Gordon Brown has most loudly declared what needs doing, but still the international response to the coronavirus crisis is flaccid and in danger of blowing up the whole post-Second World War economic order.
For those who might have forgotten, Bretton Woods in 1944 and the creation of the International Monetary Fund and World Bank were meant to prevent the kind of chaos and economic meltdown which capitalism and the global economy is currently experiencing.
In the past, when the global system has gone wrong, new institutional arrangements – such as the Plaza accord in 1985, the expansion of the Group of Five to the G7 soon afterwards and the creation of the G20 in 2009 (reflecting changes in global wealth) – swung into action.
Gordon Brown has most loudly declared what needs doing, but still the international response to the coronavirus crisis is flaccid
Covid-19 has been with us since almost the turn of the year, although few policymakers took it seriously enough at first, and global action has been negligible. Indeed, when G20 finance ministers met in Riyadh, Saudi Arabia, in February, the Chancellor Rishi Sunak, who was working on what now turns out to be the first of his three budgets, never showed up.
The IMF forecast a small dip in growth which was so off the pace to be risible. Private forecasters such as London-based CEBR, by simply working off China’s contribution to world output of 19 per cent in 2019, were already predicting a global recession.
One of the key difficulties is the battle of the Saudi Gulf autocracy with Russia over oil prices. That is a bad place to start.
Plainly, it was the duty of one of the Western powers to seize the leadership, as US Treasury Secretary James Baker did at the Plaza in 1985 and Brown in London in 2009.
Months into the crisis, the IMF at last convened a G20 conference call on Sunday. It warned that Covid-19 would cause a recession at least as deep as 2009 and that it had assembled a war chest of $1trillion to assist embattled nations.
It all seemed too late. The consequences are profoundly disturbing. As the Governor of the Bank of England Andrew Bailey noted last week, markets are bordering on disorderly.
The Bank has intervened on an immense scale to try to combat the strife, with an extra £200billion of quantitative easing (bringing the total up to £645billion) and lowering the bank rate to 0.1 per cent.
But near disorderliness continues. The pound’s descent goes on and it is trading at $1.16 against the dollar, the weakest level in 35 years.
This is despite the fact that when it has come to economic interventions the UK has been ahead of its peers on both the monetary and fiscal front with its 80 per cent pledge to PAYE employees and a big bailout coming for the self-employed.
The US central bank, the Federal Reserve, has been quick to act on the monetary front, but the ongoing strains between President Trump and Congress means that the White House $2trillion rescue is in abeyance.
This is not dissimilar to 2008 when the first attempt by then Treasury Secretary Hank Paulson to fix the banking system was rejected.
When the markets went into freefall, Congress relented. The current rush into dollar assets is at the core of the global market problem.
The dollar’s special status as the main reserve currency empowers it during uncertain times.
But it also benefits from the stampede out of high-risk corporate debt – an estimated $15trillion of it – into more secure US government bonds.
It might seem impossible to turn back the tides which are causing so much turbulence.
But if the biggest countries in the world get behind such a plan, as they did in 1985 and 2008, it would be possible to do better than King Canute.
One of the great uncertainties to impact the market has been the collapse of Brent crude prices with futures down a further 10.5 per cent or $25.15 in Monday trading.
Great for the motorist but a disaster for financial stability. Again, this is something which could be fixed by the G20 were there proper leadership.
The other big shortfall has been on coordinated fiscal policy. It has been a case of every country doing its own thing and probably not enough.
As the FT’s European commentator Wolfgang Munchau noted, Brussels is not set up for the kind of discretionary fiscal stimulus that a 10 per cent collapse in GDP requires.
Leadership and policy co-ordination would provide an umbrella for greater flexibility. But so far no finance ministry, G7 leader or institution has stepped up to the plate.
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