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Financial paralysis is gripping US and EU leaders, Kenneth Clarke claims

Former chancellor says governments are failing to deal with prospect of second credit crunch

Kenneth Clarke has accused US and European leaders of “paralysis” amid fears of a deepening global financial crisis.

The former chancellor said governments appeared incapable of dealing with the growing prospect of another credit crunch and accused them of playing “short-term politics”.

“The main thing I take from this crisis is unfortunately the political leadership in the USA and large parts of western Europe have been totally overwhelmed by the dimensions of the crisis, not able to cope,” he said.

“You have paralysis in Washington, and paralysis in large parts of Europe because they are incapable of agreeing and everybody is fighting short-term politics.”

Clarke said the British government came out of the crisis quite well when compared with US and European political leaders.

“I do not think the British government comes out of it too badly when you make the comparison, ” he told BBC2′s Newsnight programme. “But our fate partly depends on how these people sort it out.”

The warning from the justice secretary comes as the chancellor, George Osborne, and other Europe’s finance ministers gather in Wroclaw, Poland, for a meeting of the economic and financial affairs council.

Stock markets staged a rally on Thursday after central banks decided to provide unlimited US dollars to European banks to prevent a rerun of the Lehman Brothers collapse three years ago.

The Bank of England joined the Bank of Japan, the US Federal Reserve and the European Central Bank in a joint mission to provide dollars more cheaply than international money markets.

Clarke said he believed the euro would survive the current crisis but added that the eurozone required more fiscal discipline.

“It doesn’t need the same level of tax, it doesn’t need the same level of spending. Governments can decide that for themselves whether they are high tax, high spend, or low tax, low spend,” he said.

“But discipline, fiscal discipline, controlling of deficits … we agreed it when I was chancellor and the Germans led the way in breaking it.” © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds