Beware politicians moralising on the sin of indebtedness

[Donnachaidh]

http://www.guardian.co.uk/commentisfree/2010/jun/27/g20-global-recession-inflation


Boarding the plane to a G20 summit is a ritual. Every leader declares that the meeting must be focused on sustaining the economic recovery, that it must not rehearse platitudes. It would be rather odd if they did not say this. Political leaders tend to genuflect to obvious virtue. The difficulty is that each has a different idea of what might sustain the recovery – and none has any intention of making any significant national sacrifice for the greater global economic good.

Thus, at the meeting in Toronto this weekend, international collaboration has been under threat. There were moments between September 2008, when Lehman Brothers collapsed and the world saved its banks upon the model initiated in London, and the London summit in April 2009, when Gordon Brown successfully lobbied for the IMF and the World Bank to have their reserves replenished by $1 trillion, when the threat of financial meltdown concentrated minds wonderfully. Since then, it has been downhill all the way.

There was the fiasco of Copenhagen, where there was no useful agreement on measures to combat climate change or even how much it constituted a global threat. There is still no agreement on committing to extending global free trade in the Doha round of trade talks, despite exhortations from every subsequent G20 summit. If the Chinese have avoided the threat of the US imposing unilateral tariffs on Chinese exports and potential trade war by agreeing to allow their currency to appreciate against the dollar, its rise last week was an imperceptible 0.4%. In Basel, the banks have managed to fight off any substantial internationally agreed reform in the amount of capital they hold. In other words, little change and little action.

Above all, there is no agreement on how to manage the world economy in the aftermath of a credit crunch. European governments, including ours, are transfixed by the sovereign debt crisis. What everyone dreads is that over-indebted European governments will be barred from borrowing if they need to bail out the banks again. The euro is being threatened by near-terminal strains. To assuage the speculators and save the euro, the lesson being drawn across Europe is that government borrowing must be slashed.


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