Finance ministers from the world's leading economies will come under renewed pressure at their meeting in St Andrews this weekend to ensure that no nation will bring its fiscal and monetary stimulus to an end before "a durable recovery is secured", in the words of the G20 leaders' summit in Pittsburgh in September.
The Chancellor, Alistair Darling, will host the meeting, with ministers acting on agenda items set for them at the Pittsburgh summit – economic recovery and finding funds to tackle climate change. The weather in Scotland may prove a suitable backdrop for a gathering that is likely to be overshadowed by the clouds of doubt gathering around the sustainability of recovery around the world, and fresh worries that asset bubbles are emerging in stock markets.
Mr Brown, who has made much of British leadership in saving the banks and making a bold response to the crisis, is expected to attend part of the proceedings. One of the biggest dangers facing the relatively open British economy, still mired in recession according to the latest figures, is clearly that major trading partners such as Germany and France will soon feel ready to withdraw government support for their economies, reducing the chances of an export-led recovery for the UK, even after the savage depreciation in sterling seen over the past two years. Britain is alone among the G5 advanced economies in not yet emerging from recession. Australia is the first G20 power partly to reverse its easy money policy, with a second rise in interest rates announced this week.
"We are not yet back to trend growth levels," a Treasury source commented. "I expect we will have the same language as in Pittsburgh that the current support measures need to be kept in place until recovery is well secured."
Asked if the weakness of the dollar – especially after The Independent's story about its uncertain future as a reserve currency – and other currency matters would be discussed at this weekend's meeting in Scotland, he said that "the currency issue is always there", but added that it was not on the formal G20 agenda.
The whole group of 20 nations – representing more than 90 per cent of the world economy – is expected to jump together on significant policy changes, with the G20 collectively owning a new process, to be overseen by the IMF and developed next year, which will collate information on individual nations' policies, and judge them against the G20's objectives for the world economy as a whole. Thus the possibility of any one country pursuing a unilateral tightening of policy to the detriment of others (notably the UK) will be reduced.
But tensions will remain if this approach is taken. The freshly re-elected German government has made it clear that its immediate priority is to bring its fiscal deficit down, and a new constitutional amendment requires a radical reduction in structural borrowing by the middle of the next decade.
Ironically, it is the German government, once dismissive of the UK's "crass Keynesianism", that has implemented one of the largest discretionary fiscal stimulus packages in relation to the size of her economy; while the UK is set on a path of fiscal tightening beginning, modestly, next year.
The forthcoming pre-Budget report will shed more light on plans for fiscal sustainability.
The finance ministers are also expected to take forward plans to transfer huge amounts of private and public money to help developing economies to reduce pollution and emissions.Reuse content