Stability? That was a lifetime ago, Darling

It is only a few days since Alistair Darling delivered his budget, but it seems like a lifetime ago. The Chancellor has been totally eclipsed by the drama on Wall Street, which has followed the classic narrative arc of a horror film - just when you think it's safe to leave the cinema, you are made to jump out of your skin again.

America is having its own Northern Rock moment - with knobs on - over the bail-out of investment bank Bear Stearns, sending the credit crunch into a new and more frightening phase. Confidence has leached out of the US economy, sending the dollar to record lows and gold, that perennial safe-haven investment, to record highs. Events in the US have made Darling, with his metronomic insistence on the stability of our economy, sound like a Dr Pangloss Chancellor. In common with the tirelessly optimistic character in Voltaire's Candide, he wants to convince us that we are living in the best of all possible worlds, despite the weight of evidence to the contrary.

The frightening news from Wall Street has made Darling's pronouncements on non-doms and capital gains tax reliefs seem irrelevant. What is still of urgent concern are his claims that the UK is better able to withstand the financial meltdown than any other economy - and these are now under an even harsher spotlight.

It is true that the UK economy over the past 10 years has delivered consistent growth with low inflation, and that it absorbed shocks including the Asian crisis in 1997, the bursting of the dotcom bubble and 9/11. It is also true that we have flexible labour markets, which help make economies more resilient (though flexibility is also a euphemism meaning employers can sack people more easily here in a downturn).

The Treasury has produced research suggesting that ours was the most resilient economy among 13 other OECD countries between 1994 and 2005. But, as the working paper itself concedes, that evidence is not conclusive and in any case, the past is not necessarily a guide to the future. The real issue is our vulnerability now and looking forward.

On that score there are some serious grounds for concern. One senior financier in his sixties told me this weekend that the financial sector is going through the darkest days he has seen in his entire career. The credit crunch has already been running since August and is getting worse; this may be a different order of crisis to the ones we have weathered in the past decade.

So far the American problems have not landed here, but the UK economy is, if anything, even more exposed to a financial crisis. While they have had a housing boom, we have had an even bigger one. They have a large current account deficit because they have imported more than they exported, but ours is even larger. And where American consumers have spent heavily on borrowed money, British shoppers have plunged even deeper into debt.

Like the US, we have shifted out of manufacturing and into services, and are now heavily dependent on the bombed-out financial sector for our prosperity. From this standpoint, our economy doesn't look like Alistair Darling's model of stability; it looks unbalanced and precarious.

There is one important respect in which we differ from the Americans: unlike them, we don't have the immediate hope of a package of tax rebates to help our economy, because of the parlous state of our public finances.

The main tool in the box is interest rates - and with worries about inflation being pushed up by higher food and oil prices, the room for manoeuvre there is likely to be limited.

Darling's soothing words have already been drowned out by the storm. He can repeat the word 'stability' as much as he likes, but he has no more idea than anyone else just how bad things are going to get. We don't know how many more sensational collapses will follow Northern Rock, Bear Stearns and the Carlyle Capital Corporation hedge fund. We don't know how much more of the excess and greed of the past has yet to unravel. We don't know how far the contagion will spread out of the financial sector and into the real economy, or how widely it will be exported from the US to the rest of the world. We don't know whether the sovereign funds, which have bailed out the big banks in recent months, only to run up big losses, are willing to come back for second helpings. We don't know - and neither do they.

Marks of a troubled succession

The boardroom reshuffle at Marks & Spencer is very odd. Sir Stuart Rose, who has led the store chain's recovery since 2004, is stepping upstairs to be executive chairman until 2011, going against corporate governance guidelines. That is not a problem in itself - indeed it is good news that he is staying on. The worrying thing is that the rationale doesn't stack up.

M&S says it wants to hang on to Rose, who had committed to the chief executive role until mid-2009, but that none of the internal candidates to succeed him is yet ready to take over. Moving him out of the chief executive role, M&S reckons, will give them more space to develop. This raises questions. Why are seasoned executives such as retail star Kate Bostock and finance man Ian Dyson not ready yet? And, considering they are in their forties and fifties, will they ever be? Why did Rose not stay on as chief executive until someone is ready? Or why not move him up to non-executive chairman, where he could keep an eye on the new boss? The company has had plenty of time to plan for the succession. It was the responsibility of the departing chairman, Lord Burns, to make sure there were credible candidates in place, but that did not happen. Bostock is considered an accomplished retailer, though lacking experience in finance and strategy; Dyson is strong on the numbers, but not so much on the retail side. It is a shame that an all-rounder of sufficient stature has not been added to the executive mix by now, and that this issue should have come to a head at such a difficult time for retailers.

The company is seeking a new non-executive director in an effort to reassure shareholders. I can save them a head-hunter's fee: go for Jeremy Paxman. Not only would he make them sort out the men's pants, he would also keep asking his fellow directors tough questions when they are not convincingly answered.

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