Bruce Anderson: Stop lecturing us Mr Brown – you'll have time enough next year

Frau Merkel, for one, is in no mood to buy an ill-thought-out fiscal package

Share
Related Topics

It was always unlikely that this week's G20 meeting would achieve much. Sundry anarchists will take the opportunity to strut around London making a nuisance of themselves. Gordon Brown will take his opportunity to strut in front of the cameras, exaggerating both his own role and the Summit's achievements. But the Prime Minister will have to be careful. The other leaders are not coming to London merely for a bit part in a Brown party political broadcast. Most of them want a share in the limelight to further their own domestic political agendas; some of them nurse resentments.

Less than three years ago, Mr Brown was delivering condescending lectures to the Germans about the superiority of his way of doing things. Frau Merkel has not forgotten. She did not agree back then; she is even less in agreement now. She is in no mood to buy an ill-thought-out fiscal package from the man who patronised her. Like a lot of people, she might prefer an apology. As for fiscal stimuli, the German economy will receive one anyway, from the increased cost of unemployment benefits for the workers who have been laid off because American and British mismanagement of their banking systems has led to a downturn in global demand.

The German Chancellor has two further problems. First, she has an election in September, so this is hardly a propitious moment to alarm her voters with expensive recovery packages devised by the British and Americans. Second, German officials assume that because the IMF is low in funds, they will have to deal with the eastern European banking crisis which has still not reached its peak. Austria, Hungary, Romania, Ukraine; we do not yet know the scale of the banking systems' interlocking liabilities, but we do know that even if we are talking Ireland rather than Iceland, they are probably too large for the domestic economies to sustain.

So the German government will have to find a lot of money while coping with two different sensitivities. The German public can hardly be expected to surge with enthusiasm at the thought of vast new liabilities. It will need to be reassured that this is not just throwing good German Euro-bonds after bad lending; that Germany will regulate as well as rescue. Time for the Germans to start lecturing? One can imagine how well that would go down in eastern Europe. Gratitude for the assistance could quickly turn into grumbling about bank-anschluss and bank-krieg.

Yet there is one contribution which the G20 could make. Two weeks ago, the World Trade Organisation predicted that global trade will contract by nine per cent this year, the largest peacetime fall since the 1930s. We do not want to be breaking economic records from the Thirties. One way to ensure that this does not happen is to eschew any return to the protectionism of that era, which spread through the world economy like a virus.

If this week's communiques included some robust rebuttals of protectionism, this would help to protect the world economic order, especially if words were reinforced by actions.

If that were to happen, the G20 exercise would have been worthwhile, even if Mr Brown might not agree. Thanks to Chancellor Merkel, the Gilt markets and the Governor of the Bank of England, he will not meet his political targets. That is a good outcome, because he did not deserve to. They depended on intellectual dishonesty. Mr Brown would have liked to make two bogus claims. First, that he had the right policies, whereas the Tories had no answers except a tax cut for the very rich. Second, that the banking crisis was all the fault of Sir Fred Goodwin and his pension.

Mervyn King torpedoed the first one. Although the Governor did not explicitly agree with the Tories, he implicitly endorsed their argument that the current problem is monetary, not fiscal. There is no shortage of money, but it is not circulating because the banks are not lending. As the Tories' national loan guarantee scheme should correct that, it would be infinitely more useful than a fiscal package whose details were vague – probably because they had not been thought through – whose immediate effect might be minimal, and whose future costs would be horrifying.

At the last election, the Tories proposed a £1.7bn tax cut for pensioners. On television, Alistair Darling shook his grey locks and announced that this would leave a black hole in the national finances. In those days, it amounted to one day's public expenditure. Today, Mr Darling should have a better understanding of financial black holes. After all, he is presiding over one which threatens to swallow the entire country. But he and the PM would still like to pull another black hole stunt at the next election and insist that the Tories' plans for inheritance tax would cripple the national budget.

That is why David Cameron has refused to reject Labour's plans for a 45 pence top rate. He is not going to fall into a black hole trap. Messrs Brown and Darling would like to spend half the election campaign pitching into the Tories for a couple of billions in tax cuts, thus distracting attention from the vast budget deficits and the soaring national debt. Mr Cameron has upset some Tories. But it was a shrewd move.

Poor Fred Goodwin. When his bank bought ABN-Amro, it was widely assumed that he had demonstrated his Master of the Universe credentials. Certainly, he was taking an optimistic view both of his own powers and of world economic conditions. But the same was true of Gordon Brown, as the Germans well remember. Sir Fred has excuses, unlike Gordon Brown's friend and supporter, Sir Victor Blank.

By the time he agreed that Lloyds should buy HBOS, everyone knew about world economic conditions. Everyone knew that it would be madness to buy a bank without knowing what you were buying. If you agree to override caution just because the Prime Minister sweet-talks you at a cocktail party, you end up with an arsenic and cyanide cocktail. That is what Lloyds shareholders are now drinking, yet Sir Victor has held on to his job. Given the choice, a wise shareholder would prefer Sir Fred.

The Government cannot be accused of inciting mob violence against Fred Goodwin. It can be accused of shameless cynicism. At one stage, Sir Fred was Labour's favourite banker, which is why he received his knighthood. He took his fateful decisions in the same way that Gordon Brown borrowed huge sums of money in the wrong phase of the economic cycle. Both men forgot that what goes up will eventually come down. Sir Fred has now learned that lesson. It will soon be Mr Brown's turn.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Guru Careers: Talent Manager

£30-35k (P/T - Pro Rata) + Benefits: Guru Careers: We are seeking an experienc...

Recruitment Genius: Print / Warehouse Operative

£17000 per annum: Recruitment Genius: This is a fantastic opportunity to join ...

Recruitment Genius: Supply Chain Assistant

£16000 - £17000 per annum: Recruitment Genius: A fantastic opportunity has ari...

Anna Woodward: German Speaking Accountant

£45,000: Anna Woodward: My client is aleading global manufacturer and service ...

Day In a Page

Read Next
The dress can be seen in different colours  

White and gold or blue and black - why has this dress captured our collective imaginations?

Victoria Richards
 

Daily catch-up: the battle of the election videos, and a robot sarcasm detector

John Rentoul
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower