Events | 2009.03.15
Germany and France reject Brown's plan
Angela Merkel insists any further short-term fiscal stimulus should be up to individual governments, not the G20
Gordon Brown\'s hopes of uniting the world\'s most powerful economies behind a massive new package of tax cuts and public spending increases suffered a serious blow yesterday when he failed to persuade France and Germany to back his plan to revive the world economy.
After talks at Chequers to prepare the way for next month\'s G20 summit in London, Angela Merkel, the German chancellor, ruled out ordering another "fiscal stimulus" in the short term, and made it clear that if more action were to prove necessary in Germany it would be for Berlin to decide, not the G20.
Her comments were echoed by the French finance minister, Christine Lagarde, who was attending a meeting of G20 finance ministers in Horsham, West Sussex. As ministers tried to agree a way forward, Lagarde said she was optimistic the meeting could make progress, but added that nations needed to "evaluate the remedies already put in place by each of us" before ordering huge extra spending on top of that already sanctioned.
The remarks effectively killed off proposals being pushed jointly by Brown – who will chair the G20 summit on 3 April – and US president Barack Obama, whose administration believes that more co-ordinated fiscal action by the world\'s biggest economies is essential to revive global demand.
Standing alongside Brown at a Downing Street press conference, Merkel said she was sure the G20 – made up of the world\'s biggest industrial and developing countries, which account for 85% of the global economy – would yield "concrete results".
But when asked if she would back further tax cuts and spending increases, she insisted Germany had agreed its own stimulus package worth 4.2% of the country\'s GDP – far higher than that ordered by the UK – and she wanted to see what the effects would be before doing any more.
"Nothing has actually taken effect on the ground yet," she said. "If we want to make real impact, you really must implement the package first before you talk about the next step."
Brown insisted that G20 countries had already agreed the "biggest fiscal stimulus in history" and said the need for more action would be kept under "review". He and the German chancellor had agreed on the need for tougher regulatory control of the financial markets and hedge funds – moves he was confident Washington would also back.
"I believe the Americans are ready to support us in this change," he said.
The Conservatives said the remarks from Merkel and Lagarde showed Brown was failing to unite the G20 behind his ideas. "Central to Gordon Brown\'s attempt to draw a political dividing line with the Conservatives in the run-up to the budget has been his claim that the whole world is signed up to yet more debt-funded fiscal stimulus. That plan, which he hoped the G20 summit would provide cover for, is falling apart," said shadow chancellor George Osborne.
There was much greater consensus over a series of measures to more strictly regulate the flow of international capital. Finance ministers and central bankers agreed to strengthen monitoring of the financial sector to prevent a recurrence of the credit crunch. They called for all financial institutions, including hedge funds and the ratings agencies that gave a clean bill of health to many of the toxic assets now infecting the world\'s banks, to be brought under the wing of regulators.
They also said that complex financial assets, such as the derivatives at the heart of the crisis, should be better monitored, and promised to require banks to "build buffers of resources during the good times" to prevent risky lending amplifying booms and busts and endangering the stability of the world economy. Secretive tax havens, many of which have already succumbed to intense international pressure and announced new concessions to openness in recent days, can also expect to face a new "toolbox of effective countermeasures", the ministers said.
The detail of the new rules has been left for Brown and his fellow heads of state to tackle in London next month; but Tim Geithner, Obama\'s treasury secretary, insisted there was considerable consensus among the governments represented at the talks. "We are seeing the world move together on a scale and at a speed unprecedented in recent times," he said.
The G20 countries also agreed that the International Monetary Fund\'s resources should be increased "substantially" to prevent developing countries suffering disproportionately from the worldwide credit squeeze, but there was no commitment to provide new funds immediately. "We did not seek to reach agreement on a number," the chancellor said. The G20 also called for radical reforms of the IMF, to rein in the dominance of the US and Europe and give poor countries a bigger voice at the Washington-based lender – but set a deadline of 2011, which campaigners said would make the process too slow.
Jesse Griffiths, co-ordinator of the Bretton Woods Project, an NGO that monitors the IMF, said: "They\'ve left themselves a big hill to climb between now and the London summit."
For more information, please visit
http://www.guardian.co.uk/politics/2009/mar/14/brown-merkel-g20-economy
