Remember the old Chinese curse “may you live in interesting times”? It’s worth keeping in mind as we head towards April and the meeting of the 20 richest nations in the world: London’s G20 summit is going to be very interesting indeed. As Mark Bailey reported in his recent post “G20 Preview: Gordon and Goliath”, Gordon Brown and Barack Obama are both calling for a global fiscal stimulus. The likes of France and Germany, however, are rejecting talk of more stimulus, choosing to focus solely on bank regulation – specifically the regulation of hedge funds and tax havens.
Now I like a good campaign against hedge funds and tax havens as much as the next man, yet it must be said that Gordon is completely right to demand that global stimulus packages be pursued at the same time as international bank regulation. As far as Europe is concerned, a large influx of government public spending would work particularly well, as thanks to the free trade policies of the European Union any stimulus one country puts in place will immediately benefit their neighbours. This, however, is what concerns the likes of France and Germany: the fear that heavy national spending will simply leak out and end up as international spending.This particularly irks Germany who are already gritting their teeth at the prospect of having to bail out the troubled states of Eastern Europe (who, it turns out, are just rubbish at that capitalism malarkey).
But what the likes of Sarkozy and Merkel are forgetting is that with more and more Europeans losing their jobs, governments are facing lower tax revenues and higher welfare costs. The higher cost of paying benefits is particularly onerous on European governments, as unlike America the welfare systems of Europe are commendably generous (Britain excepted). Large stimulus packages, therefore, are essential to get people back to work and kick start Europe’s economy.
However, though Gordon Brown’s logic is sound his pan-European ambitions are leaving a bitter taste in the mouth – well, in my mouth anyway – because, despite his calls for a global stimulus, Britain has hardly had one worth the name. Indeed, so far the only “stimulus” we’ve had is last November’s £20 billion scheme, the majority of which went on a much derided cut in VAT. Let’s compare this with other countries, shall we?
