Editorial: Brown's lofty ideals come back to earth

Opinion

At one time, British Prime Minister Gordon Brown thought the sky was the limit for this week's Group of 20 summit in London. "We can together deliver the biggest financial stimulus the world has ever seen, the biggest cut in interest rates, the biggest reform of the international financial system, the first international principles governing banking remuneration, the first comprehensive action against tax havens and, for the first time in a world crisis, new help for the poor," he said.

This virtual redesign of the world financial system was to be achieved in just 4 hours. Never mind that it took world leaders 22 days to hammer out an agreement on global finances at Bretton Woods in 1944.

With good cause, Mr Brown is now trimming his expectations in the final lead-up to the summit. It is in the nature of such events that, whatever the good intentions, they produce little apart from worthy-sounding communiques. More concretely, the Anglo-Saxon economic bloc, led by the United States and Britain, enjoys far from universal support. In particular, Germany and France say they are are loath to support a co-ordinated worldwide $3.5 trillion spending boost until they see how well previous injections have worked. They worry, also, about soaring budget deficits and the inflationary impacts of such huge sums of capital.

It may be too early to deliver a definitive assessment on the fiscal stimulus and rescue packages introduced by every major economy. But the German and French thinking is certainly self-interested and probably unduly cautious.

There are early signs of the packages bearing fruit, while reduced interest rates and the quantitative easing of the Federal Reserve and the Bank of England will promote spending. And ringing in the ears of France and Germany should be an International Monetary Fund warning that this effort must be maintained into next year if a prolonged slump is to be avoided. Equally, by keeping a rein on their consumers' spending, the pair deny other nations' exporters a boost, while enjoying one themselves as their exports find fertile pastures in stimulated economies.

The G20 communique will probably fudge this issue, and concentrate on issues of broad agreement. The more the discord over a universal stimulus package, the more there will be talk of new funds for the IMF, a move designed to support developing nations and address the problems of countries that have exhausted their fiscal manoeuvrability. There is also likely to be consensus on the need for tighter regulation of banks and other financial institutions,

especially curbs on excessive risk-taking, and progress towards a treaty on global financial regulation and a World Trade Organisation-style secretariat. Tough sanctions aimed at securing greater transparency from tax havens will also feature. Any success there is, however, likely to be shortlived as other jurisdictions take advantage of inevitable loopholes.

There will, also, as a matter of course, be a declaration about the importance of shunning protectionism. But that will sound hollow, given the many protectionist initiatives since the last G20 summit and, now, the attitude of the Germans and the French. Protectionism is all about keeping spending power within one's own bailiwick, and that is, effectively, what those two countries are doing by declining at this time to be part of a co-ordinated package.

More fundamentally, they are snubbing the notion that countries working together will be a more effective means of ending the recession than acting alone in their own interests. If a crisis that is global in scope fails to attract a global response, confidence will be in even shorter supply.