another generation with the prospect of unemployment and lost opportunity.