Prime Minister loses battle for global stimulus
Ministers talk down expectations that the G20 summit could produce international agreement on a major cash injection
Gordon Brown's hopes of kick-starting the world economy with a massive cash injection into its financial system have evaporated in the face of resistance led by France and Germany.
The Prime Minister had originally envisaged that Thursday's meeting of the G20 leaders of the most powerful economies would take dramatic action to combat recession.
But British ministers, fearing a stock- market slide this Friday triggered by headlines suggesting that the summit had failed, have been forced to scale back their expectations.
The communiqué to be signed by world leaders on Thursday is expected to contain only a vague commitment by leaders to take all the necessary steps to boost recovery.
The German Chancellor Angela Merkel and French President Nicolas Sarkozy, backed by other EU nations, have opposed fresh efforts to pump-prime their economies. And yesterday the Chinese government indicated it was not bringing its cheque book to the summit.
Last week Mervyn King, the Governor of the Bank of England, also warned against significant extra spending by the UK Government.
Diplomatic tensions ran high yesterday as the German government was forced to deny it had engineered the leaks of two draft communiqués, drawn up in advance of the gathering, to weaken the British position.
The German magazine Der Spiegel said it had obtained a leak of a paper prepared by Britain calling for a $2 trillion-dollar (£1.4tr) global fiscal stimulus. The draft claimed that the massive cash injection would boost growth by 2 per cent and create 19 million jobs.
A spokeswoman for the German government insisted it was not behind the leaks: "We treat all drafts with complete confidentiality." Britain insisted the figure related to a sum agreed by G20 leaders four months ago in Washington, when they last met. A second version, leaked to the Financial Times, contained no numbers, suggesting the leaders will not discuss the extent of any fiscal stimulus measures.
The Prime Minister is now counting on an agreement to pump more cash into the International Monetary Fund, as a boost for developing countries, and an agreement for tighter regulation of tax havens. The leaders look certain to condemn protectionism and to pledge to resume talks over world trade.
The Business Secretary Lord Mandelson yesterday sought to play down expectations for the summit. Amid police warnings of violent protests in the City to coincide with the gathering, the Business Secretary also called for an end to "bank-bashing" by politicians and media alike.
Asked about the planned demonstrations, he told Sky News: "They're going to say: 'Right, action now. Decisions today. Changes overnight.' It's not going to happen like that.
"What we are seeing is the beginning of a process and the time to judge the outcome of the G20 summit in London is in a year's time, when people have followed up the decisions that they will have taken."
He added: "Now we are starting to see the banks just starting to unblock, unstick themselves, unsqueeze themselves, let's give the banks a bit of a breathing space to give them some chance and some time to do their job differently and better." The Chancellor Alistair Darling likewise warned yesterday that the world's economic woes would not "get sorted in one day" on Thursday. "It will be necessary for us, for other countries, to continue to do more," he said. "We have got to be realistic. We should not be overly optimistic that everything will get sorted in one day. It is a process."
Making clear that a new fiscal stimulus package was not on the table, Mr Darling said: "We are not saying everyone had to do the same thing at the same time on the same day. But we must act together."
Kevin Rudd, the Australian Prime Minister, meets Mr Brown today. He also maintained that it was "never the intention" to announce a new fiscal stimulus. And the Chinese ambassador to Britain, Fu Ying, dismissed suggestions that her nation would pump cash into a recovery package.
She told BBC 1's Andrew Marr Show: "[China's] reserves are not the money of the government. The premier cannot write a cheque on it. It's the money of the Chinese people and the Chinese businesses who left it in the safe-keeping of the central bank."
As he prepared to leave for London, on his first visit to Europe as President, Barack Obama declared that popular anger at bonuses paid to US bankers bailed out by the government was "justified" and that "some healthy expressions of anger" had led to $50m-worth of those bonuses being paid back.
On CBS's Face the Nation yesterday, Mr Obama revealed that he had told US bankers in meetings at the White House that they needed to understand that "for the average single mom who is just barely struggling ... and [who] then finds out that a taxpayer-assisted firm is paying out multimillion-dollar bonuses, that's just not acceptable."
He said he had told the bankers: "Show some restraint. Show that you get that this is a crisis and that everybody has to make sacrifices."
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