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DERMOT MURNAGHAN: Austerity measures are perhaps at the heart of disagreements in the eurozone. Opponents say there must be another way, a way towards growth, and one of those people is Labour’s former Foreign Secretary, David Miliband. Mr Miliband, first of all, mentioning the austerity measures, do you feel that if Europe continues on this path, a path of course led by Germany, it is staring down the barrel of a gun?

DAVID MILIBAND: I think that is exactly the right metaphor. Austerity isn’t working, you can see that in Greece where their debt to GDP ratio is actually rising, recession is threatening in Italy as well and Spain obviously and I think the sweet spot for European politics is to be anti-austerity but pro-reform and the challenge for European leaders is to make sure that in shifting from the collective austerity that is squeezing incomes and driving down growth rates, they don’t fall into the trap of abandoning the reform that is especially necessary in the periphery of Europe. My own sense – you used the phrase staring down the barrel of a gun, my own sense is that German and Greek leaders have looked down, if you like, the barrels of a double barrelled gun and they have realised that if the gun goes off it is going to blow off German feet as well as Greek feet so I can see the next few days as being drachmageddon but I still think there are some fundamental problems that need to be addressed over the next few months.

DM: You say that but do you think they really have got that message here in Germany? Everything we’ve heard consistently from Angela Merkel and others is no to euro bonds, no to more stability and growth funds, no to the ECB bailing banks out. They haven’t moved on anything, why do you think they will change that view?

DavidM: I think that Mrs Merkel and all of her colleagues say two things, one: no to the various measures as you’ve describe but they also say something else, we are determined, they say, to maintain a eurozone of seventeen and I think they believe that sincerely. Mrs Merkel doesn’t want to go down as the German Chancellor who wrecked the euro and possibly wrecked the European Union and I think you can see from the statements of the European Central Bank, from the statements of the German finance ministry, a preparation to ensure that over the next few days as the new Greek government comes to seek talks with the Brussels authorities as well as with the German and other nations, that they don’t allow the whole system to be brought down. That is a long way from saying that we’ve yet got the consensus for the kind of debt mutualisation, deposit insurance, euro bonds that you referred to, they are in the end going to be necessary if a eurozone of seventeen is going to continue. I say if because there are no guarantees, there is still a 20-30% chance in my view of fracture but I think there is a very great determination in Germany and elsewhere to make sure it doesn’t happen.

DM: Okay, fracture, that means it’s breaking but do you think there is an easier way out, do you think Greece should be helped in a consensual way to leave the Euro?

DavidM: I think that organised exit is a second best option. Organised retention of Greece in the euro is the best option because I think that the dangers for Italy, Spain, other countries, if Greece is allowed to go and remember Greece is only 2% of the European economy, it is a pretty small part of the European economy, if Greece is allowed to go the dangers elsewhere are very great. However, if there isn’t a real organised drive to help Greece stay in and we in the end just muddle along, I think that is potentially very dangerous indeed and so I think it is very important that the eurozone authorities are staring down the barrel of a gun and realising the stakes here. Obviously it is a game of chicken in a way, the Germans don’t want to give their credit card over to the Greeks or to the Spanish or the Italians but in all fairness, those countries are going through economic hell at the moment. Your correspondent, Robert Nesbit, referred to 50% unemployment in Greece, in Italy there is structural reform going on but it will take three or four years to come through and that’s why I think that the sweet spot, as I said before, is anti-austerity but it has got to be pro-reform and that’s the deal that I think in the end is going to have to come through.

DM: Indeed and the things the Germans want, the things that they are quite comfortable with when you talk about issues like that, of easing our way out of this crisis, is of course deeper integration. They are comfortable with deeper political integration but of course first of all fiscally. Do you think that will wash with other countries and in particular our own? Do you think the United Kingdom is going to sit there as a member of the European Union and allow that fundamental restructuring to go on?

DavidM: Well the great danger is that we’re not even part of the conversation at the moment. We’ve dealt ourselves out of the game as a result of the Prime Minister’s decision last December so I think what you are seeing is in discussion, for example, of a European banking union, that is of seventeen countries in the eurozone going ahead. Britain wouldn’t be a player in that, we wouldn’t be responsible for any payments in that obviously as well but I think that the logic is pointing very clearly to a eurozone that is self-governing and that there is a second tier of the European Union, unfortunately in which Britain stands apart. Now for forty years British governments, Labour and Conservatives, have said that we don’t want to have a two tier Europe, that we are determined whether or not we are members of the eurozone – and I very much support the decision of the last government not to join the euro – that despite that we are determined not to end up in the second division. We are determined in areas like energy or foreign policy to make sure we are playing a leading role and the tragedy for Britain, and I think for Europe, is that Europe looks unbalanced when Britain isn’t playing a leading role. That’s where we are at the moment. Of course you mentioned elections in France today as well, this is really the key. The Franco-German relationship has not been balanced over the last 18 months or two years, President Sarkozy basically got walked over for 18 months and I think it is very important that President Hollande comes out with a majority that allows him to rebalance the heart of Europe.

DM: It is a pretty strong argument, isn’t it, in what you’ve been saying for a referendum in Britain, whether we want to be in a two-speed Europe, outside Europe, part of a trading band. I mean it is an argument for a referendum that is getting some traction within your own party.

DavidM: I think that is rather frivolous if I may say so because it is very unclear what you would be voting on at the moment. Europe is in a state of great flux, I think it is very important that we understand that Europe suffers first of all from a delivery deficit rather than a democratic deficit, it is a leadership deficit that Europe has at the moment. It is not grasping the nettles of European reform and of the development of a proper growth strategy and it seems to me that the priority is not to start examining our own navels but instead to be part of a sustained drive to ensure that the European Union of 27 maximises not just its economic prosperity but its international security as well. So I don't think that the logic is of the kind that you propose, I think instead the logic is that Europe tackles the problems of jobs and growth that are at the top of every constituents agenda right across Europe.

DM: Well it’s not what I’d be proposing, and we are talking further down the line, it is something that has been discussed by the Shadow Chancellor, Ed Balls and by others.

DavidM: Ed and others in my party and to be fair, others in the governing party as well, in the Tories, what they are all saying is that we have got to focus on the bread and butter agenda. Now there is a big division because what you have got on the Conservative side is while they are very much against the political developments that are happening in Europe, they are very supportive of the austerity drive. Now my position, Ed Balls position, is that austerity is killing Europe, that it has turned into a masochistic strategy that is squeezing growth out of the economy in a very dangerous way. Obviously we are now in a double dip recession which many of us warned about and I think the spectre for Europe is not that all of our countries are going to become like Greece, the spectre for Europe is that we end up in the situation of Japan in the 1990s, that is a decade of low or no growth and those are the circumstances where political extremism rises and where the centre ground is unable to hold and I think it is 

very important that we have out this argument about how we fashion an anti-austerity, pro-reform position not just in Britain but across the rest of Europe.

DM: It is interesting, Mr Miliband, hearing you making these comments and this analysis. I was reading your former leader, about as far away from the frivolous it may be said that you can possibly get, Mr Brown blogging last week about how you and he and others helped to deal with the banking crisis at the end of the last decade. Do you feel you have got something to offer other than as a commentator on this continuing issue? Would you like to be back in the shadow cabinet?

DavidM: Well I am a member of parliament so I hope I am not just a commentator, I am representing my constituents, I speak out on the issues that matter. If I have got a job application for the shadow cabinet I would not announce it exclusively live on Sky News, however great the temptation. I said 18 months ago that I thought it was better for Ed and better for the party for me to allow him to lead Labour as he sees fit, I don’t want a daily soap opera about what he thinks or what I think and I think that what you are seeing at the moment is a Labour party determined to address the real issues facing the county. I think that’s what Ed’s doing, I am pleased about that and so I hope for all the glory that comes with being a commentator, I hope that I can in my own way support Labour. I am doing that more at the grassroots than I am in the shadow cabinet, although obviously I speak up in parliament on the big issues as well.

DM: Do you think those others, those former Prime Ministers you served under, Mr Brown and Mr Blair, have something then to offer on that issue?

DavidM: Oh definitely. It seems to me that we should learn from our own history and part of that history involves a response to crisis. Everybody will have their own opinions about the Brown premiership but I think that one thing, including me, but one thing that I think does need to be said is that in 2008/2009, when the global financial crisis hit, Gordon Brown and Alistair Darling responded in a very determined way not just to deal with Britain’s problems but to lead an international response. Tony Blair’s comments I think are always insightful, I think he showed that again recently in his comments at the Leveson Inquiry, so I think a bit of, if you like, respect for our elders doesn’t go amiss. Equally, it’s for today’s generation of politicians to in the end make the decisions but my feeling talking to the public is that they want a greater maturity, a greater sense of seriousness from politics and from the media. I think it is very, very important that we respond to that because politics – I’ll be discussing this, I’m doing a lecture on Tuesday actually in parliament about politics in times of crisis and the lesson of the 1970s is that politics is much more volatile in times of crisis, that big ideas can be developed and gain momentum in times of crisis but also that a maturity of debate is essential to meet the demands of the public. I think that’s very, very important at a time when the Office of Budget Responsibility says we are going to have ten years of low growth and declining incomes. Our constituents expect a degree of seriousness and maturity from us in those circumstances.

DM: Well, Mr Miliband, you are still very clearly part of today’s generation of politicians, thank you very much indeed. David Miliband there, the former Foreign Secretary.