THE Government's massive bank rescue plan will save Britain from a devastating depression - but not a recession, Sheffield Hallam MP Nick Clegg has warned.
The Liberal Democrat leader called for another round of global interest rate cuts to inject life into the beleaguered economy.
Amid plunging share prices, Mr Clegg warned families that "times are going to get tough" and that "we are heading for a
recession".
He said: "Let's be realistic, the £400 billion package, I think it will have brought us a recession rather than a depression."
A recession is two consecutive quarters of negative growth, while a depression is a severe economic downturn that lasts several years. The Great US Depression of 1929 lasted a decade.
Earlier this week, Gordon Brown and Alistair Darling unveiled an unprecedented bail out plan, which included the using £50bn of taxpayers' money to partially nationalise many of the country's high street banks.
The package coincided with a 0.5% cut in interest rates by the Bank of England.
Mr Clegg yesterday called for another round of co-ordinated worldwide interest cuts and action by the IMF to help Iceland, whose banks have collapsed.
He said: "The immediate short-term need is for the G7 and then the leaders of the IMF to show that they can act together at an international level.
"My own view is that we do need further co-ordinated interest rate cuts across the globe.
"I think the IMF needs to show it is able to rescue countries such as Iceland, which have basically defaulted."
He repeated his call for the Government, as a shareholder, to ensure that those who "took the biggest risks" were removed from their roles at the top of banks.
"If the taxpayer is now being asked to commit up to £400 billion, it is perfectly right also to say that accountability should be seen to be working," he said.
Mr Clegg added: "My own view is that we need to remove short term bonus incentives altogether from the remuneration packages for directors and boards of banks.
"By all means pay them lots of money, give them free entry to golf clubs, give them company cars but don't give them the short term bonus incentives which distort their judgements."
International leaders also had to "design new global early-warning and regulatory structures which can help prevent this kind of thing happening again," he said.
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