Brown warns G7 against protectionism

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The Independent Online
THE CHANCELLOR Gordon Brown has sounded a warning about the threat of a return to protectionism after this weekend's meeting of the Group of Seven finance ministers revealed deep differences between the leading industrialised nations on how to revive the world's flagging economy.

The United States and Britain rejected German calls for a global managed currency system, insisting that Europe needs to get its own house in order to ensure that the burden of absorbing the impact of the Asian crisis is more evenly shared.

Robert Rubin, US Treasury Secretary, said: "It seems that Europe needs to play a much larger role through fast growth and more open markets."

Finance ministers agreed that since they met last year financial market conditions "have worsened" and that the impact of financial crises is now felt "beyond the regions where the crises occurred".

The Chancellor said the growth outlook has fallen from 4 per cent two years ago to 2 per cent this year. "People are looking to Europe and Asia as well as the US to be the engine of growth."

He warned: "We are all agreed that there should be no return to protectionism. We are all aware that this is a testing year."

Mr Brown said that he wanted the new round of World Trade Organisation trade liberalisation talks to begin earlier than planned, saying this would be a good signal of the commitment of the major industrialised nations to free trade.

The G7 endorsed proposals from the Bundesbank president Hans Tietmeyer for a new Financial Stability Forum to act as an early warning system against destabilising financial crises.

The 35-strong committee, to be headed by the managing director of the Bank for International Settlement, Andrew Crockett, and composed of officials from the G7 countries, central banks and the main regulatory bodies, will start its work in April.

The forum would initially be limited to G7 members but may be widened later to include other countries.

Dr Tietmeyer said after the meeting that the forum was "not an absolute guarantee that there will be no crisis in the future.

"The [global financial] architecture improvement cannot be done by building one new building. We have to improve existing buildings."

The ministers also agreed to try and seek an agreement at this summer's G7 summit in Cologne on aid for highly indebted poor countries.

The Chancellor, who on Saturday tabled fresh proposals to speed up debt write-offs, welcomed the move. "It is the strongest statement we have on debt at a G7 summit," he said.

However, the unity on these specific issues was eclipsed by deeper divisions on the broader issues affecting world growth.

Alan Greenspan, the chairman of the Federal Reserve, the US central bank, dismissed the German idea of currency bans as unworkable insisting that the way to avoid currency crises was to pursue "sound policies".

While the US and UK got top marks for efforts to keep their economies on even keel, the Europeans were told they needed "an appropriate mix of macro economic policies and structural measures aimed at promoting strong and sustainable domestic-led growth and fostering employment".

A US official said afterwards, "in other words the current mix is not appropriate".

A jovial Oskar Lafontaine, the German finance minister who chaired Saturday's meeting, shrugged off the failure of his currency plan.