As Gordon Brown’s limousine drew up at the entrance of the Sheraton hotel in
Vina del Mar, he must have felt he had finally found a haven from the
diplomatic storms that buffeted him all last week. His world tour had been
marred by awkward gaffes, policy climbdowns and backbiting in Westminster -
but as he arrived in the Chilean beach resort on Friday afternoon the sun
was shining and he was among friends.
He was attending a gathering of centre-left political leaders and
intellectuals for a conference on the future of progressive politics. For 24
hours Brown could put the messy disagreements over this week’s London Group
of 20 (G20) summit to the back of his mind, and instead ruminate on
political philosophy.
Peter Mandelson, the business secretary who is increasingly regarded as
Brown’s “human comfort blanket”, had flown to the event and provided
reassurance to the frazzled, jet-lagged prime minister. James Purnell, the
work and pensions secretary, presented a highly theoretical speech on the
future of capitalism, of which his master would have no doubt approved.
However, even on the shores of the Pacific, reality occasionally intruded.
Yesterday brought news that the German magazine Der Spiegel had obtained a
draft of the G20 summit communiqué, which revealed the tortured language
that is set to be used to mask the disagreements among world leaders over
tax cuts. A further irritation was the insistence of Argentina that it
should enter negotiations with Britain over the sovereignty of the
Falklands.
For at least the past three months, however, Brown has been focused on little
else apart from the G20 meeting in London’s Docklands on Thursday. Some
aides have despaired of his obsession with a meeting that can never meet the
prime minister’s high expectations. “There are no votes in the G20,” said
one.
Brown had spoken of creating a “global new deal” where the world’s largest
economies might agree to a coordinated fiscal stimulus - tax cuts or
increased spending - to save the world economy.
However, insurrection at home and interventions from abroad have forced Brown
over the past week to scale back his hopes. Angela Merkel, the German
chancellor who has become the bluntest of Brown’s critics, pointed the way
towards a summit fudge: “I will not let anyone tell me that we must spend
more money,” she said.
The prime minister responded in combative voice. “I haven’t been going round
the world talking to leaders in every country simply to say we are having a
communiqué,” he said. “I am going back to say ‘here are the things we are
going to do’.”
Will Brown, who inadvertently put himself in the role of “saviour of the
world”, have anything concrete to show for his efforts by the end of this
week? BROWN’S determination to lead from the front took him to places from
which he had previously run away. As chancellor, he used to take off his
headphones while other finance ministers were speaking at European Union
meetings, a gesture they took as one of contempt. He also habitually left
Brussels summits early.
Last Tuesday, however, the prime minister went to the EU parliament building
in Strasbourg to proclaim himself a good European, not “in Europe’s
slipstream but firmly in its mainstream” - an incredible statement from a
man known for his scepticism about the European project. It showed quite how
desperate he was to garner support.
Laying out his ambitions for the London summit he promised world leaders would
do “whatever it takes” to lift the planet out of recession and proudly
stated that we were witnessing “the biggest fiscal stimulus the world has
ever agreed”.
The reception Brown received was a world away from the standing ovations he
had enjoyed two weeks earlier at the US Congress. He was forced to listen to
an excoriating response from Dan Hannon, a Euro-sceptic Conservative MEP,
who lambasted the prime minister as a “Brezhnev-era apparatchik” who was
“pathologically incapable” of taking responsibility for his role in the
financial crisis.
As Brown left the Strasbourg parliament, however, word began to reach the
Downing Street party of worse trouble back home. Mervyn King, the Bank of
England governor, appearing before the House of Commons Treasury select
committee had in effect destroyed the prime minister’s hopes of turning the
April 22 budget into Britain’s second fiscal stimulus.
Bank governors are supposed to stick to interest rates and the money supply.
Matters of tax and spending are traditionally seen as the province of
elected politicians, but King was not in a mood to respect these
distinctions. “I think the fiscal position in the UK is not one where we
could say, ‘Well, why don’t we just engage in another significant round of
fiscal expansion?’,” he said.
Brown is not a lucky general. King had not planned to dominate the following
day’s front pages or scupper the prime minister’s foreign tour. Instead the
governor’s remarks were probably aimed at the man sitting next to him, his
colleague on the Bank of England’s monetary policy committee, David “Danny”
Blanchflower.
The previous day Blanchflower had called for a big fiscal stimulus to stop
unemployment, currently just above 2m, doubling to 4m. A package of £90
billion, more than four times Alistair Darling’s giveaway last November,
would be a good start, he suggested. King could not resist the opportunity
to rebuke his colleague.
Unfortunately for the prime minister, the subtle politics of the monetary
policy committee were lost on most of the MPs and journalists in the room.
For them, this was a straightforward warning to Brown: if he wanted to press
ahead with another giveaway budget, he would be doing so without the support
of the Bank.
As the Brown entourage crossed the Atlantic to New York for the next leg of
his G20 sales tour, there were frantic discussions over how this
embarrassing situation could be finessed. On Wednesday, appearing at an
event hosted by The Wall Street Journal, Brown attempted to split the
difference, saying that fiscal policy was, actually, only one of the methods
that were being used to stimulate the economy.
“We’re doing it by interest rates being incredibly low, we’re doing it by our
fiscal stimulus and we’re doing it by what is probably not yet understood by
the public as one of the most effective and quicker ways of getting activity
moving in the economy - by quantitative easing,” he said.
Still, the critics were not silenced. The Czech prime minister, Mirek
Topolanek, who holds the rotating presidency of the EU, took time out from
his own political problems at home to stick the knife into the Anglo-Saxon
spending plan. He did not mince his words, calling it a “road to hell”.
Adding to the impression of Brown’s stewardship of the economy rapidly
unravelling, the Debt Management Office, which is responsible for selling
government bonds to the markets, announced that an auction of £1.75 billion
worth of bonds had “failed”, for the first time since 1995.
Officials played down the failure, saying it reflected a number of one-off
factors, but it added to the nerves in the City and in government. How could
Brown lead the world’s rescue efforts when investors did not feel confident
enough to buy up the government’s debt?
Brown would have expected a better reception at the next stop on his tour,
Brasilia, Brazil’s modernist capital city. The country’s charismatic
president, Luiz Inacio “Lula” da Silva, who was born in afavela shantytown,
combines the old-fashioned socialist talk with which Brown grew up and a
surprising openness to business.
But the prime minister, having awkwardly endured one of Lula’s trademark bear
hugs, watched slack-jawed as the Brazilian launched into attack on caucasian
bankers whom he blamed for the global financial meltdown.
“This crisis was not caused by a black man or woman or by any indigenous
person or by any poor person,” ranted Lula, who enjoys 80%-plus popularity
ratings among his people. “This crisis was fostered and boosted by the
irrational behaviour of some people that were white and blue eyed.”
The No 10 “sherpas”, charged with navigating a successful route to the summit,
looked on bemused.
On Thursday, it was Dmitry Medvedev who received the charm offensive. With the
Russian economy in worse trouble than most, the president was not in much of
a position to demure from Brown’s plans and the Kremlin put out a statement
noting the “harmony” in the British and Russian positions.
The respite was brief. Arriving in Santia-go, the capital of Chile, there was
further embarrassment. The Chilean president, Michelle Bachelet, boasted
that Chile was in good economic shape “because of our decision during the
good times to save some of the money for the bad times”. Her optimism served
as a reminder of how limited was Brown’s room for manoeuvre because of the
large budget deficits that Labour allowed to be built up during the boom
years.
George Osborne, the shadow chancellor, could not disguise his glee. Speaking
to a party conference in Wales yesterday he said: “So there we have it. A
British prime minister, stuck in the middle of a recession, on the other
side of the world, having to listen to lectures in sound public finance from
the Latin Americans. You couldn’t make it up.” IT will perhaps be some
consolation to Brown that he is not the only leader approaching the summit
with problems. This week’s visit to London by Barack Obama was supposed to
be the first leg of a European tour to rival the procession by President
John F Kennedy and his wife Jackie through Paris and London in 1961.
The heady “Obama-mania” that swept Europe on his election has not altogether
dissipated and the first couple will be putting on the glitz when they meet
the Queen at Buckingham Palace on Wednesday in a private meeting before a
reception for the other heads of state. The president’s gift to the Queen is
expected to be a good deal more thoughtful than the box set of classic
American DVDs and plastic Marine One toy helicopters presented to Brown when
the two men met earlier this month.
However, the triple summits - the G20, followed by the Nato meeting in
Strasbourg and the EU summit in Prague – are taking place in an atmosphere
of gloom. “It’s not going to be a triumphal visit, that is for sure,” said
Leslie Gelb, the former chairman of the Council on Foreign Relations in New
York, who is close to senior members of the Obama administration.
The sobering realisation that Obama’s spending package could raise America’s
national debt to the almost unimaginable sum of $9.3 trillion (£6.5
trillion) over the next decade is rapidly eroding support for the president
among the moderate Republicans and independents who voted for him only a few
months ago. Wall Street has coined its own phrase - the “Obama bear market”
- to describe the plummeting stock market since he took office in late
January. If the economic meltdown was once Bush’s crisis, it is Obama’s now.
The good news for Brown is that this means Obama has an investment in the
success of the London summit. Yesterday Obama’s press secretary, Robert
Gibbs, said the president had two main objectives for the summit: “Ensuring
there is concerted action around the globe to jump start economic growth,
and that we are advancing a regulatory reform agenda to ensure this crisis
never happens again.”
Care is being taken to humour Brown. Lessons have been learnt in Washington
about the chippiness of the British, even though aides to Obama still
profess bewilderment about the alleged “snub” to Brown over the presents.
They have also had second thoughts about the wisdom of down-grading the
special relationship into a “special partnership” with Britain.
“They found out it was a stupid signal,” said Gelb. “Gordon Brown is our
closest ally at the G20. He is far closer to what Obama wants than anybody
else, so they ought to take care to appreciate him.”
Yet at a meeting with Brown in New York last week, Paul Volcker, a senior
Obama economic adviser and former chairman of the Federal Reserve,
downplayed expectations for this week.
Damning Brown with faint praise, he said: “It was the prime minister who
provided the early leadership necessary for breaking through this crisis.”
However, he warned, turning it into an opportunity for “an effective,
collective rebuilding of a financial system is an enormous challenge and
it’s not entirely clear to me how it’s going to happen”.
Obama’s advisers are “very frustrated” by the refusal of most of Europe to
give their economies a large, US-style fiscal boost, according to Gelb. “We
haven’t got any money left either,” he said. “We’re just printing it.” The
view from Washington is that the fickle world is counting on America’s
stimulus package to lead it out of recession, but someone, ultimately, is
going to have to pick up the bill - and that person is likely to be the US
taxpayer.
“Obama is going to try to sell what he is doing but people will be saying the
US financial system got us into this mess in the first place,” said Desmond
Lachman, an economist with the American Enterprise Institute in Washington.
It is a problem for the Americans - and by extension, Brown - that the Germans
and French in particular do not appear biddable on the subject of increased
spending. The calls by Timothy Geithner, Obama’s Treasury secretary, this
month for countries to commit to a spending boost of about 2% of their gross
domestic product, have been robustly ignored.
Pedro Solbes, Spain’s finance minister, added to the antistimulus clamour,
saying that he “and the rest of my colleagues from the eurozone believe that
there is no room for new fiscal stimulus plans”.
The French president, Nicolas Sarkozy, is putting the priority this week on
reform of financial institutions.
He told a rally of party supporters last week: “[France] will fight for the
moralisa-tion of financial capitalism and for the refoundation of a better
regulated capitalism. Let’s not wait. Let’s put an end to the excess-es and
abuses.”
A French diplomat added that the Elysée was unimpressed with Brown’s handling
of the summit. “Unfortunately,” he said, “Brown seems to think he is still
finance minister. He needs a bigger vision.”
So what can we expect to be announced, especially given that the leaders will
devote just 4½ hours to finalising negotiations at the ExCel centre in
London on Thursday?
Brown has been belatedly forced to scale back his ambitions. Instead of a
commitment by leaders for a new fiscal stimulus - the communiqué leaked to
Der Spiegel showed the $2 trillion stimulus figure in brackets, meaning it
had not been approved – there will be a vague promise to do “whatever it
takes” to lift the world out of recession.
The draft quoted by the German magazine includes generalised quotes to which
it would be difficult for anybody to object. “We are determined to restore
growth, resist protectionism and to reform our markets and institutions for
the future,” it said. “We believe that an open world economy, based on the
principles of the market, effective regulation and strong global
institutions, can ensure sustainable globalisation with rising wellbeing for
all.”
This will be backed up by a deal to make the International Monetary Fund a
“global referee” that will decide when further fiscal stimulus is necessary.
It will be open to any country, however, to take or reject the IMF’s advice.
A new meeting of the G20, in Asia or Australia, will be scheduled for the
autumn.
Asked about Merkel’s comment about not spending more money, Michael Fro-man, a
White House official, said: “Nobody is asking any country to come to London
and commit to do more right now.”
There will be money, perhaps $100 billion, for trade finance, to try to
reverse an alarming slide in global exports, with the World Trade
Organisation predicting a 9% slide in trade this year. The resources of the
IMF will be doubled from $250 billion to $500 billion, so it can help out
more countries damaged by the global crisis. Extra money will be found for
the poorest countries, hit hardest by the recession.
Other measures, mainly those agreed at the meeting of G20 finance ministers
and central bankers in Sussex this month, will include pledging to rein back
protectionism, if not actually delivering on it; restoring bank lending
through “a framework for financial repair and recovery”, cooperating to
regulate cross-border banks; and using both the conventional instrument of
low interest rates and “unconventional” policies such as quantitative easing
to boost growth.
What it will not be, say critics, is anything like the “global new deal” to
wave a magic wand over a recession-hit world economy promised by Brown just
weeks ago. DeAnne Julius, chairman of Chatham House think tank and a former
member of the Bank’s monetary policy committee, said measures to shore up
the banks and boost the IMF’s funding would help but that reversing the
global economy’s decline would take time. In the worst case, it could be
five years before a true recovery, she warned.
Nouriel Roubini, the maverick economist credited with predicting the crisis,
warned that banks were still likely to go “belly up”, with the efforts of
governments - including Obama’s $1 trillion rescue package - likely to prove
inadequate.
The November summit in Washington provided an object lesson of how fine words
do not necessarily translate into action. Then the G20’s leaders solemnly
intoned that they would fight against protectionism. Analysis by the World
Bank suggests that 17 of the 20 countries have since introduced a grand
total of 46 protectionist measures between them.
Mindful that substantial breakthroughs will be thin on the ground, some of
Brown’s strategists are instead focusing on the protocol and summit imagery.
“The problem we face is that the official group photo will contain upwards of
30 mainly unrecognisable people,” said one official. “It will not resonate
with ordinary people or sum up what this meeting is all about. So we are
making sure that we set up the right close-up shots.”
It is understood that at the main summit meeting, the prime minister will be
placed between Obama and China’s president, Hu Jintao. No 10 hopes the
resultant pictures of the “big three” will symbolise the idea of Brown -
having assumed the role of Europe’s leader - bringing together the two other
pillars of the new world order, the United States and China.
Brown is a keen student of the second world war and friends believe he is
eager for this week’s London meeting to be compared favourably to the 1945
Yalta summit of Churchill, Stalin and Roosevelt which determined the postwar
order.
“Gordon is as keenly aware as any politician of the idea of legacy,” said a
long-time Labour ally.
An immediate idea of the legacy will come later this week. “We can’t again
engage in meaningless, empty commitments that don’t last the flight home,”
said Lord Malloch-Brown, the Foreign Office minister. He noted that the
financial markets would expect concrete proposals or on Friday they would be
“something of a disaster zone”.
Brown will have no escape from this summary verdict on his success or failure.
The main events
WEDNESDAY, APRIL 1
8am
Gordon Brown and Barack Obama and their respective wives have breakfast at No
10, followed by meeting
11am
G20 Meltdown protest: ‘Four Horsemen of the Apocalypse’ lead parades which
will converge on the Bank of England
12.30pm
Climate Camp protest: key flashpoint for anarchists in City
2pm
Stop the War Coalition and CND protest: rally at the US embassy in Grosvenor
Square, Mayfair
6pm
Drinks reception for G20 leaders with the Queen in Buckingham Palace state
rooms. Obama to meet Queen privately beforehand
8pm
Dinner for leaders at No 10 prepared by Jamie Oliver, the celebrity chef.
Spouses of leaders will dine separately, hosted by Sarah Brown
THURSDAY, APRIL 2
7am
Protest march on ExCel Centre, east London
8.30am
G20 leaders and fi nance ministers breakfast at ExCel Centre, followed by
summit sessions all day. Afternoon plenary session is followed by
announcement of communique at about 4pm
The big issues
TAX AND SPENDING
How much “fiscal stimulus” can a person take before they either collapse or
rebel? Some European leaders, such as President Nicolas Sarkozy of France,
right, counsel caution. Gordon Brown was keen for more - until the governor
of the Bank of England last week warned that Britain’s fi nances are already
way too stretched. Either way, the global taxpayer is facing bigger, fatter
bills in the future.
Who wants a bigger boost?
Barack Obama, US president; Gordon Brown
Who wants tighter purse strings?
Angela Merkel, Germany’s chancellor; Sarkozy; and Mirek Topolanek, Czech
holder of European Union presidency who called Obama’s latest stimulus plan
‘the road to hell’
MORE MONEY FROM THE IMF
The International Monetary Fund is where countries go when they run out of
cash - and it may soon have lots of customers. Last week George Soros, the
financier, suggested that even the UK might need IMF help. So the G20 is set
to approve an increase in the IMF’s resources from $250 billion to about
$500 billion. Who is going to put up the extra money? Japan has offered $100
billion; the EU a further $100 billion and China has said it could be
persuaded to stump up, if asked nicely.
Who’s pushing for the biggest IMF boost?
Barack Obama, Taro Aso, prime minister of Japan
Who says go slowly?
Hu Jintao, president of China unless he gets a bigger say in how the IMF is
run
WHAT TO DO ABOUT THE BANKERS
Like it or not, the banking system has to be rescued if the economy is to
recover. After the bailout, however, comes the question of how to keep those
pesky bankers under control in future. The French are, perhaps
unsurprisingly, very keen to keep a close eye on them. Others say too much
regulation will stifl e fi nance – and hurt the chances of getting out of this
mess in quick time
Who says everything is being done?
Obama, Brown
Who says the Anglo-Saxon banking system still needs a high-pressure hosing
down?
Merkel, Sarkozy, Kevin Rudd, Australia’s prime minister
FREE TRADE
When times get tough each country’s instinct is to look after itself. Yet in
the 1930s ‘beggar my neighbour’ trade restrictions just made the Great
Depression worse. The good news is that G20 leaders learnt this lesson and
in November declared they would fight protectionism. The bad news is that 17
of the 20 still introduced protectionist measures anyway
Who’s the biggest protectionist?
Sarkozy, by a mile
Who’s the biggest free trader?
Luis Inacio Lula da Silva, president of Brazil
BEST G20 LEADER FOR ...
... A PARTY
Kevin Rudd
Despite his austere image, the Aussie PM can let his hair down with the best
of his countrymen. He was embarrassed when it emerged he ended up in a strip
club after a New York drinking spree
... A FEISTY PRESS CONFERENCE
Cristina Fernandez de Kirchner
The Argentinian president has stirred things up over the Falklands. Once told
a press pack: ‘Are you going to behave?’ before storming off
... LEAVING WELL ALONE
Stephen Harper
The Canadian PM is aloof, often more at home with spreadsheet than the public.
He’s already in a sulk, over his nation’s relegation to ‘tier 2 G20 nation’
by Britain
1933: a warning from history
The parallels are too close for comfort. In June 1933 Ramsay MacDonald, a
Scottish Labour prime minister, hosted the London Monetary and Economic
Conference. Representatives of 66 countries met at the Geological Museum -
now part of the Natural History Museum in South Kensington - to bring, so
they hoped, a hasty end to the Depression.The omens were not good. Only
eight of the 66 countries were represented by their national leaders. The
new US president, Franklin D Roosevelt, who had taken offi ce only in March
that year, chose to stay away and focus on ‘the emergency at home’. Behind
FDR’s reluctance to attend the conference lay fundamental differences. While
he was keen to boost the American economy with his New Deal, much of Europe
wanted resurrection of the gold standard to be the basis of a recovery plan.
FDR disagreed violently, criticising the ‘singular lack of proportion’ of
those focusing on the currency issue. When his views were made known to the
conference, it broke up. International cooperation then collapsed and
prolonged the period of economic pain, hastening the rise of fascism in
Europe.
