Adrian Hamilton: No, Mr Brown, the world isn't following your economic lead

Europe is putting far more into social assistance and employment support
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The Independent Online

It's a fiction that however brazen his behaviour, it is difficult not to warm to Lord Mandelson. Even when he is being perfectly straight he does it with a complicit smile that seems to say: "You know I'm pulling a fast one, don't you."

His claim this week that the new £2.5bn package for the car industry was "not a bailout" comes on the cheekier side of his sleights of hand. Even Kenneth Clarke, if he had faced him on Tuesday (which he couldn't as Mandelson is in the Lords), would have had to chuckle.

Of course it's a bailout. That's what it's meant to be. After three months in which the Government has poured tens of billions into the hated banks, it had to be seen to be doing something for our major manufacturers. That the package did not include more direct help for workers and car buyers – to the anger of the unions – was not because of some philosophical distaste for bailouts so much as the constraints on public borrowing.

Which is one of the deceits now being perpetrated on the public. Gordon Brown keeps talking of reflationary packages as if there were no problem of fiscal discipline. But there is and, on most counts (see yesterday's IFS report), we seem to be approaching that ceiling, for all Brown's hopes that a general international commitment to reflation in the G20 meeting this April will allow him room for a further splurge.

The other fiction being pressed upon the voter is that Brown has somehow uniquely come up with an answer to recession which the rest of the world is following. "I believe other countries will do similar things to what we're doing," as he repeated last week, "And that is the way out of this problem."

Well, in the beginning that might have been true when, in the aftermath of the fall of Lehman Brothers and the setbacks to the bank bailout in Washington, both the US and Europe followed Britain's example in recapitalising the banks rather than taking over their debt. But now we're back to committing public funds to guaranteeing or subsuming toxic debt again, as we have seen in the latest bank loans. Taking direct shares in banks was fine as far as it went (which wasn't far enough) but it didn't do the trick.

Once you turn to the measures to bolster up consumer demand and prop up employment, the differences between the UK and the rest of the world become far greater. Go round Europe, and look at the package being debated in Washington, and you see a quite pronounced difference. Where the British have concentrated largely on acting on the banks to get them to lend more, the US and China and France have paid far more attention to direct public investment in capital projects.

More, the Europeans and Chinese are also putting a great deal more of their resources into social assistance and employment support. The Chinese are using the occasion of their reflationary package to start a $124bn new health reform plan and to subsidise rebuilding and regeneration in the provinces to cope with the fall of jobs in the cities.

The Dutch are paying companies to introduce part-time working rather than full redundancy, something that Corus's Indian owners are apparently seeking in the UK. The Germans are (with some success it seems) paying for customers to trade in their existing cars for new models. This is more than a difference of emphasis, it represents a quite distinct difference in approach. The UK authorities remain wedded to the idea that the core of the problem lies in the seizing up of finance. Loosen up credit and the real economy will start to move. In that sense the latest car bailout is part and parcel of that policy, providing credit to the car companies rather than incentives for the consumer to start buying again.

Less dependent on financial services and less imprudently borrowed, the Continental countries on the other hand have seen the major problem as one of collapsing demand and have thus concentrated their firepower on trying to sustain the real economy, particularly manufacturing industry.

The Prime Minister would have us believe that we have the answer and it is only a matter of getting others to follow our lead. Would that it were so. The developed world at the moment presents a picture of widely divergent responses to this crisis. There desperately needs to be a common cause, if only to prevent an outbreak of protectionism and competitive devaluation. Brown is right on that, except that his certainty in his own righteousness threatens to become the greatest obstacle to that accord.

j.walsh@independent.co.uk

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