Ghost of past failure haunts G20

March 28, 2009

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]

4 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

It is often said that desperate diseases must have desperate remedies. Nothing could be further from the truth. In fact, because the desperate remedy recommended by every country contains a high percentage of self-interest, it takes on an emotional charge which, if thwarted, leads to crises and damaging international rifts. Ultimately, in the 30s it led to war.

Politicians always want to posture and seem bravely full of activity. They should actually scarcely be allowed near an economic crisis. First, middle and last they want their own personal importance to be augmented. They can never be seen to make sacrifice for the good of all; always they must pursue the narrowest, most selfish interests of their consituents. True statesmen are revealed by history to be incredibly rare.

During the cold war it was often said that summit meetings only rubber-stamped what the technocrats had achieved. Failure of a summit had occurred long before the apparent protagonists [premiers, presidents] had boarded their ‘planes.

There has been too little time for the technocrats to have achieved much prior to the upcoming G20 meeting. So, bland platitudes will probably be the best possible result. Overwhelmingly the most beneficial real outcome will be that that an environment is created for technocrats to keep talking. A thousand small compromises and adjustments between nations are required for disaster to be avoided.

Politicians should be required to take an oath before summits along the lines recommended for physicians by Hippocrates: First, Do No Harm.

Posted by John Lamble | Report as abusive

Nicely written article. But, what is even more of a pleasant surprise is the very erudite comment above. Thanks, John Lamble. You make me believe that there is hope for reasoned debate yet in this world.

As an aside, if Hippocrates had tried practicing medicine today he would most probably be arrested as a quack.

“True statesmen are revealed by history to be incredibly rare.” Is there anyone who could be universally acknowledged as a statesman, past or present?

Posted by Kishore Tejaswi | Report as abusive

I little confused with this situations. I know for sure that it is a great opportunity for America to clear the toxic asset and bring the balance sheet in balance. The world does trade with dollars and every country is losing money anyway. So let start all over again.Instead of confusion, refresh the economy by removing toxic asset. thats end of story.

It seems that the recent UK gilt auction failed to sell out. This is bad news for Gordon Brown because he won’t be able to do a US-style stimulus because he just won’t have the money.

The Countries on the Continent are not so enamored of the US-style stimulus idea anyway because the two countries most affected are the US and the UK. The Czech President of the EU, said Obama’s plan was “the road to Hell.” If the US T-Bill auction meets resistance similar to the gilt auction in the UK, Obama’s plan will have its wings clipped.

This means he will either have to cut back the stimulus, raise taxes radically, or inflate the currency which will offend the holders of T-Bills in general.

Obama does not seem to have any comprehension that the reason the Europeans and the Asians reject his plans is because, taken together, his plans make no sense. It is just impossible to do everything he says without causing a financial crisis. It is as if he can hold only one program in his mind at the same time, and he can’t do the sums. This is indeed “the road to hell.”

The economic projection of a healthy recovery depends on improved consumer and business confidence. But how can this possibly happen with the prospect of heavy taxes on investors and business owners, union control of more businesses, crushing energy taxes and direct economic controls on all businesses, a huge Obama Youth movement, and, uncertainty over the future? This is a Government take-over and suppression of Constitutional rights which means the end of America’s prosperity. Why would anyone have confidence unless he was a Government employee.

Obama is pure poison to America’s economy, and indirectly, to the world economy.