Sean O’Grady: It may be time to thank the G20 for getting us out of this mess

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The Independent Online

Splits. Rows. Insults. We should expect no less from a G20 meeting. Expecting the finance ministers and central bankers of the world's most powerful economic powers to have a love-in in the middle of what remains the most severe financial crisis in three-quarters of a century is probably to ask a little too much.

When vital national interests are at stake, chauvinism is inevitable. The fact that they are anywhere near agreement at all is remarkable in the circumstances. Think back to the ping pong of low abuse traded between London and Berlin before the London Summit in the spring, with Gordon Brown accused of "crass Keynesianism" by the German finance minister. Not the most hurtful insult Mr Brown has faced, but rude all the same. Think too of Sarkozy's threat to walk out of the summit. We are through the worst of those sorts of storms, too.

Unfashionable as it is, now may actually be the time to thank the G20's leadership for getting us through the worst of this recession.

Think back a year or so. We were a year into the credit crunch, and the recession had already begun. The world was fearful. Banks had been nationalised. Inflation was still high. A perfect storm seemed to be on the way. Then came the single greatest financial policy error by the world's governments since they let the Austrian bank Credit Install go in 1931, triggering a chain of events that led inexorably to that baleful broadcast by Neville Chamberlain that we've been listening to all week. On 15 September 2008, the United States Federal Reserve made the strategic decision to allow Lehman Brothers to collapse. It melted the markets and business and confidence simultaneously. Charts of everything from Chinese retail sales to the Japanese stock market, UK mortgage approvals and Brazilian car production all showed the same "falling off a cliff". This was an unprecedented, synchronised recession internationally – globalisation had integrated the world economy so comprehensively.

The world's economy has barely recovered even now, but Japan, Germany and France are out of recession, and virtually every nation is going in the right direction. The reason is plain. We have spent our way out of a slump.

The International Monetary Fund yesterday revised down its prediction for the fall in global GDP in 2009 from 1.4 to 1.3 per cent, and upgraded its forecast for 2010 growth from 2.5 to 2.9 per cent. However, it forecast that most of the improvement would be in eurozone countries and Japan – and increased its forecast of the fall in UK GDP this year from 4.2 to 4.5 per cent.

The Lehman episode had the single benefit that it made the G20 get real. They finally resolved not to repeat the mistakes of the Great Depression. For all the rows about bankers' bonuses, and quibbles about the timing and scale of the measures, on the big issues the world's leaders agreed, and they got on with what they needed to do.

The leaders knew they had to slash interest rates, and they did. They knew they had to recapitalise their banks and relieve them of their toxic assets; they did that too. They spent and cut taxes and borrowed and printed money and did anything to avoid a slump. So far, it would appear that they have succeeded.

Trillions of dollars have been injected into the world economy. It seems to have worked. Even if they can't agree on what to do about a few greedy bankers, they saved the world, just as Mr Brown said they would.