Andrew Grice: UK envoy issues formal protest

The question Cameron fears: ‘What did you do in the economic war?’
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The Independent Online

Their personal relations are so frosty that they wouldn't care to admit it but Gordon Brown and David Cameron have something in common: their very different strategies on the economy are a gamble. The stakes could not be higher: they both can't be right and whoever gets it wrong will probably lose the next general election.

Mr Brown is getting some credit from an anxious public for "doing something" to limit the impact of the recession. Only governments can, he believes. Yet cabinet ministers admit privately that they do not know whether the Government's £20bn fiscal stimulus will work. They are in a "Try everything" phase; in six months' time, we will be in a more dangerous "Has it worked?" phase. Alistair Darling's forecast that the economy will be growing again by next summer is at the optimistic end of the spectrum. If it doesn't, the public's confidence in Mr Brown will surely be undermined.

Mr Cameron opposes the fiscal stimulus – risking the question: "What did you do in the economic war?" – and the answer provided repeatedly by Mr Brown: "Nothing".

The Tory leader nailed his colours to an important mast on Tuesday. He promised to spend less than Labour from 2010, even though the Government has committed itself to cutting its spending plans by about £37bn over three years. This is not a piece of political posturing; the Tories genuinely believe that the "Brown borrowing binge" is wrong. "Like giving a horribly obese man a glucose injection," said one Tory frontbencher.

Although the two leaders must express public confidence that they have called it right, the limitations of both strategies were evident this week. Mr Brown's status as a world leader in the economic crisis was questioned in a spectacular attack by Peer Steinbrück, Germany's Finance Minister, a Social Democrat who ridiculed the Prime Minister's conversion as "crass Keynesianism" after years of lecturing the rest of Europe about the British economic miracle.

The Tories were cock-a-hoop, and fuelled the story by issuing a similar statement by Steffen Kampeter, a German Christian Democrat MP, who assumed a rather elevated status in British newspapers yesterday even though he is not a minister but a spokesman in Angela Merkel's left-right coalition. All's fair in love and war, and this is war.

The unexpected German flak bruised Mr Brown at the EU leaders' summit in Brussels which ended yesterday. But he believes the Tories may have set themselves up for a fall. His talks with Ms Merkel suggest the German Chancellor, who doesn't understand Mr Cameron's Euroscepticism, is also on Mr Brown's side of the fiscal stimulus argument. She wants to add to Germany's small-scale stimulus but wants cover from the massive one planned by Barack Obama, which may make Britain's "binge" look like a drop in the bucket.

"If the test becomes whether Germany backs a bigger fiscal package, we are perfectly happy about that," a Brown aide told me in Brussels yesterday. Despite this week's fun and games, the Tories may look isolated again when President-elect Obama finally takes centre stage next month.

Thanks to the Germans – well, some of them – the Tories had a good week. But all is not what it seems in either party. In Toryland, a big rethink is going on behind the scenes. Mr Brown's "Do nothing" label is weighing heavily round Tory necks. The Opposition has not achieved "cut through" for its anti-recession initiatives. In other words, the public hasn't noticed them – even a £50bn loan guarantee scheme for business announced last week.

So in the new year we will see a major Tory offensive, setting out a longer-term vision for key sectors of the economy as well as more immediate anti-recession measures. It won't be easy. For a start, the Tories will have to make their sums add up. It will be difficult to persuade the public their measures for now and later are "real" at the same time as they say Britain can't afford the Brown borrowing spree and will try to avoid his planned tax rises by cutting public spending if they win the election.

Beneath the surface, an internal Tory debate has begun about whether Mr Cameron should either promise to scrap Labour's tax rises or admit the public finances are in such a mess that they would probably have to rise if he becomes prime minister. For now, he steers a middle course, saying he would try to halt the increases but cannot promise he will succeed.

Mr Brown believes the Tories confuse short-term tactics with long-term strategy – the German attacks being a case in point, since EU leaders, including Ms Merkel, signed up to a £175bn stimulus yesterday. Mr Cameron thinks Mr Brown makes the same mistake, taking a short-term gamble regardless of the severe long-term consequences for the economy. We will know soon enough which of them is right.