Two leaders, one priority: the economy

By Leonard Doyle in Washington and Ben Russell

March 2, 2009

One is heading for election defeat, the other fresh from an historic victory. But the two men who will meet tomorrow have the same political headache

Barack Obama is reaching out to Gordon Brown to help deliver an international climate change treaty and steer the world towards economic recovery in the face of a fiercely protectionist mood in the US and elsewhere that could plunge the world into a full-scale depression.

Mr Brown becomes the first European leader to meet the President tomorrow and, on Wednesday, he has the honour of addressing both houses of Congress. Though he is certain to be well received, the Prime Minister will be speaking to lawmakers whose main focus is on saving American jobs first.

Mr Brown arrives just as the President is engaging in a battle to transform the US economy with its huge dependence on foreign oil while delivering ambitious healthcare and education reforms to restore US competitiveness. Mr Obama is also fighting special interest groups and lobbyists who want to derail his $3.6trn (£2.5trn) budget plan aimed at jump-starting the US economy while radically reforming it.

The President is coming under tremendous pressure from unions and industry to protect US jobs by erecting barriers to trade. Mr Obama may find an ally in the Prime Minister, much as George Bush needed an accomplice in Tony Blair for his military adventures in Iraq.

In his weekly radio address on Saturday Mr Obama delivered a populist blast at entrenched Washington interests, challenging his domestic opponents: "I know these steps won't sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they're gearing up for a fight as we speak. My message to them is this: So am I."

"The system we have now might work for the powerful and well-connected interests that have run Washington for far too long but I don't. I work for the American people."

While focused on economic recovery, the two leaders are also pushing aggressively for an international climate agreement which they hope will provide a new engine of growth in a global low-carbon economy. Mr Obama says the US will lead the effort to get international agreement on emission limits and he has the political backing to do so provided other countries sign up as well.

The fear is that next month's G20 summit in London could degenerate into a disastrous finger-pointing row over trade between older industrialised countries and the new economies of Asia and Latin America, making a climate change treaty even more difficult to achieve at the Copenhagen summit in December.

British diplomats were in high-level meetings at the White House last week to discuss climate issues and the US is promising to negotiate a new climate treaty "in a robust way" after all but ignoring the issue for the past decade.

Mr Brown will use his speech to Congress to seek to persuade American politicians to endorse plans for a "grand bargain" at the G20 summit.

Yesterday, Mr Brown met European leaders for an emergency economic meeting in Brussels and pledged to deliver a "clear message" to Mr Obama about European commitment to "a global grand bargain" he said was "vitally urgent to deal with the challenges of the world economy".

Writing in The Sunday Times, Mr Brown cloaked his agenda for his Washington visit in familiar rhetoric. "There is no international partnership in recent history that has served the world better than the special relationship between Britain and the United States."

He also invoked the long-standing links between Britain and the United States, particularly at times of crisis, such as during the Second World War, the Cold War and the aftermath of the 9/11 terror attacks.

But the Prime Minister also made clear that rebuilding global financial stability needs global solutions and that the task ahead "is to secure a high-growth, low-carbon recovery by taking seriously the global challenge of climate change."

Until recently getting the most powerful nations, as represented by the G20, to tackle global warming together has been an environmentalist's Utopian vision.

The Prime Minister argues that the 21st century "global new deal" he wants to achieve will require public spending on a huge worldwide scale.

He also hopes that Mr Obama's vast US economic recovery package that was finally signed into law last week will help give international political backing for the British Government's moves towards stimulating the economy by increasing the money supply.

Action plan: Risk of 'L-shaped' depression

This is the 15th month of a painful U-shaped recession expected to last at least until the end of the year – 24 months, the longest since the Great Depression. Next month the G20 industrialised and leading developing countries will attempt to frame an agreement for recovery which Gordon Brown wants President Barack Obama to sign up to in advance.

*The plan is to co-ordinate global action to reduce the depth and length of the recession. But there is a danger that things could get worse even with aggressive policy actions – monetary and fiscal stimulus, bank clean-up and credit restoration, mortgage debt reduction for insolvent households – and the growth rate may not rise closer to 2 per cent until 2011.

*Nouriel Roubini, the economist who most accurately predicted this crisis, says it may last 36 months. "We face a one in three chance that ... this may turn into a more virulent L-shaped near-depression or stag-deflation (economic stagnation with price deflation) like the one Japan experienced in the 1990s."