WHEN little-known Tory MEP Daniel Hannan stood up in the back row of the European Parliament in Strasbourg last Tuesday afternoon, few could have guessed what would happen next. Hannan, a Peruvian-born, Oxford-educated, right-wing maverick, had a few things to get off his chest. Below him, Gordon Brown had just finished a speech outlining his plans for the forthcoming G20 summit, and, by the rules of the Parliament, the Prime Minister had to sit and listen to responses.
Hannan let fly. Brown was a "Brezhnev-era apparatchik", a "devalued Prime Minister of a devalued Government", "pathologically incapable" of accepting responsibility. Britain, Hannan declared, was in a worse condition to face the coming financial stor
m than virtually every other developed nation and more in debt than Hungary and Pakistan. And Brown was making the situation worse by continuing to spend, racking up debts that would leave our grandchildren in penury.
Hannan sat down, posted his speech on his blog and went to bed. By the following morning, he was a star. By Friday night, more than 1,200,000 people had watched it. The speech had gone viral. A somewhat startled Hannan was interviewed on the conservative American news channel Fox News, where he was asked whether he would soon be Prime Minister. "Watch this man," said the anchor, barely able to contain his admiration. A new champion of the right was born.
Brown laughed off the Hannan attack in the Parliament. The economists who are still rallying to the Prime Minister's flag sigh and point out Hannan's rhetoric demanding that the Government should "tighten its belt, like everyone else" ignores the point that, in a recession where no one is spending, the Government must fill the gap. But following the staggering reaction to Hannan's speech, the Prime Minister will surely not be laughing now.
In the USA, the Hannan critique will not have escaped Team Obama's notice either. "Something powerful is stirring in the land," declared George W Bush's former 'brain' Karl Rove, the man who built his reputation on his intuitive feel for the mood of the American people. "Many Americans are anxious – and indeed angry – about deficits, taxes, and the national debt." If Stage One of the Credit Crunch was the widespread fury over the ineptitude of the bankers who appear to have landed the world in such grave trouble, could Stage Two be an equal rage over the profligacy of the politicians' solution?
Obama and Brown will this week attempt to sell to the world the necessity of their cure, claiming that without it, the world's economy is doomed. But now people are beginning to ask: might that cure be worse than the disease?
For Brown, the coming days are as big as it gets. The Prime Minister was visibly exhausted last week as he travelled from Brussels, to New York, to Sao Paolo, in preparation for the summit. The physical toll he is putting himself under is a reflection of the importance of the task ahead. "It really will be make or break time for his Government," says former Labour minister Stephen Byers, in relation to the G20 and the Budget which will follow. With the world's leaders flying into London, this week represents Brown's best chance of redemption. Screw up this week, on the other hand, and his chance of re-election next year might be gone.
For Obama, the landscape is very different. Still basking in the approval of the wider world, he will enjoy adulation wherever he walks the moment he steps off Air Force One in London on Wednesday. A private visit with the Queen is planned. Politicians, including Tory leader David Cameron, will queue up to be granted a prized audience. The world's media will hang on his every breath.
Brown's allies admit that it is Obama's support for the Prime Minister that is by far his strongest hand. "Brown's basic strategy will be to say: 'Look, Obama agrees with me. I must be right,'" said one Labour source. Both men are convinced of the need for a massive fiscal stimulus to inject demand back into the economy. They argue that trillions should be spent by governments to help the economy back on to its feet. What is clear is that, while they may be at opposite ends of the career trajectory, such is the scale of the global financial crisis, the careers of both men will be judged by the response.
On both sides of the Atlantic, the case for the prosecution is now growing – and not just from right-wing MEPs. For Brown, the problem is not just the argument over the need for Government spending – which is accepted by most of his fellow G20 leaders – but the question of whether he has left himself in a position to afford it.
According to the IMF, Britain will borrow more than any major economy next year, at more than £165bn or 10% of GDP. That will push the national debt beyond £1 trillion (£1,000,000,000,000) for the first time. In what Cameron claimed was "the defining moment" of the recession last week, the governor of the Bank of England, Mervyn King, urged caution on further big spending on top of all this. King's clear concern about Britain's credit worthiness was then laid out in practice when, for the first time since 1995, a Treasury auction of Government debt – usually seen as the safest refuge for investors – ended with some of it still on the shelf.
Yesterday, George Soros – the man who made £1bn out of Black Wednesday – said the levels of debt would put people off investing in Britain. "It is a matter of worry because effectively the hole in the banking system is replaced by increasing the national debt." Might Britain have to go to the IMF? "It's conceivable," Soros said. "You have a problem that the banking system is bigger than the economy… so for Britain to absorb it alone would really pile up the debt… if the banking system continued to collapse, it's a possibility, but it's not a likelihood."
Brown will be desperate this week to ensure that none of his G20 allies breaks rank to reflect a widespread view – that Brown can hardly demand a minimum fiscal stimulus for the world's economies when his own friends in the City and at Westminster are warning him it can't be done.
The charge against Obama is not so much that he cannot afford to meet the demands of the crisis, but that he is using the crisis to play catch-up with his British friend. After taking up office, Obama's chief of staff, Rahm Emmanuel, declared: "You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things you could not do before."
It is now becoming clear what he meant. Federal spending under Obama this year is likely to reach levels not seen in the US since the Second World War. Critics claim that, using the crisis as an excuse, Obama has decided to lavish spending on all the areas that Democrats before him have tried and failed; a universal healthcare programme, a vast expansion of education schemes, and a £600bn new green energy scheme. Rove declared: "He is quite openly using the economic crisis to launch a massive, permanent expansion of Government, financed by even more borrowing and ever higher taxes."
The reaction to this in free-wheeling America has not been promising: Obama's net approval rating – the number of people who strongly support him as against those who strongly oppose him – has slumped from 28% the day after his inauguration to 6% in March. Even Obama's Democrat allies are unimpressed, with leaders in the Senate calling for £100bn to be stripped from the President's proposals. One political magazine this weekend even speculates that Hillary Clinton may soon quit, in order to sink the administration and leave her free for a shot at the Democratic nomination in 2012.
For the supporters of Brown and Obama, the attacks on spending miss the point. Their argument is that the numbers are indeed largely irrelevant. Carl Emmerson, deputy director of the Institute of Fiscal Studies, points out that because of the current low interest rate, the actual annual burden on the taxpayer of all the borrowing Brown is advocating will be less than it was in 1997, when Labour came to power.
Professor Brian Ashcroft, of the Fraser of Allander institute at Strathclyde University, explains it as follows: "If interest rates are around 2%, then it would mean that we would have to pay around 1% of GDP (every year] to pay off the debt payments. If that extra borrowing saves more than 1% of GDP by securing a quick turnaround in the economy, then it is worth it."
Emmerson adds that the real challenge is not so much piling on more debt – which governments have always had – but convincing the markets that you have a clear strategy for bringing it down. "You can get away with borrowing more as long as you are credible about getting it back under control," he said. That credibility convinces the markets of your credit worthiness, preventing the kind of run on an economy which ends in a phone call to the IMF.
In Obama's case, the economists point out, his case is further strengthened by the simple fact of America's indispensability. Political economist John McLaren said: "It doesn't really matter if they screwed up because people will always go back to them." Despite a suggestion by China last week that the dollar should be replaced as the world's reserve currency, such a plan is way off the table. The US's invulnerability, despite its vast deficits, is thus guaranteed.
That will not stop the critics this week, however. Many eyes will be trained on the Czech Prime Minister, Mirek Topolanek, the current president of the EU, who last week issued a fierce broadside against the policies of Brown and Obama. "All these steps… is the road to hell," he declared.
And as for the idea that somehow Brown can boost demand by his various stimuli – well, what happened to the £12.5bn spent last year on cutting VAT? McLaren says: "How can you go out and tell people to spend? And how can you then tell them to go out and borrow? You've got to be either at war or a dictator to do that."
The fear is that, in attempting to 'fill the gap' where our spending once was, all Brown and Obama are doing is spinning out a nasty but necessary correction in the economy. "We have to take a lot of medicine," added McLaren. "I mean, maybe we can all start managing with just one DVD player instead of two."
Even their defenders admit that, despite their show of certainty, neither Brown nor Obama really know whether any of their schemes will be effective. "We don't know how the fiscal stimulus will work," says Ashcroft. "What is happening at the moment is that people are holding on to their cash."
Whether Brown can persuade his reluctant friends from across the world this week to press ahead and get a global commitment on spending will go a long way to deciding whether or not he emerges this week strengthened or grievously weakened. On the plus side, the world's most popular politician is in his corner. But on the down side, an increasingly restive public is beginning to ask some tricky questions. "The truth," Hannan told Brown last week, "is that you have run out of our money."
Where did it all go, Gordon?
All you need to know about the G20 summit
What is the G20?The G20 is a loose collection of the world's 20 leading economies whose finance ministers have met regularly since 1999 to discuss international finance, in an effort to smooth out international economic problems. The countries include the G8 plus nations such as China, India, Saudi Arabia, Turkey and Brazil, which, between them, make up 85% of the world's wealth. The G20 Heads of Government met for the first time in New York last November, after the financial crisis broke.
Why are they meeting this week?The London summit is the follow-up to the New York event. The leaders are committed to three goals: to take "whatever action" to stabilise the financial markets; to reform the financial system to restore confidence; and to agree policies for sustained growth and poverty reduction. At the summit, leaders will sign off on detailed plans to achieve those aims.
Why should I care?All the G20 leaders have pointed out a globalised economy requires a global solution. If all countries' central banks agree to pump in cash to their economies, for example, the theory is that people will start spending, and the flow of imports and exports on which peoples' jobs depend will resume as before. If the G20 together outlaws protectionism, agrees new international banking regulations, and offers more collective support to the poor, then optimists believe the worst of the recession will be avoided.
What are the likely areas of agreement?A deal to oppose protectionism and maintain open trade; an agreement to keep pumping in more taxpayers' cash; a fresh injection of cash to the International Monetary Fund, which bails out bankrupt nations; support for new regulations for financial institutions.
And disagreement?All in the detail. While the G20 leaders are likely to form a united front in public, they are split over the small print and over the scale of the effort required to overcome the crisis. Gordon Brown's hopes for a massive new fiscal stimulus are opposed by countries such as Germany and France. America is unlikely to want to agree to binding new regulations on its own financial sector. Meanwhile, developing nations such as Brazil – angry about what they see as the "white man's" crisis – will not roll over unless they get progress on more international financial support for poor countries. And then there is the question of who gets to stand next to Barack Obama on the official photo…
Who or what will be giving Gordon Brown nightmares?1. The collapse of the summit. The developing nations could refuse to sign a joint agreement (it was no coincidence that Brown flew to Sao Paolo last week to cosy up to President Luiz Inácio Lula da Silva).
2. A maverick seizing the headlines – step forward Czech Prime Minister Mirek Topolanek, the current president of the EU, who last week described Brown's fiscal expansion plans as "the way to hell".
3. A crash in the markets on Friday – if stock markets tank in response to the summit, Brown's claims to have "saved the world" will be seen as a failure, and his best chance of a political comeback spurned.
What is Brown's dream scenario?1. Obama tells the media as the summit closes: "We were close to a disagreement for a moment, but my friend Gordon pulled it around."
2. European nations pledge trillions extra in a giant global fiscal stimulus package, which sees stock markets surging as confidence returns.
3. The G20 agree to a multi-billion-pound package to provide more aid to Africa and the rest of the developing world.
'Ring of steel' to keep protestors at bayThe security operation surrounding the G20 summit will be the biggest since world leaders met at Gleneagles in Perthshire in 2005 amid fears of the most serious public disorder in the UK for a decade, writes Jeremy Watson.
The three-day meeting, which starts on Thursday, is being held at the ExCeL conference centre in London's Docklands with the site deliberately chosen as relatively easy to defend should the anti-globalisation movement protests emerge as expected.
ExCeL is bounded on one side by the Thames and by a railway line on the other, making the police and security services' 'ring of steel' – now customary at such events – easier to set up and harder to penetrate. Surrounded by its 100-acre Royal Docklands campus, the venue includes access to the Jubilee Line and London City Airport, parking for 4,000 cars, five hotels and numerous on-site bars and restaurants. Cocooned inside, the world leaders are likely to be able to meet without any hint of the demonstrations taking place beyond ExCeL's boundaries.
As well as yesterday's march from the Embankment to Hyde Park, a series of events is planned in the run-up to the start of the summit. Wednesday, April 1, has been renamed Financial Fools Day and has been earmarked by the G20 Meltdown group as the key date to 'reclaim' the City of London. Anarchist groups and environmental activists are collaborating on demonstrations being advertised with slogans such as 'Storm the Banks' and 'Bash a Banker'. One website urges demonstrators to "express their rage".
On the day, four horsemen of the apocalypse, representing 'war', 'climate chaos', 'money crimes' and 'homelessness' will set off from railway stations encircling the Bank of England. Thousands of protestors are expected to converge on Threadneedle Street. The G20 Meltdown alliance – covering splinter groups such as Stop the War, Government of the Dead, Class War and Stop the City – insists its intentions are peaceful with plans to stage carnival-like parades, and a street party with theatre and samba music. But effigies of bankers, including Sir Fred Goodwin, the disgraced former chief executive of Royal Bank of Scotland, are to be hung from lamp posts.
Bank staff have been told to dress casually for the duration of the summit.
The full article contains 2978 words and appears in Scotland On Sunday newspaper.
