Newcomers tuning in to the G8 meeting may have been surprised by recent events. On balance it looks like an event where things get done, everything about it oozes action and dynamism. Firstly, just who they are ought to be enough: USA, UK, Russia, France, Germany, Canada, Japan and errr Italy ( it is rich at least). Secondly, there are as the name would suggest, only 8 of them. 8 is quite small, not like the UN, a system perfectly matched to ensure gridlock if any real global policy ever had to take place. Just 8, market based democracies this ought to be packing with leadership and vision.

Unfortunately, reality is different and while the world is cooking, the G8 kindly offered some token money to help agriculture in developing countries and to promise to keep global temperatures down to a mere 2C rise, no policy, no action or room for vision rather a an extended press conference, suitably vague to offend nobody and of course hopelessly lacking in leadership.

With Climate Change’s effects flexing their muscles, declining ice in the Arctic, water crises from Northern India, to Australia and the US west, rising sea levels and things only set to get worse, it was disheartening to say the least that the top 8 richest countries in the world apparently struggle to lay out any plan that might make them have to take Climate Change seriously. Why was this so?

Apart from the G8’s careful ability to rarely achieve much, this G8 with a focus on Climate change had several factors that damaged it from the start:

1. The US the only chance of any global leadership, has yet to pass a Climate bill at a federal level, and has recently been delayed, in reality removing much of the the US’s strength in International negotiations.
2. Russia, amusing ( black comedy style) Russia has announced that by allowing emissions to increase up to 2020 at predicted level it will still achieve its kyoto targets  due to so much soviet heavy industry closing down.
3. Japan, promised to reduce emissions by 15% on 2004 baselines, essentially then reducing 4% emissions since 1990.
4. Canada, ranked bottom of the G8 group by the WWF-Allianz group, this affluent state is unfortunately ruled by a Stephen Harper’s minority coalition government whose biggest contribution to Climate change discussions has been to a) admit Climate Change exists and b) be reassured that soundsbites are becoming more robust ( but god forbid they translate into policy).

Amusingly, that leaves the European contingent as leaders, now on the one hand, as a cautious EU supporter I’m proud we’re leading the field, on the other hand UK, Germany, France and Italy reads like who’s who of 19th/20th century has beens and are woefully incapable of providing the true leadership we need.

What are the positives then?

Firstly is that we are in a recession and that may make policy makes especially cautious to be seen to be making any moves on Climate Change that could hamper economic recovery, or even sound like it might, if the US in particular begins to pull out in the next 4 months it may even be able to sneak a bill through congress. If it does this, this could easily provide the catalyst for for key developing countries such as China and India to begin managing targets.

Secondly, Canada could get a new government, actually quite likely and while Mr Ignatieff is still a fan of Alberta’s tar sands, he is a world apart from Mr Harper when it comes to actually tackling Climate Change.

Finally, the debate will continue to roll on, Climate Change will not be going away, slowly but surely people are coming to terms with the need for policy action and I see domestic movement having a positive reciprocal relationship with International policy, if something however disappointing but vaguely substantial can be agreed at Copenhagen, this will strengthen the case for domestic politicians to go back home and bolster their own efforts which should be able to feed back into International negotiations. We won’t get this right with one swing but slowly our pleasantly inadequate politicians might manage to avoid total catastrophe.

photo credit: HM Treasury

Last Wednesday, amidst the worst economic crisis since the Great Depression, the British Chancellor of the Exchequer Alistair Darling stood up in the House of Commons and announced the the UK’s budget for 2009. If  the reactions of his fellow MPs are to be believed, it was a bit like watching a horror film; albeit one where the crazed axe murderer has been replaced with a boring Scotsman reading out numbers. The ranks of Labour sat in stunned silence, while the Conservatives reacted with a series of  theatrical shocked gasps that accompanied the announcement of each new gruesome piece of economic news.  Meanwhile the media, who had known most of what was in the budget days in advance, had a lot of fun being shocked all over again by the poor state of the government’s finances and the woeful growth predictions for the UK.

Thanks to the current economic maelstrom, this budget was arguably like no other in living memory. It was certainly like no other in recent living memory. The usual budget questions – “how much do I have to pay for my cigs and beer now?” and “why did my national insurance just go up?” – are out and a new set of much more, uh, exciting questions are in:  “Is Britain going to default on its debt” “now their taxes have gone up, will those rich city bastards find some new ways to avoid paying them?” and “is that the average winter temperature in Iceland, or Britain’s growth estimate for this year?”

But what exactly was in the budget, what does it mean for Britain and can we make an incredibly complicated topic really simple in order to give the Chancellor a pointless high-school style grade? Find out over the fold!

Can you repeat those figures please?

photo credit: ktpupp

The buzzword for this budget amongst the news pundits was “historic”. This was not meant in a good way, e.g. “as we turn to Nelson Mandela, there is no doubt that this is a historic day for South Africa” but in a very bad way, as in “now that the fraud of Bernie Madoff has come to light, it’s obvious that this is a historic day for really stupid investment schemes”.  The first “historic” news came with the Chancellor’s announcement that he predicts the economy will shrink this year by 3.5%. This would be the worst performance since World War 2. Though it was brave of Darling to stick to such a grim prediction, his figures were still more optimistic than those of the International Monetary Fund – who predict the economy will shrink by 4.1% this year -  and even as I write this it’s just been announced that the figures for first quarter growth are a doom-laden 1.9%, which means that it’s probably going to be an even worse year than the Chancellor predicted. Nevertheless, it was brave of Darling to stick to such a grim outlook, though any praise is probably balanced out by his predictions  for the country’s growth in future years, which have been dismissed by, well, everyone as utter fantasy. According to the Chancellor, Britain’s economy will start to recover by the end of this year and actually grow in 2010 by 1.25% – a rather noticeable contrast to the IMF’s predictions, which see the economy shrinking again by 0.4%.  He also predicted that the economy will, after presumably taking some illegal steroids, grow at the rate of 3.5% from 2011 onwards.

3.5%! Why so optimistic, Chancellor? The generous amongst us might argue that he genuinely thinks that the economy will experience  a sort of “trampoline effect”, i.e. respond to a seriously bad patch by leaping back up to reasonable growth. The cynical, and more likely, reason for such a hopeful figure is that by saying the economy’s going to well and truly bounce back in a couple of years the Chancellor is able to predict lower borrowing figures, since a good economy means the government doesn’t have to borrow as much.  So his optimistic predictions allow him to present a picture that’s merely beat-your-head-against-the wall-bad, as opposed to head-to-the-nearest-bridge-and-jump bad.  And, most important of all, we’ll only know if he was right to be so optimistic well after the next general election. That’s pretty cunning.

One ray of light though: compared to Germany and Japan, our growth numbers are not as terrible as you might think. According to recent IMF figures, Germany’s economy will shrink by an ugly 5.6%, while Japan’s will contract by a catastrophic 6.2%. How’s that opposition to a global stimulus working out for you , eh, Germany?

Let’s get hysterical

The next set of “historic” figures concerns how much the government is going to have to borrow over the next few years. According to the Chancellor, the government will have to borrow £175 billion this year, or 12.4% of GDP. Britain’s net debt as a percentage of GDP will rise to 59% this year, and peak at 2013-14 at a rather alarming 79%.  These figures are, on the face of it, pretty bad and have sent everyone into a bit of a panic. The BBC’s business editor Robert Peston, for example, has questioned whether Britain will be able to sell all the debt it needs to this year to investors, and even mentioned the possibility of the UK losing its AAA Credit rating, which would effectively make Britain the equivalent of one of those awkward friends who you always try to avoid because they always want money but never pay you back.

Step back a bit though and you might be entitled to wonder whether all this hysteria over borrowing levels is really warranted. Take, for instance, this graph (courtesy of The Guardian), which shows Britain’s net debt as a percentage of GDP compared to other major countries:

What’s noticeable from these figures is that even when our net debt as a percentage of GDP goes up to 59% this year, it will still be less than Germany’s current debt. Even more striking, the highest net debt the Chancellor predicted we will see – 79% of GDP by 2013-14 – is still 90% lower than the current debt of the Japanese who, we can only assume, must have been borrowing from Michael Corleone. Once you put these figures next to the Japan/Germany vs UK growth figures I mentioned earlier, it becomes evident that we really aren’t the sick man of Europe, despite what David Cameron might have us believe.

One caveat however: as I pointed out above, the Chancellor’s borrowing figures are derived from his comparatively rosy prediction of future economic growth. Therefore, should Darling’s optimism prove unfounded, then Britain’s debt could actually become a lot worse, though certainly not in Japan’s league…

Hysteria aside, why is this level of borrowing so problematic? Well, as I explained in (a bit) more detail in my last post on the budget, the more a government needs to borrow, the less willing investors are to lend them money and thus the more expensive it becomes to pay off the debt the government already has. This becomes a real problem when borrowing levels become as high as the Chancellor says they are. One thing it means is that the government will probably have to cut public spending at some point. However, in another clever political move, Darling put off making such tough decisions; pointing merely to planned backroom efficiency savings of £9 billion a year and avoiding mention of actual front-line cuts in the future.  It’s difficult to imagine that such cuts won’t have to be made, but the crucial point as far as Labour is concerned is that the Chancellor seems intent on putting off any mention of deep cuts until after the general election. True, this makes Labour vulnerable to criticism that they are in denial on the inevitability of big cuts, but the problem for the Conservatives is that every time they make this point, they are then asked “What will you cut?” to which they always respond with the political equivalent of shouting “Look over there, it’s George Clooney!” then running away very fast in the opposite direction.

Surprise!

photo credit: marcelgermain

It had already been known before the budget that tax rises for the rich were probably on their way but even so it was still a big rabbit-out-of-the-hat moment when the Chancellor announced that the top rate of tax will be raised from 40% to 50% from next April, which will affect those earning over £150,000 – or the wealthiest 1% of the population as they’re also known. This announcement was, in its own way, historic. The last time a government raised the top rate of tax was in 1974. Moreover, ever since Margaret Thatcher went about viciously attacking the top rate with a pair of scissors in the 80s it’s been obvious that we don’t have a very progressive tax system.  Labour have seemed reluctant in the past to amend this, Tony Blair famously noting that he didn’t go into politics to stop David Beckham becoming  a millionaire (which never really made sense  given that you’d probably have had to tax Beckham at about 50 zillion percent to stop him becoming a millionaire by now). In Labour’s 2005 manifesto they promised not to raise the top rate of tax; indeed New Labour under Tony were quite a big fan of the rich all things considered. How times have changed. Indeed, one of the silver linings to come out of this economic crisis might well be the destruction of the myth that for the country to prosper the rich are best left alone: under regulated and taxed as little as possible.  Which as silver linings go is excellent, because it means we can have a proper debate at last over what is a fair amount for the comparatively mega-wealthy to contribute.

Furthermore, given the economic times and the accompanying dislike of the wealthy, the Chancellor’s surprise move was very good politics. Since the tax rise will come into place a month before the next general election (assuming it’s not held earlier than next May) the Conservatives will be forced to make a very hard choice. Do they choose to obey their base, who obviously detest the idea of this tax rise and want Tory leader David Cameron to promise to repeal it if they win the election? Or do they follow public sentiment and promise to keep it, at the risk of dividing the party? The splits are already showing, as Conservative London Mayor Boris Johnson has called on Cameron to clearly oppose the new tax, forcing his leader into a mealy-mouthed promise that it will ” form its place in a queue of taxes we want to get rid of”. It will be interesting to see if Cameron comes out more against it in a general election campaign.

It should also be mentioned that, despite the initial scepticism of the media, the new top rate will actually bring in quite a bit of cash for the government. In fact, if you include the other new squeezes on the rich – the  withdrawal next April of the personal tax allowance of those earning over £100k and the restriction of pension tax relief for those on incomes over £150k from April 2011 – then by 2012-2013 the new tax system for the wealthy will be bringing in 7 billion a year, which is not chump change. Still, there was more that could have been done in the budget tax-wise. Capital gains taxes, which are only 18%, help to make our system regressive in one important sense, since the wealthy can avoid paying as much income tax by funneling their wealth into stocks and shares and thus paying the more generous capital gains taxes instead. Furthermore, it’s instructive to remember that for the first nine years of Margaret Thatcher’s tax-hating government, the top rate of tax remained at 60% , until 1988 when it was reduced to 40%. A return, then, to 60%  really isn’t as crazy as the anti-tax brigade would have you believe. Why not apply the rate of 60% to those earning over £250,000? At the very least, the change in the top rate could have been accompanied by a more logical progression of tax rates: those earning over £100,000 -or the top 1.5% of the population -  could have been taxed at 45%, for example. There’s no real reason why we have to have a ridiculous jump from a 40% rate at £40,000 to 50% at £150,000. The key point here is that if you’re going to make taxation more fair and sensible, there is no better time politically to do it than at a time of great economic peril; so Darling’s surprise was, at the same time, very welcome but disappointingly small in its vision.

How Stimulating…

The stimulus package, which was focused mainly on job centre funding, green energy spending and the housing market, amounted to around a mere £5 billion. This was pretty weak stuff and not exactly  the economy-boosting fiscal splurge that large numbers of economists have recommended. What was particularly strange about the reaction to the budget is that the hysterical response to the gloomy borrowing figures massively overshadowed any concern about the inadequacy of the fiscal stimulus. This is pretty silly, since the size of a stimulus directly affects the issue of government borrowing. This is because the better an economy is doing, the less the government has to borrow. The main purpose of a big stimulus package is to pump enough money into the economy so that a significant amount of jobs are created, thus shunting the economy back towards positive growth… and less borrowing. A sufficiently large stimulus package is therefore helpful in reducing borrowing in the long term, if not in the short term.

But even if you disagree with this analysis, the fact remains that the Chancellor could have put in place a beefier stimulus of up to £13 billion without adding more to the levels of borrowing. How? Simply by repealing the VAT cut he put in place back in November, which has been more universally panned than the cinematic pairing of Ben Affleck and Jennifer Lopez. This would have netted an extra £8 billion. It’s not clear why he didn’t do this, but his decision to continue with the VAT cut means that a brilliant chance went missing to enact a decent stimulus while not contributing further to the borrowing figures.

photo credit: phault

Another criticism of the underwhelming spending package is that the Chancellor missed a brilliant opportunity to harness the economic theory behind a fiscal stimulus in order to get away with some  serious investment in industry, jobs and infrastructure. Nowhere was this more evident than in the stimulus measures to tackle climate change. For all the talk of the start of a “green budget”, the actual sums – £375m for home energy efficiency, £525m support for offshore wind power and £405m for the development of low-carbon technologies – aren’t nearly enough to really make a difference. As Friends of the Earth’s director Andy Atkins said: “The government has squandered a historic opportunity to kick-start a green industrial revolution and slash UK carbon dioxide emissions.”

Grading the Chancellor

It would be childish to try and give the Chancellor a high-school style grade for his budget. But I’m going to anyway. For his clever use of politics to put the Conservatives in a corner over further taxing the wealthy, and for the fact that he’s actually further taxing the wealthy, he gets an A. That goes down to a D when you factor in the rubbish stimulus and the rather obvious avoidance of the subject of public spending cuts, along with the daft predictions of future growth. But in the end, he gets a B- thanks to a big sympathy vote from my clearly very unprofessional hypothetical teacher. After all, would you have wanted to be in Darling’s shoes?

Pointless grading aside, one thing is very clear: this budget has completely changed the political and economic landscape. Gone are comparatively meaningless debates over public spending (the difference between the public spending plans of Labour and the Conservatives at the time of the 2005 election amounted to a now laughable £12 billion), in their place are truly significant debates on how much to tax the rich, what public services should be cut and how to reduce our ridiculous deficits. Sadly, the political window has now come and gone for a progressive, nation-changing British stimulus – a fact that should really be causing much more distress than it is – and we now enter, as annoying BBC political editor Nick Robinson has put it, “an era of austerity”. Thus the UK will have to take on the characteristics of Delboy Trotter: always looking to flog something, never able to buy anything.

Still, look on the bright side: at least Britain isn’t having to spend untold billions on staging a massive global sporting competition in two years time that never comes within budget and always drains the resources of the country hosting it. That would really suck.

photo credit: HM Treasury

Britain’s Chancellor of the Exchequer Alistair Darling will present the UK’s budget on Wednesday. I think it’s fair to say that in the current depression-era climate this will be a fairly difficult task for Darling, akin to playing Scrabble in Aramaic or amputating a leg with a pair of scissors. As if his problems weren’t bad enough, his challenge is compounded, as we shall see, by the fact that he’s well and truly stuck between a rock and a hard place.

On the one hand, the latest figures on growth make alarming reading.  Despite Darling’s predictions in last November’s pre-budget report of a contraction of Gross Domestic Product this year of 1%, the Bank of England now forecasts contraction of 3-4%. Given that private investment has all but seized up, this means that the case is extremely strong for a significantly large fiscal stimulus – a Keynesian style government spending spree aimed at creating thousands of new jobs and bringing the economy back to life. That’s the rock.

However, along with the latest figures on growth come equally depressing figures on government borrowing. Over the next two years the government is set to borrow around £170 billion, or around 12% of GDP.  The Institute of Fiscal Studies thinks that government debt could be a whopping 82% of GDP by 2015, or about the same amount of debt as your average teenager with a credit card. That’s the hard place. And it’s really, really hard.

So the Chancellor is caught between the need for a stimulus and the need to avoid adding to the current levels of government borrowing. Now, many economists would argue that the need for a significant stimulus is more important than the risk of growing government debt. After all, if you don’t get the economy growing again then public borrowing will increase anyway. This argument  is fairly sound, especially when you consider that when compared to other major countries Britain’s current debt level isn’t quite as scary as many like to claim (while ours is 48% of GDP, Germany’s is 65% and Japan’s is a stunning 170% of GDP, which is approaching two teenagers with a credit card).  In fairness, however, it’s worth pointing out  that Britain can’t afford to do the massive, pile-on-the-deficits stimulus package of the United States, who are able to sell endless amounts of their debt to China.

Indeed, Britain’s problem is this:  in order to sustain its borrowing levels, it needs investors to keep buying government debt. If borrowing gets too high – or to be more accurate, if it appears to investors that it might get too high, then those same investors get scared and stop buying the government’s debt, which then has the knock on effect of raising the interest rate (or yield) which has to be paid on the debt it’s already sold. So the government ends up paying more for their debt they have and unable to sell any more. Bummer.

As far as I can see, this leaves the Chancellor with three options, none of them safe and none of them pleasant:

Option 1) Do as the Irish do

Ireland has just had an, uh, interesting budget. Two weeks ago the Irish Finance Minister presented a dramatic, sphincter-relaxing cocktail of tax hikes for everyone and massive public spending cuts. This was generally judged to be very odd behaviour in a recession, and made many people (i.e. me) suspect that it was a budget made after a massive Guinness-fuelled piss-up in Ireland’s Finance Department. In its defence, there is an argument that such strict measures will encourage investors to buy more of Ireland’s debt, thus reducing the interest rates the government has to pay on its current debt, saving them money and so creating a weird sort of stimulus effect. However, even if you believe this, there’s no reason for the UK to take such drastic measures. Borrowing wise we are in a much better position than Ireland, which isn’t difficult since investors believe the Emerald Isle to be even more likely to default on its debt than the likes of Spain and Italy. Oh, it would also be politically suicidal for Darling to present something like that. Then again, Labour have been in wrist-slashing mood of late… so who knows?

Option 2) Steady as she goes

A cautious approach would entail the Chancellor putting in place a small stimulus – a couple of billion, say, nothing to increase fears too much about public borrowing – while at the same time choosing to avoid any cuts in public spending or tax hikes, at least until after next year’s general election. This, in fact, looks like the route Darling might be taking – we’ve heard talk of £2 billion for job programs, but there’s no sign of any massive stimulus in the works and it doesn’t look like there’s going to any tax increases or spending slashes either. The problem, however, with this approach is that you get the worst of both worlds. A stimulus has to be of sufficient size to jump-start an economy into producing at the level it should be – you have to create a lot of jobs . By definition, the more cash you pump in the more  jobs you get. Meanwhile, an unwillingness to hike taxes means that the borrowing problem doesn’t go away, either. This option, then, is like standing completely still in quicksand: it’s not going to make you drown but it won’t get you out of danger…

Option 3) Wham, bam, I’ve paid for it, ma’am…

The Chancellor’s third option is to give Britain it’s much needed large stimulus effort… but then try to pay for it as much as possible without having to borrow further. One way of raising some money would be to rollback the ridiculously ineffective VAT cut that was put in place last November. That would save £8 billion. Next, the government already plans to raise the top tax rate to 45% for those earning over £150,000, which is projected to save around £1.6 billion. But why stop there? If you raised the top rate to 60% it would still be 30% lower than the top tax rate in the seventies. The merits of a tax hike for the wealthy (and they are wealthy; only 1% of the population earns over £150,000) are that it doesn’t impair the effectiveness of any fiscal stimulus, since it’s the poorest in the land that are normally the engine of growth a stimulus relies on; plus it would also show nervy investors in the UK’s debt that something is actually being done. Of course, despite these savings a large stimulus would probably still require some further borrowing, but hopefully not enough to put the scares into investors.

I think it’s fair to call these three options, in order: The Bad, the Bad and the (regrettably) ugly. Option 1 is self-evidently suicidal, while option 2 is a weak cocktail of too little stimulus laced with too little public savings. Compared to these two option 3 is pretty good, as it combines a sufficient stimulus with fair, sensible moves to pay for it. It’s still ugly though: the imposition of higher taxes while still having to borrow a little further  could leave Darling vulnerable on all sides. But I still think it’s his best move, albeit one he’s unlikely to take. Perhaps, in the end, only one thing is certain: given the choice between being the Chancellor right now or swimming in shark-infested waters with a gaping wound, I think we’d all agree that it’s time we went and put on our swimsuits…

photo credit: thefost

It’s now been a whole week since the G20 met (an event which, if it was a Friends episode, would surely be called The One Where The Canadian Prime Minister Missed The Group Photo Because He Was In the Toilet) and yet commentators are still very much divided on the deceptively simple question: Was the summit a success? This isn’t really surprising, since the answer depends on how you define success. For example, if you were looking for a demonstration that in the midst of global recession the world’s leaders are able to get together, put aside their differences and promise to sort stuff out then the summit was very successful indeed. Alternatively, if you were looking for a solid commitment to prevent a global crisis like this from ever happening again, then you must have come away very happy with the result. And if what you were after was a bunch of vague commitments that will probably/maybe be ratified in the future but more importantly look very good in the present, then you’re probably still doing triple backflips of joy.

But if you were hoping for a substantive commitment to lifting the global economy out of recession – and doing it now, rather than later – then it’s hard not to see the G20 summit as a bit of a let-down, albeit a very glamorous and show-stopping one. It’s true that restoring growth and getting people back to work was never the sole aim of the summit- in the final communique it’s merely listed as an equal pledge amongst eight others -  but lifting the world out of recession is nevertheless the first thing you’d expect someone to say if you asked them what the summit’s main goal was. And with good reason – the current numbers coming out of America alone suggest that we might have to soon start switching out terminology from talk of global recession to the use of the dreaded “d” word (“depression” that is, though doom and devastation work quite well too).

To prove my point, let’s examine what have been touted as the main substantive achievements of the summit – the clampdown on tax havens, the new regulatory framework and the headline-grabbing sum of $1.1 trillion.

The publishing of a blacklist for tax havens is obviously a really welcome development, but tax havens had little to nothing to do with the current crisis. Tackling them was very much an example of “we’re never going to have so much capital to get stuff done, so let’s sort out the havens while we’re here”. Moving on to the ambitious new international regulatory framework, this is – assuming it’s actually followed through and enforced effectively – a spectacularly impressive achievement.  Indeed, the proposed reforms that will be the responsibility of the new, international “Financial Stability Board” read like a checklist of what should have been done to prevent the current recession: controls on leveraging,  stricter capital reserve requirements, regulation of derivatives like credit default swaps, better analysis of systemic risk, etc. But let’s be clear: the progress on regulation is all about preventing another global recession. Welcome as these reforms are, they’re of no use for the one we’re in now.

Which brings us to that eye-catching $1.1. trillion pledge. If you break it down, it comes to an extra $500 billion in funding for the International Monetary fund, a $250 billion increase in the IMF’s “special drawing rights” (sort of like a cheap overdraft facility for IMF members), $250 billion in trade finance and $100 for multi-lateral development banks like the World Bank. At first glance, this is an impressive haul. But, just like Bernie Madoff’s company accounts, the more you scrutinise the numbers the more they fall apart.  Mark Lander in the New York Times has undertaken a rather damning analysis of the figures; suffice to say it turns out that much of the $1.1 trillion is a mixture of money that’s already been pledged, hasn’t yet been pledged, isn’t really money or has been pledged but needs to face an unlikely approval by a country’s legislature (hello, American Congress!). As Felix Salmon has pointed out, at best you can say that there is around $400 billion of new money.  Others have been more brutal and pegged it at $100 billion. But even putting aside questions about the exact amount of new money pledged, there still remains the fact that the majority of it is aimed at preventing the poorest countries from financial collapse. A crucial concern, no doubt, but it doesn’t really help us with the recession we’re already in – it’s merely preventing it from deteriorating too badly. In other words it’s staunching the wound but it’s hardly sowing our fingers back on…

So, as the steak-lover said to the vegetarian chef, where is the beef? Leading economists have warned that we need more Keynesian, deficit-spending, stimulus packages in order to reduce the growing output gap between what the world should be producing and what it is producing. But there were no commitments to increase the size of international stimulus packages to be found in the final communique, merely vague promises and disingenuously boastful references to the inadequate stimulus packages that have already been passed. This was not at all surprising given that the Franco-German anti-stimulus crowd had won the argument against the Anglo-Americans weeks before, but it was nevertheless very dispiriting to see the advice of most leading economists trumped by misguided European concerns over the demerits of more stimulus.  Of equal concern is the fact that another piece in the recovery puzzle – dealing with the toxic assets of banks and confronting the current insolvency of many leading financial institutions – was also shied away from; more vague language was all we got on that front.

This leaves us with the alarming realisation that a summit convened in response to a global recession has failed to come up with any substantive responses to it. It’s true that the leaders of the free world put on the convincing show that everyone needed to see. And it’s also true that a lot was achieved to prevent another recession like this one. In that sense, good work was done. But when it came to fixing the economy in the here and now, the G20 members put on their magician’s hats, bestrode the stage and gave us nothing but grandiose statements and awe-inspiring illusions; except unlike most good conjurers we can now see how their tricks were done. And, frankly, I want my money back.

Oslo Fjord

I know what you’re thinking. In the midst of all this talk of an economic crisis, the G20 and accompanying protests and police brutality, and Brown’s recent trip to the US (for which he received a DVD box set, not even the correct region – poor Gordon), we’ve lost sight of our priorities. The crucial question that everyone’s dying to have answered is this: how’s Norway getting on?

The answer, Norway  fans, is not too shabby. The country is faring a lot better than many other European countries, particularly thanks to its oil wealth. Unemployment, traditionally very low, is still only 3.5%.The base rate is still at 2.5%, far higher than the UK and the Eurozone, where central bank lending rates are at 0.5%. This is not to say, however, that Norway hasn’t been impacted by the credit crunch: that base rate is still 325 basis points lower than October 2008, and the value of the Norwegian government’s domestic $12bn pension fund (supported by oil wealth) fell 25% in 2008, although the far larger “Global Pension Fund”, at some NOK 2.12 trillion (about £200mn), may well be more resilient. They must be pretty pleased they reduced the proportion of that pension fund held in global stock markets in August last year from 60% to 50%…

Coffee, Scone and Jam

I visited Oslo in February, on a slightly impulsive Ryanair detour back from Verona (sorry environment!) Perhaps I’m generalising, as I didn’t go outside the capital, but Norway really is a fascinating place. I was only there for a day and a half, and Oslo is a fairly small city by UK standards, but that provided plenty of things of interest. There was always fresh snow on the ground and a top-notch coffee shop just around the corner – and just as well: Norwegians drink more coffee per head than anyone else in the world. This particular one, just behind the lightly-guarded royal palace, served freshly brewed ethical coffee and chunky scones with walnuts, accompanied with a large glass of jam and copious amounts of butter for about £3.50, a bargain in Norway. Unfortunately it was such a bargain, and so warm inside thanks to the log fire, that I had two, which rather reduced the cost-effectiveness… The newspaper was interesting, too; I couldn’t understand a great deal of it (obviously) but at least the first four pages of a fairly small newspaper were devoted to commentary and opinion.

There are two things which are almost universally known about Scandinavia: it’s pretty cold (in winter at least) and pretty expensive, particularly alcohol. Both of these facts held true while I was there. Thanks to my inappropriate choice of clothes and having flown in from balmy northern Italy, I was especially affected by the former, and my advice (although it should be pretty obvious) would be: hats, gloves, shoes and thermal underwear. It was actually so cold that the buttons on my phone stopped working.

Norway from the train

As for cost – yeah, it is expensive. I chose to get the £45 train rather than the £30 coach from the Sandefjord/Torp Airport (typically Ryanair, labelled as Oslo, but actually 1½-2 hours away). However, due to a sudden snow fall, the train wasn’t running so we had to get a rail replacement bus. Regular travellers of UK railways will be well acquainted with the rail replacement bus, but despite the more extreme weather in Norway it’s pretty unusual there, and a lot more comfortable – a double-decker luxury coach with bags of space. This meant that it took slightly longer to get into the city, but it also meant that my ticket didn’t get stamped – so I cunningly got a refund from the station the next day. I also managed to wangle a student ticket on the way back using my Union card which doesn’t have an expiry date, so the whole £45 journey cost me about £16! Hurrah! My hostel then cost about £25 for the night (including sheets and a towel – lots of Norwegian hostels tack on an extra £5 for this privilege). This turned out to be slightly more expensive, however, as bizarrely someone stole my dirty clothes.

Slottet (Oslo's Royal Palace). You can walk right up to it; it's in the middle of a park. There aren't even bars on the windows.

On the rail replacement coach from the airport I also started talking to two incredibly friendly girls – well, they started talking to me, I obviously had a pretty confused look on my face. It turned out they were both in the Baha’i faith, and they proceeded to explain what that meant (basically: let’s all just chill out and be nice to each other, yeah?). They’d flown in from Frankfurt where they’d been at a Baha’i conference. Only one of them was actually Norwegian, the other was a Texan studying international health, I think – it turns out it’s sickeningly cheap to study in Norway: £30 a semester, for a Masters. What an awesome country. The conversation turned to how one of them had received a pretty grumpy and unsympathetic reception from a customer services assistant at the train station in Oslo – the American girl suggested it was because it was a socialist country, and so people felt it was the government’s responsibility to take care of people, rather than every individual to one another. (So does government replace community, or is it in an expression or community? Or perhaps it was just a single anecdote which didn’t actually mean anything)

Downtown Oslo

Beer is certainly pricey in Norway, a 300ml bottle in a bar in the trendy Grünerløkka neighbourhood cost me about £4.50. It was pretty busy for 2230 on a cold Monday night. While I was in that café I asked a middle-aged (it turned out, retired) woman why it was so expensive? I mean, everything seems more expensive in Norway (they’ve got a 25% sales tax) but particularly alcohol. She answered the question as if it wasn’t that big a deal, and said that it was probably partly due to the difficulty of transporting things to such a remote place. While this is true, it’s only half the answer, and the other part comes down to that scourge of pub landlords across northern Europe: excise duty. Norway has some of the highest rates of taxation on alcohol in the world, at €200 per hl3, more than double that of Ireland and the UK, and its neighbours Sweden and Finland. According to this guy, that makes a bottle of Absolut Vodka €37, €31 of which is pure tax. There are probably a number of reasons for this: the necessity of having high rates of productivity, especially in the postwar environment; strong protestant morality; and combating drunkenness and alcoholism. The latter is really difficult to avoid in a country like Norway which has very hard and psychologically challenging winters, and it seems as though the UK is to a certain extent following down the same path of trying to regulate alcohol consumption via price rationing. But as Ed pointed out in a post on this blog not too long ago, this seems to be a really poor way of going about it. The real problem comes not from a quiet drink in a sociable, supervised and regulated environment like a pub. It actually comes from buying cheap, strong alcohol in supermarkets and (to a lesser extent) off-licenses, and then drinking it in the street or your own home. Surely a better way of going about it would be to lower alcohol taxation in pubs, which in the UK are seriously feeling the strain at the moment, and commensurately increasing the taxation in off-licenses. (How about this interesting fact: almost half of all alcohol consumed in Norway is consumed by just 10% of the population.)

Storting (Norwegian Parliament). Opens around 9ish, closes when business is done. The Monday I was there, that was before 1300.

In the current economic recession, Norway’s not faring too badly, partly thanks to the fact that it is blessed with substantial quantities of oil and a relatively enlightened, forward-thinking political class. While Britain sold off its stake in North Sea oil long ago and spent its revenues as soon as they entered the Treasury’s coffers, Norway set up an oil fund in the early 1990s to provide pensions for the elderly and help ease the transition after oil revenues peaked. That fund has now reached some $200 million, and although it has been hit by the global downturn, as only 50% of it has been placed in relatively safe (and highly ethical) investments, it’s not doing too badly. Additionally, its banks have been less exposed to the risky loans and dodgy financial instruments which have wreaked such havoc in the UK and elsewhere. This is likely as a result of more conservative business instincts in the country, but it also stems from a unique 1961 law which states that any commercial bank with assets over £10 million has to have a quarter of its board members appointed by the government, and a responsibility to operate their business not just in a sound economic way, but also with regard to their social impact. On first impressions this seems quite radical, but it isn’t really: when banks have such a large responsibility for citizens’ savings, those citizens should play a part in the operation of the banks. It’s not that dissimilar from the mutual model which has proven to be relatively resistant to the shocks imposed by the current economic turmoil.

9th and 10th Century Viking Swords, in the History Museum. Norway is famed for its child-friendly museums

Nevertheless, like any country, Norway is no paradise; problems do exist. The retired woman I met in the scones and coffee café behind the royal palace used to work in the public healthcare sector, and said that there were increasing problems there, particularly surrounding the cost of treatment. In Norway there is a fixed fee that you have to pay each time that you go to the doctor. This may seem sensible, but it’s actually a really ineffective way of reducing unnecessary treatment, as well as being tremendously inefficient for the healthcare system as a whole; people put off going to see their GP for 10 minutes and instead only go to the A&E room when it becomes much more urgent – and, of course, much more expensive. A similar system is used in the UK with prescription charges, which bring in some £450 million, a figure that is set to significantly decrease following Gordon Brown’s October announcements on abolishing prescription charges for cancer sufferers, and those with “Long-Term Conditions”, a list which is almost impossible to define and ends up being almost entirely arbitrary.

Another problem, particularly in Oslo, is the cost of living which is amongst the highest in the world. That OAP in that café (it would have been much easier if I knew her name…) said that even with her relatively good pension from the healthcare system and the additional pension from the oil fund, she wasn’t left with a great deal of disposable income after paying her rent.

Nobel Peace Centre - Prizewinners Field

To a large extent, these are problems that most other countries face. Aside from that, Norway is a fairly unique place. It has a liberal political system with a strong belief that it owes a considerable debt to the world – and not because it’s ashamed of any imperial past; after all, it has none to speak of (unless you go back to the Vikings…). Rather, the debt appears to be quite simply because they’ve been fortunate and others haven’t. Accordingly, Norway gives 0.95% of its GNI annually in overseas development assistance, and plays host to a range of humanitarian, human rights, and peace-building organisations, including most notably the Nobel Peace Prize. They’re rather proud of this one in particular, in fact, and have an excessively interactive museum to show it off, including this fibre-optic field of prizewinners; the screens light up and jump around when you walk near them. (Actually, quite a few of them don’t – but nice try, Norway.) My student ID which worked so smoothly on the train back to the airport later that day hit a rough patch at the Nobel Peace Centre, as the man behind the desk correctly noticed that there was no expiry date – he asked if I had any other ID and I showed him a book I had, which seemed to work OK! As part of the museum was closed for refurbishment, I also got in at half price, so what should have cost £8 actually cost £2.50, another bargain!

So at the end of my brief stint in Norway, the view I came to was this: pretty cold, quite expensive (unless you have student ID), but fascinating, friendly, and really well worth a visit – probably more than a day and a half, next time! I’d need to read more into the Scandinavian model before I give it my sign of approval, and the level of alcohol taxation seems a bit excessive, but any country which serves such high quality coffee and has such friendly, liberal people seems like it’s on the right track.

There are no surprises in the deal announced today to reform the banking system, to prevent banks making the kind of risky loans and investments that precipitated the worst global economic crisis since the 1930s.

But it’s nonetheless a historic event that the world’s 20 most powerful economies have signed up for these reforms – because they represent the death knell for the Anglo-American doctrine that economies flourish when financial firms are left alone to do as they please.

Indeed.

18:32 BST: Buried under all the G20 news has been the potentially groundbreaking meeting between Barack Obama and Russian President Dmitry Medvedev, which resulted in an agreement to reduce the nuclear arms of both sides much further than the current agreement demands. This could be very important…

18:30 BST: A wise comment from the Guardian’s Andrew Sparrow (whose live-blog was probably better than mine but nowhere near as epic!):

I’ve been busy updating our main story, having sat through the opening of Brown’s statement. First reaction: I found myself sitting there thinking ‘David Cameron could not pull off an event like this’. That’s not because I think Cameron’s a lightweight. I don’t. It’s because the most important summit conclusions involve international finance, global trade and the inner workings of organisations like the IMF and there are probably very few prime ministers or presidents in the world who understand this stuff as well as Brown.

18:20 BST: Lest I be judged  by my comments below to have been a bit too harsh on the protests, I want to stress that I have great respect for most of them. I say most of them, because the anarchists were just so annoying. Proper anarchism is really cool. It’s an extremely sophisticated ideology . These guys, however, were just pathetic. Bad anarchists!  The majority of protests, however, made some good points.The fact remains, though, that they surely made no difference on the summit at all. If you want to get something changed, you focus on it like a laser and you don’t go off message. But the protests were never on message to begin with – from homelessness to climate change to ending the war to the death of capitalism; only a minority were  actually focused on the topics of the summit! The question becomes then – did they really want to influence the summit? Or did they just want to get their message out there in a sort of vague picture of defiance?  In their defence, however, you could respond that they never stood a chance anyway: governments don’t respond to the people anymore. No-one listened to Iraq protests, for example and they were very focused. So it’s an interesting debate. But I do think that they could have maybe stood a chance at getting some traction if they focused on one message and, you know, stuck to it.

18:13 BST: Here’s the full text of the communique, courtesy of the Guardian. There’s tonnes of details here…

18:10 BST: Oh and I forgot to add that hedge funds and other non-banking institutions will come under the aegis of this new Financial Stability board. Since the mysterious financing of hedge funds helped to exacerbate the mess, this is also good news; but again it all depends on how strong the regulation is…

18:05 BST: The headlines are focusing on the issues of tax havens and that $1 trillion figure, but there’s tonnes of other stuff that’s just as interesting. For example, there’s going to be a new Financial Stability Board that will work with the IMF to monitor the risk of banking transactions and impose limits on things like capital reserves and leverage requirements (not to mention executive bonuses.) This is absolutely crucial in getting the banks back on track and preventing such a crisis happening again, since it was an inherent failure in the banks’s ability to evaluate “systemic risk” that made the crisis so bad. This is pretty complicated and I’ll come back to this another time, but suffice to say it’s a good move – that is, as long as this new regulatory body actually has proper regulatory oversight.

17:54 BST: A timely article over at Foreign Policy discussing whether protests ever work. I agree with its basic conclusion: protests have to be unified and targeted; and focused on changing the system not overthrowing it. The G20 protests were none of these things and so I’m afraid that they’ve had absolutely no effect whatsoever.

17:46 BST: Did Sarkozy and Merkel get their victory? Or was there never any “victory” to begin with? Everyone was in agreement over the basic regulatory provisions. and had been for weeks. The real controversy-  over the possibility of national stimulus packages – was won by Merkel and Sarkozy weeks ago, and so it was no surprise to see no such provisions today. However, Sarkozy must be feeling pleased that the language on tax havens was quite fierce. In the big picture, it’s not really much of an issue, but he’ll make a big deal of it, which is fair enough…

17:44 BST: Canadian PM Steven Harper’s absence in the photo is not going down well in Canada…

17:35 BST: Mark Brough in the comments points out, completely correctly, that I’ve been claiming all through this live-blog be on “GMT” time – Greenwich Mean Time – when in fact, because the hour went forward last week, we are now on “BST” – British standard Time…. Um… My bad!

17:20 GMT: Okay, they’re replaying Sarkozy’s press conference; he’s really laid it on thick… “There’s something moving about this…”; “Who could imagine?”  Definitely basking…

17:14 GMT: Question from Mark Bailey in the comments: does Brown get a boost in the polls from this? Hmm, tricky one that. On the one hand, this trillion dollar figure could backfire; it’s not quite what Obama and Brown wanted in the sense that there’s no commitment to plow government stimulus packages directly into G20 countries. Further, we should expect to see many journalists tomorrow asking the question: How does this help us? How does this help Britain? After all, it’s hard to see how increased IMF funding for developing countries helps the unemployed back in Britian. However, I find it hard to believe that he doesn’t get at least a small boost. I mean, come on: for two days he’s been the public greeter, charman, conductor and organiser of the world’s twenty most powerful people. He’s  even managed to outshine to Obama… (who has appeared quite tired) Moreover, though you can argue over how concrete the provisions are,  there’s no doubt that this is a groundbreaking agreement. And as long as you think globally, then the agreement is very good for Britain in terms of more secure, regualted international finance and trade . The trick for Brown will be getting the British people to realise this. It’s not an automatic thought process; but if he gets the point across then he could get a very significant boost. I still think he’d benefit from giving us a proper stimulus, though…

17:09 GMT: Didn’t listen to French President Nicolas Sarkozy’s press conference, because it was, if you believe it, held at the same time as Gordon Brown’s! Oh, Sarko! But the consensus seems to be that he did a lot of boasting on his achievements re. hedge funds, strong regulation and, crucially, tax havens. Arguably he deserves to boast – he got the strong language he wanted on tax havens; the naming and shaming in particular. He also apparently did some typical admonsishing of journalists. Never a dull moment with this guy…

17:00: GMT: Gordon Brown spoke well at his press conference and the final communique is, on the face of it, pretty impressive. But the criticisms are already forming: is the language against protectionism strong enough? Are there any provisions to force everyone to stick to these agreements? Are there really any sanctions against tax havens? And crucially, is the $1 trillion “stimulus”  really a stimulus, or just a series of provisional loans? There’s certainly no concrete agreements to force governments to plow stimulus money directly into their own country – no direct stimulus. But make no mistake, the IMF funding etc is very significant.

16:40 GMT: Okay, so all the rumours are no more and now we have the final communique – the final version. It’s incredibly complicated, as you might expect. My head hurts just thinking about it. The “headlines” appear to be the following:

- A $1.1 Trillion global stimulus comprised of: $500 billion in extra funding for the IMF; $250 billion in “special drawing rights” – in effect a cheap IMF overdraft facility for poor countries – $250 billion in world trade funding and $250 billion  for “multi-lateral development banks” like the world bank to give to really poor countries

- a multi-tiered “blacklist” list of tax havens that is being published today – here comes the naming and shaming!

16:35 GMT: Clever Channel 4 question: What are the sanctions to make sure countries actually do all this stuff? Brown points out that the IMF will be watching and assess it regularly, and we’ll meet again to check up on stuff in the autumn. Hmmm….

16:31 GMT: What does this mean to the person watching at home? Brown responds by emphasising that today’s developments means that people’s savings, investments and businesses will soon be much safer. “Dealing with the international hurricane that has lashed our shores as well”.

16:27 GMT: Really geeky question about tax havens; basically asking is this really the end of tax havens? Brown says this is the start of the end; a major step forward; outlines three-tier system of tax havens as I described below. We’ll expand the reach later, says Brown.

16:22 GMT: Oooh…. an interesting question from a Chinese journalist: “you say the era of washington thinking is over, but is the era of washington currency”… he’s talking about the possibility of a global reserve currency as proposed by the Chinese. Hope Fox news doesn’t get onto this, as they seem to think that this means replacing the dollar altogether! Brown explains it well…

16:19 GMT: A CNBC guy asks about the controversial breaches of EU countires re. protectionsim: Gordon Brown responds by reiterating that the kind of world trade funding seen today is a boon for free trade.

16:15 GMT: Nick Robinson, the annoying BBC political correspondent asks his question: and his mic doesn’t work! Hahahaha! When he finally asks his question, he tackles one of the main issues, albeit in an annoying, disingenuous way: isn’t the “stimulus” just a series of loans that isn’t techncially a stimulus and won’t help, for example, people in the UK? Gordon Brown rather niftily turns round by pointing out that since we now have a global stimulus, it turns out that the main controversy everyone was talking about wasn’t actually a controversy at all. Clever, although Robinson may have a point about the nature of the “stimulus”. This needs more analaysis later…

16:10 GMT: Gordon Brown is speaking. Lots of stuff here. Six main pledges:

1. Reform the banking system
2. Clean up banks’ toxic assets
3. $1 trillion global stimulus, mainly to the IMF (as described below)
4. Action on global poverty
5. Kick start international trade
6. Seek agreement on post 2012 climate change plan

More analysis later, but first let’s see the questions.

15:53 GMT: Mark Bailey again, from the comments:

I’ve said it once and I’ll say it again: I love Sarkozy!

15:46 GMT: Surely not: it’s looking like Gordon Brown’s closing remarks might be happening at the same time as French President Sarkozy’s press conference! What??? Split screen chaos, here we come!

15:44 GMT: Meanwhile, here’s what we haven’t heard about in detail but we’ll probably see: Fairly strong but not watertight language against protectionism, fairly strong regualtions for hedge funds, possibility of a general regulatory body for global banks, stricter capital/leverage requirements, a new system for regualted ratings agencies, and super-vague language on public stimulus packages. Oh, and maybe some bonus crackdowns too.

15:34 GMT: While we wait, another summary of what we (probably) know so far is definitely part of the G20 agreement:

A package of over a trillion dollars, technically a stimulus package, (see my comments below) which consists of a $750 billion increase in IMF funding that can be used to help developing countries, a $250 billion increase in “special drawing rights” for the IMF – the cheap overdaft facility for poor countries that I talked about below – and at least a $100 billion funding for world trade. Also, an agreement to publish a multi-tiered blacklist of tax havens.

15:30 GMT: Mere minutes away from the Press Conference. This is definitely it, people!

15:28 GMT: Papers including the Guardian are calling the decision to delay publication of the tax-haven blacklist as a partial defeat for France in favour of the likes of China. Perhaps, but you really have to stress the word partial…

15:22 GMT: I’m now into my ninth hour of live-blogging, and I have to say I have enormous respect for the kind of established bloggers who do this regularly… I’m exhausted. The G20 summit may save the world’s economy, but it’ll be the death of me…

15:17 GMT: The BBC just replayed an interview from earlier with UK Climate Change & Energy Secretary Ed Milliband, who gamely tried to assert that climate change issues were also being addressed at the G20 today. Nice of him to try, but I can’t think of  a single provision that will help the environment. Best he can hope for is some vague niceties. And quite right too: this is about saving the economy. Climate change can come later…

15:14 GMT: For more on tax haven news and details, see the Financial Times. Note also that the G2O won’t be publishing a list today; there’ll just be a vague mention of it and then the OECD itself will actually publish the list later…

15:12 GMT: News is leaking out about the decisions on naming and shaming tax havens… basically there’s going to be a sort of three-tier list published by the OECD (Organisation for Economic Co-operation and Development). One tier will be the sort-of-good-guys: the countries that have already shared information.  Then there’ll be the countries that are sort of promising to do so. Then there’s just the downright naughty ones that aren’t doing squat. So, sort of like a, uh, multi-hued blacklist….

15:11 GMT: Okay, just  a red herring… no press conference yet.

15:10 GMT: Here we go…… Gordon Brown speaks!

15:06 GMT: Funny how things turn out – all the talk about how Gordon and Barack won’t be getting their global fiscal stimulus, and yet now all the news is focused on a  global fiscal stimulus. Of course, the devil’s in the details: this isn’t the kind of stimulus we’ve been talking about that will directly help the populations of developed countries like Britain and the rest of Europe. It’s a stimulus via the IMF, as I described below. On the other hand, this is a big boon for developing, poorer countries. However, it doesn’t look like there’s going to be a new public spending fiscal stimulus for any developed countries. This could cause problems for Gordon Brown, since we may end up with a summit that, commendably, helps brazil and India but doesn’t directly help the UK…

14:59 GMT: It’s looking like all the measures I described a few updates ago – funding for the IMF, special drawing rights for the IMF, increase in world trade funding – are going to total around $1 trillion dollars. Expect, therefore the “trillion dollar stimulus” to be one of the main headlines to come out of today’s agreement – funny how everything always comes to a nice round number, isn’t it?

14:38 GMT: Okay, I understood nothing that Bob Geldof just said. I’m not entirely sure he did, either.  I think he just woke up and walked into the building and started quoting his dreams or something. Great stuff, regardless.

14:37 GMT:  “But the truth is that they may as well protest against themselves, because we sucked on the tit of free money and the bloated bubble that burst was us.” -  Bob Geldof, being interviewed by the BBC!

14:25: Following on from Lewis Hamilton’s punishment, more proof that this is a great day for the burying of bad news: Israel’s new foreign minister, the notorious racist Avigdor Lieberman, recently announced in his inaugration speech that the Annapolis peace agreement of 2007 has no force because it was never ratified by the Israeli parliament. More evidence that Israel’s new  extreme right-wing government has no interest in a two-state solution…

14:22 GMT: Via Matthew Yglesias, why IMF reform is so welcome

14:19 GMT: I wonder why all the news and rumours coming out of the meetings are focused on stimuli of things like the IMF and world trade, but nothing on regulations? Does that mean that everyone’s in agreement on things like hedge funds, tax havens and regualtory bodies, or does it mean that there’s so much disagreement that there’s nothing concrete enough for a rumour? I suspect the former…

14:11 GMT: A couple more points to add to what I’ve written below: First, the news I just described does seem to be concerned with what is in effect a kind of global stimulus, though not the kind we’ve been talking about the past few weeks. Basically it seems like the IMF itself is being given a stimulus in order to help struggling countries. As for the “special drawing rights” I talked about, this is really big news: if you didn’t get my explanation below (and I don’t balme you, it’s horrifically complicated) then let me simplify further: it’s a cheap overdraft facility for struggling countries. It’s too early to tell whether this is all true, or even if it’s that good… but this is definitely big news

14:09 GMT: Let’s see what we know so far. First, it looks like there’s been an agreement to triple IMF funding to $750 billion – it was previously thought to be only being doubled. This effectively menas that surplus countries like China will be helping to fund a massive spending boost for the world’s economy, which will particularly aid the struggling developing countries, who can be bailed out by the IMF if they get into trouble. Further, it looks like around $200 billion dollars will be provided to boost struggling world trade. Finally, there’s something that’s being called the “global equivalent of quantitative easing” – a fantastically complicated scheme called ’special drawing rights’ that is being funded to the tune of a $250 billion. Basically, in really simple terms this is how it works:  the IMF creates the money for a”cheap overdraft facility”, whereby countries who can’t afford to lend in normal markets get to lend at really cheap (American) interest rates from the IMF. This cheap overdraft facility is being mainly funded by America and China, who will get a lot of the money back through a complicated system of loans. For more on all of this, see BBC business editor Robert Peston’s blog and the blog of the BBC economics editor Stephanie Flanders.

13:52 GMT: After Canadian Premier  Steven Harper was caught in the toilet for the first official photo, Italian PM Berlusconi went and missed the second one! And the Saudi King didn’t turn up either! This is getting pretty funny…

13:46 GMT: I don’t want to sound patronising, but I can’t help but wonder what some of the protestors today hope to achieve. I’m referring specifically to those protesting about climate change or ending war etc… These issues, though important are very much not on the table today  – and they were never going to be, because we’re in a devastating economic crisis. And as for the people protesting about the Congo; a crucial and scandolously overlooked issue, I grant you, but in terms of recognition you could not have picked a worse day! Come on people. This is basic PR…

13:38 GMT: Okay, I want to briefly look at the subject of rating agencies – one of the not-so-exciting but still crucial issues on the table today. Basically, ratings agencies are responsible for giving a grade to the financial instruments of banks – so, for example, a premier investment bank would expect to be given a triple A rating for its bonds and other securities. The better your grade, the less risky a financial institution used to be perceived. The problem was, since banks could choose their rating agencies,we had the situation where the agencies themselves were loathe to downgrade the ratings of banks, lest no-one want to use them. Thus high grades were given to what was essentially junk and no-one knew it was junk till it was too late. Hopefully today we will see a solution to this problem, whether this be government controlled agencies or randomly assigned agencies…

13:11 GMT: Emily Buchanan of the BBC had a good line, saying the summit meeting was like the “Challenge Aneka” of global politics. She also pointed out that each world leader effectively had eleven minutes to make their case… (though presumably someone could always get some more time by nicking the eleven minutes of, say, Australia or South Africa…)

13:06 GMT: Reports flying around of breakfast discussions with finance ministers in which they’ve agreed that tax havens need to be named and shamed through some kind of published list – but when will it be published? Also, it looks like $250 billion dollars of drawing rights have been created for the IMF. This is very complex, but it’s sort of like saying to the IMF: create some new money for us! It’s good news anyway…

13:04 GMT: The canadian prime minister Steve Harper was in the gents while the official photograph was taken. Hahaha

12:52 GMT: Mark Bailey, from the comments, in response to my mention of news of a further meeting:

The second summit will probably be what was going to be the Sardinian G8: check out Andrew Rawnsley’s funny evocation of probable Berlusconian irritation about being upstaged: http://www.guardian.co.uk/commentisfree/2009/mar/29/gordon-brown-g20-andrew-rawnsley

12:46 GMT: For the sake of my personal safety, I just want to clarify that I think that’s a bad thing…

12:42 GMT: Just been looking at the official photograph and was struck by something: the 29 most powerful people in the world and only two are women!  I don’t want to make too big a deal out out of this, but even so!

12:33 GMT: As of now, this is what’s on the respective news channels – CNN: coverage of G20. Sky news: coverage of G20. Bloomberg: Coverage of G20. Euronews: Coverage of G20. NBC: coverage of G20. BBC: Coverage of G20. CNBC: Coverage of G20

Fox news?: Coverage of a baby deer coming out of a cat flap, under the heading of “Things we like”…

Says it all, really, doesn’t it?

1231 GMT:   While I was ranting about the police, the BBC were interviewing British Chancellor Alistair Darling who seemed pretty convinced that concrete action on tax havens was going to be agreed upon.

12:18 GMT: For more on the police’s tactics, see George Monbiot’s blog post in the Guardian. As you might expect from Monbiot, it’s a particularly devastating riposte. In particular he makes the great point that the police seem to create the violence they react to: in other words police violently entering a peaceful protest with riot gear suddenly find themselves with a riot on their hands

12:17 GMT: Let’s talk about the police for a moment. There’s no doubt that a small minority of protesters were acting up yesterday, for example the rather obviously choreographed smashing of the windows of a branch of the Royal Bank of Scotland. But the vast vast majority were just, you know, protesting – and yet all we seemed to see yesterday were riot police in their ridiculous armour, beating the living sh** out of anyone in front of them. There’s something genuinely scary when you see, in a supposedly democratic country like the UK, police in full, “I’m going to a medieval jousting session” riot gear wantonly whacking people with their shields and batons as a form of crowd control. Note to the police: a whack to the head with a potentially lethal object is not the equal and opposite reaction to a few taunts and a bit of shoving.

12:00 GMT: Just been watching the Fox News coverage, such as it is, of the G20 summit. As you might imagine it’s uniformly terrible, hopefully we’ll get some particulatly hilarious ignorant quotes later on.

11.47 GMT: FTSE 100 opens above 4000 following G20 optimism. Okay, so I get why this is technically good – optimistic markets are better than falling ones – but why do we focus so much on their daily upticks? As economist Dean Baker has pointed out, if a country today announced a massive tax hike for the poor or middle class, then that country’s markets would rally impressively, even though this policy would still be disastrous for their economy. In other words, the markets are not inherently sensible- they respond to what is good for bankers, not necessarily what is good for people. Can we stop obsessing over their ups and downs, please?

11.43 GMT: Reports coming through of an agreement in the draft to give $500 billion to the IMF. This is good news. Japan, in particular, is putting up around $100 billion. Go Japan!

11:40 GMT: BBC police source quoted earlier saying that the reason not that many protestors are out in force yet is because anarchists tend to get up pretty late in the afternoon. Boom boom! Surely, the anarchist would reply, this is merely a result of the state’s arbitrary working hours? No?

11:29 GMT: Some journalists are pointing out that there’s probably going to be a commitment in the finished agreement to meet again later in the year. This is good news – a commitment to meet in the near future will help make any summit promises seem more tangible and immediate – there’s nothing leaders like more than yet another summit to aim at. Also, note that a provision saying this is included in the supposed draft leaked to the Financial Times. (paragraph 24) Does this mean we get to do this all again? Go live-blog!

11.25 GMT: It’s worth reflecting for a moment that, though it’s good to see that we’re probably going to get strong, moral regulatory reform coming out of this summit, it’s nevertheless a massive shame that there probably won’t be any concrete commitments for an increased global stimulus. I touched on this in my post Fiddling while Rome Burns: Britain’s missing stimulus (in particular in the comments section of that post) but briefly, and at the risk of over-simplifying the arguments of  leading economists, here’s why the argument against more deficit spending is wrong: Europe – Germany in particular – is against more stimulus because they are worried about a) inflation and b) the cost of future debt incurred by big stimulus packages. a) is silly, however, because we are facing a deflationary environment rather than an inflationary one and while future inflation can be warded off, current deflation is much more dangerous (indeed, we actually need inflation in the short term – this is the point of many of the current monetary measures currently being put in place) b), meanwhile, doesn’t make sense because though an increase in goernemnt debt should always be of concern, it’s nowhere near as big a concern as an extended global downturn which is what may happen if sufficient fiscal stimuluses aren’t put in place . Basically European leaders have been suffering from long-termism: in other words, they’re ignoring short-term relief in order to focus on long term interests even though if they don’t look after their short term interests then they won’t get the chance to enjoy their long-term ones.

11.15 GMT: Over at the American Prospect, another good intro/summary article about the G20: How Obama should approach the G20

11:00 GMT: Lewis Hamilton should count himself lucky: the announcement that he will be stripped of last week’s third place in the Melbourne grand prix could not have come out on a better news day…

10:54 GMT: Gordon’s introductory remarks, lots of reference to paragraphs in the draft that all the leaders have in front of them. Emphasis on the paragraphs about protectionism, a real concern for Brown and one of the more controversial areas. This is a great time, by the way, to link to what is claimed to be a leaked draft of the summit’s agreement in the financial times. More on this  later…

10:49 GMT: Everyone now sat round an impressive table. Obama next to Brown. U.S. Treasury Secretary Tim Geithner to Obama’s right; Geithner has recently announced plans to regulate hedge funds that won’t be so dissimiliar from the plans in the summit today. He’s also announced controversial plans to give the american government power to take over any failing american financial institution. Geithner is very much leading the pack in terms of global regulation…

1038 GMT: UK business secretary Peter Mandelson’s comment that Gordon is being excessively ambitious – in a good way – is getting a suprising amount of play. Of course he is being ambitious! He’s expecting thirty world leaders to come to an agreement to fix the world’s economy and regulatory systems in just two days! The fact that this is probably going to happen is a real testament to his organisational abilities and his vision. He may be a doomed Prime Minister, but this is a real, monumental achievement – he will never in his life have another day like this.

10:34 GMT: Gordon Brown will be addressing the summit shortly. What a momentous moment for Britian’s prime minister…

10:32 GMT: World leaders gather for the official photograph… Angela Merkel wearing a very bright red dress. Um, not much else to say here…

10:26 GMT: Jamie Oliver’s meal for the world leaders at Downing Street last night came in, so he claims, at £12.50. Great…

10:22 GMT: A couple of good articles on what we can expect to come out of the summit: Will Hutton in the Observer last Sunday and a good introductory article from the Economist.

10:15 GMT: The BBC is reporting that there are rumours that a strict crackdown on executive pay will be announced. Meanwhile, the BBC’s business editior Robert Peston (who, by the way, is a pleasure to watch) is reitirating the things that aren’t quite agreed: decisions on trade, funding for the international monetary fund and exact numbers of aid to the poorer countries in crisis. Again, it’s worth emphasising that though many of the details have already been sorted out by finance ministers days ago, the exact numbers – and we’re talking billions here – have yet to be decided.

9:55 GMT: It’s worth pointing out how incredible it has been seeing around thirty of the world’s most powerful people hanging round together for two days – sometimes in the same room. For a great example of this, check out the video coverage of yesterday’s reception with the queen. (hat tip Mark Bailey) My favourite bit is when the camera focuses on German premier Angela Merkel chatting with the Queen of England while in the background you can hear US Secretary of State Hilary Clinton joking with French President Nicolas Sarkozy. Incredible…

9:41 GMT: Thousands of protestors are expected back in London today. Yesterday, 86 were arrested, 4 were charged and around 4,000 were brutally beaten by the batons of riot squads. (that last figure’s more of a rough estimate)

9: 37 GMT: Short version of what I’ve been saying over the past few minutes: Draft agreement written weeks ago. Boring! But potential for lots of last minute changes… Exciting!

9:29 GMT: Media fiction: France and germany are going head to head with Britain and the US! Merkel and Sarkozy don’t want a global fiscal stimulus, while Brown and Obama are worried about the extent of Europe’s regulatory demands! Who will win? We just don’t know! Will Sarkozy walk out? Will Gordon get his stimulus? Who knows!!!

Reality: Most of the details have already been prepared. Everyone’s in tandem on most of the regulatory reforms, while the global fiscal stimulus stopped being a possibility weeks ago – France and Germany have won that argument, though we might get a vague agreement on some kind of stimulus. But on everything else, everyone’s in tandem.

That’s not to say that there aren’t still issues of contention. The main things that still need to be hammered out include the somewhat controversial details of any plans re. tax havens and how much to give to the IMF. But in general, the framework is already in place.  See BBC economics editor Stephanie Flanders’ excellent post for more.

9:11 GMT:   The BBC’s business editor Robert Peston has a couple of great posts up on his blog about travelling to the summit this morning and the sheer scale of the summit’s interior. He also makes the great, albeit rather grumpy, point that Sarkozy helped Gordon Brown immensely yesterday in the sense that his concerns made it look like everything hasn’t been agreed to, even though it, uh, has. Having said that, there are still some potential disagreements to be ironed out but it cannot be emphasied enough that the agreement is mostly in place already.

9:00 GMT: By the way, feel free to leave your comments on this live-blogging thread, especially if you think at any point I’m talking rubbish (which, given the marathon nature of this live-blogging session, is very probable)

8:54 GMT: Here’s a quick look at the likely substance of any agreement made today, bearing in mind that, despite what the media likes to claim, most of it has generally been agreed – though there a few minor disagreements to be sorted out and details to be finalised, the skeleton framework is essentially in place.  I’ll be looking at these in greater detail throughout the day:

1) A massive boost to the International Monetary Fund’s budget, the exact amount to be agreed (think $500 billion) 2) An agreement to provide aid to the those ailing, poor economies that need emergency rescues – think Eastern Europe 3) Agreements on trade, in particular a conviction to steer away from protectionism 4) Bringing shadowy tax havens into the sunlight 5) A regulatory system for hedge funds and any other financial institutions that need closer regulation 6) Some kind of proper trading market for the kind of deadly financial instruments that helped to exacerbate the crisis (think credit default swaps) 7) An agreement to reform the bonus/compensation culture 8) A global regulatory system to monitor the big banks, control systemic risk and ensure they don’t start doing stupid stuff again 9) New regulation for  stricter leverage and capital requirements for banks, along with a better ratings system for financial products 10) A vague commitment to some kind of potential, perhaps, for some kind of agreement to put in place, maybe, some manner of  global fiscal stimulus, at some point in the indeterminate future. (Me? Skeptical? Never!)

8:35 GMT: Just been looking at last night’s seating plan (see below); lest you should think that not much thought went into it, bear in mind that Gordon Brown was sat next to the Chinese premier (keeper of the world’s debt) and the king of Saudi Arabia (keeper of the world’s oil). Also, surely no coincidence that Obama was sat next to German premier Angela Merkel – Obama perhaps was laying out the case for a global stimulus to a skeptical Merkel. I’m sure you can find some more logic to the seating…

8.33 GMT: Sarkozy just arrived and as usual looks like the most entertaining guy in the building…

8:30 GMT: Quote of yesterday? Gordon Brown citing the President of Brazil, Luiz Inacio Lula da Silva: “‘When I was leader of the trade unions, I blamed the government, when I became leader of the opposition, I blamed the government, when I became the government, I blamed Europe and America.” In other words, it’s a global problem, stupid…

7:56 GMT: By the way, if anyone was wondering what the seating plan was like for the Downing Street dinner for the world leaders last night, then take a look for yourself. Fascinating stuff…

741: GMT: World leaders arriving at Londond’s dockland, where the talks will take place… and here is Barack Obama, in the ridiculously large armoured monster known as “The Beast”…

7: 33 GMT: Hello! Welcome to Entangled Alliances’ live-blogging of the G20 Summit, at the ridiculously early time of 7.30 am. Today should be very exciting; we should hopefully be seeing nothing less than an agreed framework for a complete renovation in the global regulatory system. Either that or a Nicolas Sarkozy walk-out. Either way, things should be interesting and we’ll be there every step of the way… (well, through the medium of television and the internet. We won’t literally be there. Sadly…) Unless otherwise stated by the way, this is Edward live-blogging.

photo credit: Today is a good day

“The world should consider adopting the Nordic approach to capitalism and learn from the region’s response to its financial and economic crisis in the 1990s in the attempt to stave off recession, according to the chairman of two of Europe’s biggest companies.

Jorma Ollila, chairman of Nokia, the mobile phone maker, and oil major Royal Dutch Shell, said the Nordic style of capitalism was characterised by openness to globalisation balanced by strong government programmes to protect people from its excesses and an egalitarian education system.”

I’m a huge fan of the nordic model for Government, economics and to some extent even society.  The Scandinavian economies and even their welfare system have proved remakrably resilient in recent years, despite being targets for right-wing attacks (particulalrly in the US) and bizarrely O’Reilly feels Sweden is a nightmare communist state.

They’ve shown that globalisation need not be a negative as long as the state acts as a levelling tool, of course such engineering would be far harder in more economically diverse countries such as the UK and France, but in principles the direction is a positive one.

Right now, London is a hip compromise between the nonstop newness of Los Angeles and the aspic-pre-served beauty of Paris, sharpened to a New York edge. In short, this is the coolest city on the planet.

photo credit: *spud*

Thirteen years later, Stryker is back with an altogether more despondent vision.  Looking back over the Blair-Brown era, he casts back to the millennial optimism of the 1997 Labour victory and London’s world leadership in fashion, the arts and architecture.  The contrast, and it’s a stark one, is with a modern-day London heading into deep recession – the symbols of its former glory now insistent reminders of its current predicament:

Glitzy restaurants and cutting-edge fashion that used to be signs of welcome creativity reek of excess in a time of belt-tightening. Heavily mortgaged homes that looked like brilliant retirement nest eggs when property prices were soaring year after year now just look like basket cases. Construction sites and street works that once raised expectations of things to come now seem like major inconveniences. 

Interestingly, McGuire’s comparisons are not just historical, but allude to a Britain in decline while other countries rise from the ashes of their own recent past and, as a corollary, to a Prime Minister engaging in “Jeeves” diplomacy, evidently desperate to bask in the Obamian glow for a chance of electoral salvation.  This, we understand, in contrast to the optimistic verve of the Clinton-Blair “special relationship” (of which we are reminded by this weekend’s Progressive Governance Conference, a Clinton-Blair brainchild of 1999, and the announcement of a new Peter Morgan film).  Today, no more British bridge between the indispensable American nation and an idealistic integrationist Europe, but a country trapped in outdated alliance frameworks while Europe looks inward and America looks East (as the positioning before this week’s G20 summit has shown).

All in all, this is a fascinating article which is worth reading in full.  Its vision of British malaise is not quite as downbeat as The Economist’s notion of Reykjavik-on-Thames, but it does, I think, capture a pessimistic national spirit and the sense of drift not just of an economy, but of culture and a political system to boot.  This tone is manifested in phenomena as diverse as “Olympic regret”, the “summer of rage” and the return to headline dominance of political sleaze – always a sign of political decay.  In many ways, it is redolent of the “crisis of confidence” which Jimmy Carter identified in his ill-advised 1979 malaise speech (ill-advised, because it was a gift for Reagan to trumpet the indomitable American spirit – Britons, I suspect, are more accustomed to self-doubt).

If there’s cause for optimism, though, it can be found in McGuire’s original 1996 piece.  Marvelling at London’s reinvention and deliberately cautioning Londoners against hubris, he reminds readers of the city’s peculiar flux and of its rises and falls that, like inexorable market cycles, never cease to eschew the possibility of relaunch just around the corner:

The fun won’t last, of course. London swings violently between booms and busts. It was stuffy in the 1950s, when you couldn’t find a decent meal in the place; it was “swinging” in the 1960s, when pop music and Carnaby Street injected a dose of classless style. It was almost destroyed by grandiose redevelopment schemes in the early 1970s, then rescued again by the entrepreneurial energy of punk. In the early 1990s the city was mired in a deep recession. Now it’s back. Nobody planned this; nobody ever has.

photo credit: vaviolino

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?

First, let’s compare the quantity of our stimulus package with that of other countries. According to the International Monetary Fund’s figures, the United States’ stimulus works out, over two years, at 3.5% of its GDP. Germany’s stimulus package works out, again over two years, at 3.2% of its GDP.  And Britain’s? A measly 1.4% of GDP for 2009… and nothing in 2010, since it doesn’t actually stretch that far. Great.

Now let’s compare the quality of our stimulus. We got a demonstrably ineffective cut in VAT which did very little to kickstart the economy and get people back to work. Compare this with America – their stimulus package included everything but the kitchen sink – progressive tax cuts, infrastructure funding, higher unemployment benefits, investment in education and health services,  funding for renewable energy… If you want a fairer, European comparison then consider Germany: their stimulus package – all 50 billion euros of it – included money for roads, schools, public transport and hospitals as well as tax cuts for the poor and a generous payout to anyone who traded in their old car for a new, more environmentally friendly one (yes that’s right, the country that invented the automobile is more green than us).  Fair play to Germany then – they may be putting a spoke in the wheels of Gordon’s sensible plans, but at least they’ve already passed a proper stimulus.

But it gets worse. Not only has the British government failed to put in place a proper stimulus, but the Chancellor Alistair Darling appears to be trying to convince the U.S. that the one we did put in place was actually da bomb. As the Times’ political blog ‘The Red Box’ reported on Tuesday, Darling has rather suspiciously changed his estimate of what percentage the stimulus is of Britain’s GDP from around 1% – his estimate in November’s pre-budget report – to last Monday’s claim of 3.4%, which, if you were paying attention earlier in this article, you’ll realise is roughly the same percentage of GDP as America’s stimulus package. How has he done this? By including the money lost from the government’s coiffers as a result of less people paying income tax and more claiming benefits. Yes, that’s right – he’s including money that should be being paid out anyway as part of a stimulus. Why has he done this? It’s hard not to come to the conclusion that this has been done to prove to America that we don’t need more stimulus and thus reduce the pressure on Darling to include another one in the forthcoming budget.  I think maybe Gordon needs to have a few words with his Chancellor, don’t you?

One thing that’s very clear is that while Darling plays with the statistics,  more and more people are becoming unemployed and as a result overstretched job centres are losing the ability to actually get people back to work. Here’s Polly Toynbee in The Guardian yesterday:

Insiders in Jobcentre Plus offices tell of the pressure from a surge in new claimants. A manager of a Jobcentre Plus in Essex tells me, “forget personalisation”, echoing others who have contacted me. Claimants just get the next adviser on the taxi-rank. First interviews are cut from 40 minutes to 30 minutes, and the “better-off calculations” have been dropped because they are taking too long: new claimants know they’ll be better off working. The fortnightly signing-on review has been cut from 10 minutes to seven minutes – and other areas report as little as five minutes…

“What used to be meaningful interviews have turned into fantasy conversations when you both know there are no jobs,” the Essex manager says. These interviews will grow more perfunctory with every passing month.

It’s clear, then, that we need a proper stimulus now. Actually we needed one months ago,  but let bygones be bygones, eh?  All will be forgiven if our number-fiddling Chancellor can pull off a massive stimulus in the forthcoming budget. What kind of stimulus are we talking about? Let’s see… investment in green technology would create lots of new jobs while also aiding in the fight against global warming and saving us money in the long term. A radical overhaul of our pitiable roads and trains will create even more jobs and also reap benefits further on down the line, since our pathetic transport system costs us millions every year. Higher investment in education will both create jobs in the short-term and enable kids to get jobs in the long-term. Raising the threshold at which people start paying income tax from the current £6000 to more like £10,000 – as suggested by the chairman of the Treasury Select Commitee back in January – would help those hit hard by the recession to get back on their feet. As for those hit hardest by the recession, there should be a significant boost to the job seeker’s allowance – do we really believe in this day and age that 60 quid can last you a whole week? In the long term this wouldn’t even cost the government anything if it was done at the same time as giving job centres more resources so they can actually, you know, put people back to work.

Those are just some ideas. I’m sure you can think of some more – god knows many have been floated by commentators more clued in than me , though whether the government’s listening or not is anyone’s guess. At any rate, one thing is economy-crushingly clear: Gordon Brown may be on the right side of the debate with his G20 call to arms, but so long as his strategy back home is in glaring contradiction to his strategy abroad how can he expect anyone to have faith in his ambitions? And here’s something he might want to consider: while a doomed effort to convince a stubborn Europe to take the right path is still admirable, even in defeat, sitting by while your people are crushed by a catastrophic economy is unforgivable. Over to you, Gordon…

photo credit: srqpix

Last month Britain was swept up in a maelstrom of rage after it was revealed that Fred Goodwin, the chief executive of the Royal Bank of Scotland, was due to receive a generous pension to the tune of a staggering £703,000 a year. The problem? The Royal Bank of Scotland is now 70% owned by the British taxpayer. Cue outrage from all sides: while the tabloids and broadsheets alike foamed at the mouth, government ministers went a bit mental and promised to suspend the rule of law. The controversy over Goodwin’s pension wasn’t just a matter of one man’s greed, however; it was a focal point for the public feeling of  helplessness, disbelief and disgust brought on by the realisation that the mighty, all-knowing financial powers we entrusted with our money are actually just a load of out-of-their-depth greedy idiots who’ve gone and squandered the lot.

Well, now the United States is having their “Goodwin” moment – and who knows where the chips will fall?

The controversy centres around American International Group, the behemoth insurance giant who has so far been bailed out to the tune of $170 billion – $30 billion of that under Obama’s watch. It turns out that AIG intends to pay its employees $165 million in bonuses. Yes, you heard that right: AIG, one of the companies directly responsible for the financial meltdown, wants to reward its employees to the tune of one hundred and sixty five million dollars. Cue outrage across America: congressmen foaming at the mouths, TV pundits having aneurysms before our eyes, etc.

AIG Chief Executive Edward M Liddy (who is testifying before Congress today which should be, uh, interesting…), defended the bonuses by claiming they were necessary so that AIG could keep their “best and brightest talent”, though quite what the talent were doing while the economy went to hell in a handcart he neglected to explain. An arguably better defense of the bonuses has been made in the New York Times: essentially, they are necessary to stop the departures from AIG of the only people who know how to defuse the complex financial instruments that they helped put together. This is all very well, but perhaps we should first remind ourselves how AIG got into this mess, and then judge for ourselves whether we give a damn if there’s anyone left in their offices by the end of the month…

Basically, AIG dragged themselves into this hole – taking part of the economy with it – by engorging themselves on the devastatingly stupid credit default swap market. Say what now? Allow me to explain. A credit default swap is essentially an insurance contract, in that an insurance company – like AIG – says to a bank: I bet you that your subprime mortgages won’t fail. You pay me an annual premium, and, in the event of the subprimes being defaulted upon, I’ll pay you their value! Sounds alright, except for two things: the subprime mortgages turned out to be pretty rubbish. And by pretty rubbish I mean economy-ruining awful. Even more damning, AIG took on so many contracts that they didn’t have enough money to pay out in the event of all the subprimes defaulting. Which is obviously what happened – which in turn is partly the reason why you don’t have a job, the bailiff is taking your sofa and there’s an angry mob off to burn down the banks.

AIG, however, are not the only ones facing tough questions. Treasury secretary Tim Geithner, and his accomplice National Economic Council head Larry Summers, are under close scrutiny over their roles in this clusterf***. Specifically, why were strict rules on bonuses not ironed out when AIG was given a further $30 billion last month? Were Geithner and Sumners aware of the bonuses at that point? If not, why not? If so, then can we have your resignations, please? There is a growing feeling, as there has been ever since Geithner and Summers were appointed to their respective roles, that Obama’s economic gurus are, to repeat a cliche, more interested in protecting Wall Street than they are Main Street. Their original reaction to the news of the bonuses didn’t  exactly squash this suspicion: Larry Summers basically said “they have ironclad contracts… there’s nothing we can do!” Nothing we can do, eh? I suppose that’s why Congress is right now planning to impose a 100% surtax charge on the bonuses, right?

If anything, this mess is another reminder that the Treasury seems to be trapped in what Paul Krugman has called the “Big Dither” when it comes to fixing the banks. Geithner is obviously reluctant to go down the path of bank nationalisation, even though – as increasing numbers of economists are pointing out – it’s the most efficient, tax-payer friendly way out of this mess.  Indeed, as I pointed out a few weeks ago in my post “Nationalising Banks – In America?” a path to nationalisation was slipped into last month’s still-not-enacted Treasury plan. But Obama’s team seem unwilling to bite the bullet and take over the troubled banks. Instead, Geithner gets the worst of both worlds: no concrete action on the banks and a lack of confidence caused by the Treasury’s unwillingness to do anything. In this way, the AIG scandal only serves to highlight the perils of the current strategy: on the one hand using taxpayer money to bail out the banks but on the other hand not having any control over what happens to our cash. Given all this, it’s hard not to agree with Ex-Labour secretary Robert Reich’s conclusion:

Oh, and by the way, Mr. President. You may not want to hear this, but your Treasury Secretary is making things worse. His dithering on what to do about Wall Street, and his incapacity to speak clearly to the Street and to the public about what needs to be done, is spooking everyone. Why doesn’t he just put the irrevocably insolvent banks into receivership under the FDIC, sell off their assets, protect depositors, and reimburse taxpayers with whatever remains? Let the rest of the banks fend for themselves — working out their bad loans with their creditors. As to AIG, well, that’s a complete basketcase. Put it out of its suffering. Take it over, sell its assets, protect policy holders (you’ll need to create a big co-insurance plan with every other major insurer in the world), then get out.

I should add that had the government allowed AIG to go bankrupt then the problem would be solved: in bankruptcy proceedings bonuses would be right at the back of the queue behind dozens of more important creditors. This makes AIG protests all the more ridiculous. Of course, if the government owned them, then this wouldn’t be a problem:  you don’t have to honour a contract if the other party doesn’t exist anymore.  Given this, I think the argument for nationalisation of companies like AIG goes from “pretty rock solid” to “more unbreakable than diamond”.

Right now, Obama’s worst enemy is his Treasury department. The AIG mess and the unprecedented public rage that has followed it is not just another example that capitalism as we know it has failed – though it is that -  but also an urgent warning to the President: If he doesn’t do something about the banks soon, then he can kiss the rest of his agenda goodbye. It really is that simple.

Update: Chris Bowers identifies the four main questions that need answering about Geithner and Summers’ involvement in the mess.