Tired Brown set for G20 disappointment

The following comment by me appeared in the latest Fund Strategy (30 March).

Gordon Brown is no doubt hoping that this week’s G20 summit in London will bolster his standing at home and abroad. He is likely to be disappointed.

Judging by Brown’s PR he is an important world leader whom everyone does, or at least should, treat with great respect. In reality he is the ailing head of a middle-ranking European power. The prime minister, who in his decade as chancellor constantly intoned that there would be “no return to boom and bust”, has presided over bust on a massive scale. Although Britain is not yet financially bankrupt, its leader is morally and intellectually exhausted.

Brown may – sadly – be able to get away with hectoring his own citizens but his patronising approach is unlikely to endear him to the G20 leaders. No doubt they will smile politely at the summit but they do not need advice from Brown on fiscal stimulus or any other economic matters.

Indeed, several events last week look set to prove early warnings of the difficulty of promoting economic recovery through fiscal stimulus. The failure of the gilt auction on Wednesday signalled that the City could be reluctant to finance Brown’s spending plans. This debacle followed in turn the statement by Mervyn King, the governor of the Bank of England, that Brown needed to be cautious about his stimulus package. When Brown was asked by journalists about this comment he studiously avoided taking it up directly.

Last week’s criticism of the American stimulus package by Mirek Topolánek, the current European Union head and the outgoing Czech prime minister, also probably rattled Brown.

Topolánek’s criticism of the package as “the road to hell” was an attack on Barack Obama, but he is even less likely to be intimidated by Brown. Other global leaders will probably be as up-front, but they are only likely to implement stimulus packages if they see it as being in their national interest.

An alternative approach to stimulus, suggested by John Tamny of realclearmarkets.com at last week’s Fund Strategy Investment Summit in St Moritz, might be to accept the short-term pain of economic restructuring in the hope of a longer-term recovery. Whatever the merits of such an approach, the prime minister is unlikely to have the nerve for such a direct political conflict.