UK News

from The Great Debate:

The perils of protectionism

By Gordon Brown The views expressed are his own.

Next week's 2011 G20 meeting has the power to write a new chapter in the response to the economic downturn. But every day, as nations announce currency controls, capital controls, new tariffs and other protectionist measures, the G2O’s room for maneuver is being significantly narrowed. Already the cumulative impact of a wave of mercantilist measures is threatening to turn decades of globalization into reverse, returning us to the economic history of the 1930s, and condemning at least the western parts of the world to a decade of low growth and high unemployment.

Three years ago when the financial crisis first hit, the G2O communiqués were explicit in warning of the dangers of a new protectionism. Led by the head of the World Trade Organization (WTO), Pascal Lamy, we embarked on a forlorn attempt to use the crisis to deliver a world trade deal -- and were frustrated by an irresoluble dispute on agricultural imports between two countries, India and the USA. But now, in the absence of any co-ordinated global action, member countries have been retreating into their national silos -- and the trickle of protectionist announcements threatens to become a flood. Switzerland led costly action to protect its overvalued currency and has been followed by currency interventions in Japan (with perhaps more to come), India, Indonesia, and South Korea. Brazil, which had itself warned of currency wars, then imposed direct tariffs on manufactured imports -- a hefty car tax designed to protect its own native auto industry against emerging market imports. Other countries are now considering mimicking them. Capital controls are also now in vogue, and of course the U.S. Senate has just voted to label China a “currency manipulator.”

The 2011 WTO report, just published, warns of divergences in regulatory frameworks in preferential trade agreements. And in the next few days the WTO will release its submission to the G20.  It will note  a  rise in  trade-restrictive measures and describe the outlook ahead as “less restraint in the adoption of new trade-restrictive measures and less determination to dismantle existing ones.” Perhaps as worrying  is the growing resort to what I call “home country bias.” Today French banks are selling off their foreign assets and focusing their large portfolios on France itself. French banks have 8 trillion euros in total assets and if the plan is to run them down at 5 percent a year, then by 2014 we will see a 1.2 trillion-euro reduction in investments outside France. European bank liabilities are on the order of 32 trillion euros and when, as we can expect, the same mercantilist approaches to liquidating assets spreads to Germany, the Netherlands, and beyond, growth will be put at risk.

When in 2008 the financial crisis first hit us, money started to flow out of Eastern Europe, whose banking system is dominated by French, German, Italian, and Austrian banks. To soften the impact, we put in place a European Union/IMF guarantee that was sufficiently robust to prevent a massive outflow of bank funds. No similar guarantee is now available and,  faced with capital flight, growth forecasts for Eastern Europe in 2012 are now half what they were.

The process of deleveraging with a home country bias is not restricted to European banks. Many American banks are now deserting Europe and, as the home bias becomes more pronounced, we risk a further round of tit-for-tat actions. This protectionism is the undesirable but inevitable result of a failure of countries to co-ordinate economic policies out of the crisis. Since a high point of cooperation in 2009, we have failed to secure not only a trade agreement but both a climate change agreement and the implementation of G20 decisions to create global financial standards, including a much needed global early warning system.

The new protectionism will make people question whether an era marked by open global flows of capital and the global sourcing of goods is sustainable and whether the very idea of a “global village” of irreversible economic interdependence and integration is now at risk. The biographer of Keynes, Robert Skidelsky, has written in apocryphal terms of “a disorderly, acrimonious retreat from globalization [that] is bound to overshoot its mark, reviving the economics and the politics of the 1930s; but leading in an era of nuclear proliferation, to consequences even more terrifying.”

from MacroScope:

The word on Gordon Brown from Cayman

Gordon Brown is truly having a rough time. Rebuffed by the United States, International Monetary Fund and others for floating the idea of a tax on financial transactions at this weekend's G20 meeting, he has now got short shrift from the Cayman Islands.

McKeeva Bush, the veteran Caymanian politican who is now premier of the British Overseas Territory, popped in to the Reuters London headquarters for a chat this week. His main concern was to explain plans for making the islands an easier place for financial services personnel to live in. He would like some of those 8,000 hedge nearly 10,000 funds that are registered there to be more than just brass plaques. But, when asked, he also had time to dismiss the idea of a transaction tax out of hand.

"That's an old hat. I have been hearing about it for 25 years. It's just not practicable. It will not work."

And just in case the point was missed:

"We have looked at it and we do not think this is something that would work."

Bush would not be drawn on the idea that a tax on transactions could, metaphorically speaking, sink his Caribbean island homeland under the waves. But Paul Byles, a government financial services consultant who accompanied the premier, did touch on the liquid nature of the issue:

"Tax flows, and they will move somewhere else."

from MacroScope:

Instant View Video: Rebalancing global trade

Reuters correspondent Sumeet Desai talks about the G20 draft communique and what it means for rebalancing the world's economy.

On the road with Gordon Brown

The Prime Minister is on the move — and I will be following close behind.

I’m Sumeet Desai, Senior Reuters economics correspondent and over the next couple of weeks I will be with Gordon Brown as he travels to New York to the United Nations general assembly and then on to Pittsburgh for the eagerly anticipated G20 summit.

Then it is back to Britain — we will be at the seaside in Brighton for the Labour Party’s annual conference.

I will be live blogging throughout my journey, sending regular news and thoughts via my Twitter feed, which will appear in the box below, and will also post video updates from my travels with Gordon.

from MacroScope:

Live Blogging G20

Finance ministers from the G20 are meeting in London on Friday and Saturday to discuss the next steps in battling the world's worst economic and financial crisis since the Great Depression.

Reuters correspondents from around the world will be at the event, taking you behind the scenes and and providing unprecedented coverage through this live blog.

G20 Finance Ministers Meeting in London

from MacroScope:

Spot the difference: what the G20 said now and back in 2008

Here are two word clouds of G20 summit statements - the first is of today's London meeting. The second is from the G20's Washington summit in November 2008. The cloud gives greater prominence to words that appear more frequently in the text.

Above: G20 statement after London summit in April 2009

Above: G20 statement after Washington summit in November 2008

(word cloudes are screenshots taken from wordle.net)

On the frontline of the G20 summit

Abolish money. Punish the  looters. Eat the bankers.

Ageing 1960s hippies and their youthful anti-globalisation descendants joined in an angry  anti-capitalist protest at the Bank of England on Wednesday, waving placards and shouting slogans reflecting  a common fury at perceived corporate greed.

With worldwide recession destroying jobs by the week, protesters at the G20 protest in the City of London demanded an end to what they see as a global, predatory system that robs the poor to benefit the privileged.

“Welcome to Pig City: One war — class war” was the placard held up by a masked man standing on the doorstep of the central bank.

As hooded protesters scrawled “Peace and Love” on the walls of the Bank, Drogo, an elderly man in flowing multi-coloured robes and carrying an orb on a wooden stick, pointed at staff peering out of the Bank of England’s windows and said:

 ”I am here to tell these fat bankers to get off their arses and save the planet.

Michelle sparkles as hostess Sarah plays it safe

Sarah Brown will have had an anxious early morning.

Her husband’s attempt to be the great fixer of the financial crisis and best friend of the United States at the same time was a big ask, but how was she going to handle the visit of Michelle Obama?

This was the first time Sarah had been called upon to host her new opposite number from The White House. And it wasn’t all smiling outside Downing Street either – the pair had to visit a cancer care centre as well and – horrors – meet Her Majesty the Queen.

Michelle is only three months younger than Sarah, but she is a graduate of Princeton and Harvard, is the taller of the two by some distance and is famously well dressed.

She was on the cover of Vogue magazine last month and is constantly being compared to Jackie Kennedy.

So what does Sarah wear?

The choice was a smart, dark blue suit – she looked frightfully important and every bit the hostess of the world’s 20 most important nations.

from MacroScope:

Brown gets helping hand from Obama

He loves the Queen and the British people. Truth be told, President Obama was always going to be a hit on his first overseas trip.

But Gordon Brown probably could not believe his luck. The prime minister just could not stop grinning as he stood next to the new president at a news conference in the Foreign Office ahead of the G20 summit.

He must have always been hoping for a bit of the Obama magic to rub off on him and revive his battered ratings but he can't have expected the ringing endorsement he got.

Tony Blair and George W Bush. Ronald Reagan and Margaret Thatcher. Britain has always liked to make much of the special relationship between it and America and any doubts it was in danger under Obama could be put to rest this week.

Obama looked on intently as Brown made his opening statement, referring to him by title.

But the formality dropped as soon as it was Obama's turn, as he thanked his hosts "Gordon and Sarah" and said he had been discussing dinosaurs with their two sons.

How necessary is the G20 summit?

From the cosy fireside chats and walks in the woods of 30 years ago, world summitry has expanded beyond all recognition, with this week’s G20 meeting in London being billed in some quarters as the biggest gathering of leaders since 1945.

But the problems now are of course much bigger too. Long gone are the days when a few soothing words about co-operation on currencies would be enough to declare a summit a success.

This one, Gordon Brown hopes, will produce a “grand bargain”  that will lay the foundations for a new global economic order, and in the process improve his own domestic political fortunes.

But the run-up to the summit has revealed fundamental differences in what the participants want to achieve — for a resume of what is actually likely to emerge click on our full coverage page.

What is your opinion on this week’s meeting? Is it just expensive diplomatic grandstanding or are the world’s economic problems now so severe that only a conference of such size is appropriate? And what would you like to see come of it?