Entangled Alliances

When domestic politics is getting you down, the international stage can prove a welcome diversion.  Just ask Bill Clinton.  But here in Britain we’re talking plummeting poll numbers, not impeachment, and the diversion of international economic policy, not cruise missile strikes.  Yes, what a breath of fresh air the international stage has been for Gordon Brown.  Far away from a seemingly insurmountable deficit in the polls, and rumblings in the Labour ranks, Brown has been reveling in a reputation as a far-sighted guru of economic policy, feted by the likes of Paul Krugman and fulfilling a boyhood dream (I’m with you Gordo) of addressing a Joint Session of Congress.  Next month, however, these two worlds will collide in a bold all-or-nothing attempt by Brown to merge the two currents of his premiership; an attempt to rescue his domestic political prospects and cement his role as a world leader in one fell swoop.  In April, the G20 is coming to town, and for Gordon Brown the stakes could not be higher.

photo credit: World Economic Forum

The London Summit, which will be held on one fateful day, April 2nd, is a follow-up to a session held last November in Washington D.C. – a session in which rather little was decided, except vague assurances about cutting taxes and increasing government spending.  The Prime Minister’s zeal was already clear at this stage.  He declared that the summit  was “the road to the new Bretton Woods. It is absolutely clear that we are trying to build new institutions for the future.”  For him, London is where the deal will be sealed.   His agenda is extraordinarily ambitious.  As the Economist sardonically put the issue:

The summit should not only stimulate the economy and renounce protectionism, but also bolster the IMF and other international financial outfits, revamp regulation, create an early-warning system for crises, and save the poor. It was as if Mr Brown thought the ailing economy would yield to an act of governmental will, if only it were colossal enough.

The Economist, ever pragmatic, argues that such overreach risks undermining the immediate necessities of global government stimulus and a united front against protectionism.  This pessimism seems to be borne out by the unenthusiastic noises coming from G20 capitals and an emerging transatlantic gulf in attitudes.  Below the fold, I look at the opposition to Gordon Brown’s plan for new financial institutions, and the implications for his domestic political fortunes.

The United States: A Familiar Refrain?

Predictably, in the US opposition to Brown’s “New Bretton Woods” is founded on unease about sovereignty, and a national tendency to distrust international institutions.  These worries, perhaps masked by the unflinching politeness which American representatives show to visiting leaders, was detectable in the lack of ovation with which Brown’s references to new institutions met when he addressed Congress.  Republican Congressman Jeff Fortenberry tweeted, for example:

UK Prime Minister Gordon Brown addressed joint session of Congress. Proposed global New Deal.  Serious concerns about additional financial global interdependency.

But it’s not just the GOP.  Obama himself was pretty reticent to commit to the Brown plan during the “press avail” in the Oval Office earlier this month. Moreover, as the man to whom the whole world is looking for messianic leadership, he seems unlikely to leave the show to Brown.  For the Economic Times (of India):

Gordon Brown went off to Washington to make double sure that Mr Obama would actually show up, and get involved in the discussions. Well he has, and how. His administration has blown the Summit agenda apart even before the first photo-op, proving that US, down or not, is still pretty much the biggest elephant in the room. 

 Ironically, however, given the respective reputation of the US and Europe, the biggest gulf between the two is over stimulus.  Obama wants more money to go to the IMF, more government spending, and more stimulus packages (specifically, a fiscal stimulus worth 2% of GDP this year and next).  Blaming the problem more on hedge funds and tax havens that the banking system itself, it’s big-spending Europe that this time is reluctant to throw more money at the problem until it sees concrete results from first efforts.

Europe: Against Global Fiscal Stimulus

Last week, the Guardian reported that, perhaps disastrously for Brown, Merkel and Sarkozy had come out against his calls for global stimulus:

After talks at Chequers to prepare the way for next month’s G20 summit in London, Angela Merkel, the German chancellor, ruled out ordering another “fiscal stimulus” in the short term, and made it clear that if more action were to prove necessary in Germany it would be for Berlin to decide, not the G20.

photo credit: Chesi – Fotos CC

Her comments were echoed by the French finance minister, Christine Lagarde, who was attending a meeting of G20 finance ministers in Horsham, West Sussex. As ministers tried to agree a way forward, Lagarde said she was optimistic the meeting could make progress, but added that nations needed to “evaluate the remedies already put in place by each of us” before ordering huge extra spending on top of that already sanctioned.

This attitude seems at odds with the traditional British perception of a Franco-German alliance pushing for common EU policies  at the price of national sovereignty and should serve as a reminder that global stimulus is not the only option on the table.  It is also discrepancy which reflects the inevitable result of incommensurate political and economic integration.  As Paul Krugman argues in his NYT column today:

The economies of Europe’s many nations are almost as tightly linked as the economies of America’s many states — and most of Europe shares a common currency. But unlike America, Europe doesn’t have the kind of continentwide institutions needed to deal with a continentwide crisis.

This is a major reason for the lack of fiscal action: there’s no government in a position to take responsibility for the European economy as a whole. What Europe has, instead, are national governments, each of which is reluctant to run up large debts to finance a stimulus that will convey many if not most of its benefits to voters in other countries.

[...] Europe, in other words, is turning out to be structurally weak in a time of crisis.

Add to the gulf between the Brown-Obama axis and Franco-German feet-dragging the Asian insistence that if any new financial institutions are to be created, emerging economies should have more of a say in how they are run (and FCO indiscretion about “two-tiers”), and the prospect for consensus in April looks small.

Brown Feeling Blue

Having staked so much political capital on the London Summit, we are left asking what Gordon Brown’s fate will be if it fails.  Doubtless, the Tories will leap on the issue as another chance to demonstrate Brown’s failure to lead, but it seems unlikely that they have a convincing narrative against the merits of international financial action.  A lot depends on how the media cover the summit (and whether alarmist predictions of a “summer of rage” launched at the same time do indeed come true).  In truth, failure at the G20 would probably not directly affect Gordon Brown’s domestic popularity, which seems stuck at around the 30% level.  What it could do, though, is damage his claim to international leadership, and potential ambition to head up any newly-created financial institution.  Gordon Brown clearly enjoyed signing autographs for members of Congress on the House floor; whether he has the chance to do so again could well be decided by April 3rd.