Ben Chu: The delusions of Alistair Darling

Outlook Alistair Darling is sometimes fêted (mostly by enemies of Ed Balls) as a financial sage, who ought to be brought back into the Shadow Cabinet to bolster the economic credibility of Ed Miliband's top team. But the former Chancellor's latest intervention over the future of Royal Bank of Scotland, writing in the Financial Times, doesn't do much to justify that high opinion.

Of course Mr Darling is right when he argues that the semi-nationalised bank should not be sold off flogged at a loss in the coming years to maximise the Conservative Party's chances of doing well at the next election. All the happy talk emanating from the RBS chief executive and chairman about the bank being in good shape to slough off public ownership next year sounds more like an attempt to boost the 300p share price rather than a reflection of reality.

The bank's first-quarter results were certainly better than previous disaster shows. But the abrupt and unexpected departure of Jim O'Neil from the helm of UKFI, which oversees the state's shareholding, suggests RBS is nowhere near ready for a sale.

That said, Mr Darling's argument that everything was running smoothly with the RBS turnaround before the Coalition arrived in 2010 and wrecked everything by interfering smacks of delusion.

He points to the 500p RBS share price in 2010, which implied a slim taxpayer profit on its initial investment, as evidence that he handed over a recovering bank to Mr Osborne. But rather a lot has happened since that point. There have been the fines for payment protection insurance mis-selling, the Libor manipulation scandal and, of course, shocks from the eurozone, which have clobbered all banks, not just RBS. By glossing over this traumatic recent history, Mr Darling shows that he is in denial of the fact that he simply paid too much for RBS's shares in 2008 and 2009. Worse, it suggests he still thinks, in depressing New Labour style, that the appropriate treatment for our financial system is a little light tinkering and some faith in the skills of our wise (bonus-incentivised) bankers. Is that really the laissez-faire attitude that the Opposition should be resurrecting?

As for the Coalition, it should ditch the delusions too. It should recognise that the bank is not worth what Mr Darling and the Treasury thought at the time of the rescue. RBS should be fully nationalised and then restructured into a good bank and a bad bank. Only then should the question of a sale be broached.