Ghost of past failure haunts G20
Stopping off in New York during a marathon, 18,000-mile diplomatic offensive before next week’s G20 summit in London next week, British Prime Minister Gordon Brown recalled a conference held in eerily similar circumstances in London 76 years ago.
Sixty-six nations gathered for the June 1933 London Monetary and Economic Conference which was aimed at lifting the world’s economy out of the Depression.
But amid American opposition to European plans to return to a system of fixed exchange rates, the conference collapsed and the world put up trade barriers, jobless ranks swelled and the rise of Fascism took the world into war.
“There was no further progress other than a resort to protectionism for the rest of that decade,” Brown told a business audience during a five-day pre-summit tour that has taken him to the European Parliament in Strasbourg, New York, Brazil and Chile.
Brown must be hoping desperately that history will not repeat itself when he hosts a meeting of leading industrial and developing economies in London on April 2 to try to chart a way out of the worst global financial crisis since the 1930s.
Again there have been signs of transatlantic division in advance of the summit, with many Europeans resisting U.S. pressure for more fiscal stimulus to boost the economy, while the Europeans put the emphasis on tightening regulation of the financial sector.
Mirek Topolanek, prime minister of the Czech Republic which holds the current European Union presidency, was quoted this week as saying U.S. President Barack Obama’s huge economic stimulus plan was “the road to hell”.
Many countries are suspicious that their neighbours are resorting to protectionist policies to try to safeguard jobs at home.
Currency questions have caused friction between the United States and China, whose economies are now closely inter-dependent. Paul Volcker, a senior Obama adviser, gave short shrift to China’s proposal for a new world currency when asked about it at a New York roundtable with Brown this week.
Volcker said he understood restiveness about the “lopsided nature” of the current international monetary system but he said pointedly that the Chinese “didn’t have to buy those dollars in the first place”. A new international monetary system which suddenly devalued the dollar’s role was not practical, he said.
As Brown jetted around the world to bolster support for concerted action to lift the economy, he came up with a variety of ambitious and expensive proposals to revive trade and get the economy going again.
But he runs the risk of setting expectations for the London meeting too high, perhaps bringing crushing disappointment in its wake.
“If the G20 becomes a meeting just to set another meeting, we’ll be discredited and the crisis can deepen,” Brazilian President Luiz Inacio Lula da Silva said at a press conference with Brown in Brasilia.
Brown’s G20 envoy, Mark Malloch-Brown, voiced similar fears earlier this month. “If indeed we get anodyne committee conclusions where all substance has been taken out of them, the markets on April 3 will be something of a disaster zone, I have no doubt,” he said.
Brown has called for a doubling of IMF resources to $500 billion and for a $100 billion trade financing facility to help reverse a slide in exports. He has also called for an insurance policy for countries with big foreign currency reserves, such as China, so that they will feel able to use some of their reserves to boost the economy without fearing a run on their currencies.
U.N. Secretary General Ban Ki-moon, who Brown met in New York, urged the G20 to support a $1 trillion stimulus plan for developing countries.
With so many other demands on their cash, it is doubtful that even the powerful G20 economies will be able to find the vast sums needed for all of these programmes.
The huge media focus on the gathering of Obama and other world leaders in London, and the big protests that are expected to accompany it, will only heighten the anticipation.
British officials are trying to dampen expectations that a big new fiscal stimulus package will be approved at the G20 summit, saying they do not expect countries to put their national budgets on the table next week and suggesting that the results of the summit will be seen over the next year, rather than on the day of the summit.
Harsh economic reality may also force Brown to rein in his own wish to pump more resources into the British economy.
While he was away cheerleading for the G20, events back home kept intruding.
First — in a move one opposition lawmaker described as a “coup” — Bank of England Governor Mervyn King warned the government on Tuesday that its soaring budget deficit meant it would have to be cautious about any new stimulus for the British economy.
On Wednesday a sale of British government bonds failed for the first time since 2002, sending a warning to Brown that the markets may balk at financing ever higher British government deficits.
Then on Friday, Brown was given a lesson in economic management by Chilean President Michelle Bachelet who described how the money Chile had put aside in good economic times had enabled it to pump more cash into the economy during the downturn.
Brown’s Conservatives opponents at home say this is exactly what he failed to do during the years of prosperity – reduce the budget deficit so he had more financial firepower to help people through a recession.
As his ambitions clash with harsh reality, Brown may have to lower his sights both for the G20 summit and for the British economy.
[Photo: Prime Minister Gordon Brown (L) listens to Brazil’s President Luiz Inacio Lula da Silva during a news conference at the Alvorada Palace in Brasilia March 26, 2009. REUTERS/Roberto Jayme]