The economic commentariat, opposition politicians and ordinary people were all ready to rage about this figure – a bill that amounts to around 13 per cent of British annual economic output, and is over 3 times greater than the £60 billion figure being noised around by official UK sources, and coming from the impeccably authoritative IMF. And then they retracted.

For those of us who have a memory, that’s right, this is the same IMF that got a huge big slab of money along with an even more influential role in the global economy at the recent G-20 summit in London. The thoughts of Gordon Brown – the printable part – are presumably along the lines of: They come to London, we let them into the big meeting, give them $750 billion and this is how they pay us back?

On second thoughts though, maybe the IMF has done Brown, Labour, and perhaps all governments a great big favour.

After all, the figures for the UK budget deficit announced by Chancellor of the Exchequer Alistair Darling last November – £78 billion for the year 2008-9 and £118 billion for 2009-10 – are now known to be well wide of the mark. The expectation is that he will announce a deficit of £160 billion for the current financial year.

So what does the Chancellor have to say about that? What he will most likely do is argue more or less that circumstances have unfolded and in various countries and regions the crisis has deepened, while unexpected downturns have interacted with previously undisclosed debts due to shortfalls in monitoring and regulation that have now been corrected, so the Treasury has recalibrated its projection based on the latest data and, well, things are worse.

But after today’s bad miss by the IMF, he could wave his hand in their general direction and try saying, Look, anyone can make a mistake.

It could work. The government was actively involved in the takeover of the floundering HBOS bank by Lloyds TSB. This appears to have lumbered a successful bank with all the debt, much of it hidden from sight, of a badly run, over-reaching bank. The weight of HBOS’s debts, some banking analysts have argued, could hamper Lloyds TSB for years to come. What does the government have to say about that? Oops, sorry, didn’t quite see that one coming.

The German government made money available so Germans can trade in their old cars and get subsidised new ones and said that was all the stimulus it would give the car industry. Then changed its mind and banged some more hundreds of millions of Euros into supporting the car industry. Inconsistent? Inadequate forecasting? Sorry, man, honest mistake. But, hey, smart wheels.

Italian Prime Minister Siolvio Berlusconi announces an €80 billion package of measures to stimulate the economy in November 2008, most of which turns out to be previously announced grants from the EU, and then waves off accountability for promises made during the 2008 election campaign to reform public expenditure, cut taxes and cut spending. Yeah, whatever.

But no argument about who could most use this form of high-flown discourse, who takes pride of place: Gordon Brown, of course, who in his last budget presentation two years ago, before he became Prime Minister, said that ten years of economic stewardship by the Labour government had abolished the previous pattern of “boom and bust”. Notoriously, Brown finds it very hard to get lips and tongue to cooperate in using the ”sorry” word. With his Scottish manse upbringing, however, he presumably knows all about “To err is human.”

Given all the genuine uncertainty about our short-term economic future, the omniscience that we routinely demand of our governments is really quite overblown for these times. Acknowledging human fallibility is not too bad an idea. Perhaps the IMF’s screw-up over the cost of the British bank bail-out was just a typo. But it’s worth thinking about for a moment, that perhaps if economists learned  to acknowledge error and then occasionally even to apologise for their undoubtedly honest mistakes, perhaps we might all be marginally better off. Economics is an important form of knowledge but it is not an exact science and it grates when people – economists and non-economists alike – speak and act as if offers greater certainty and precision than it can really manage. So I wouldn’t mind at all if economists learned this new piece of jargon – oops.

Though only on condition that politicians aren’t allowed to take economists’ fallibility as an alibi for their own cock-eyed politicking, currying favour with middle-class voters and addiction to spin.

The blogosphere has been considerably more sour and angry, with a rush to condemn. This is is fairly typical of the majority of blograts who comment on the main posts and articles. Not all are equally into negativity, but often times the predominant tone is a world weary bemusement as to why anybody would expect anything other than unmitigated disaster for the rest of time. Catching the mood, the first comment in a thread on the Independent’s web-site calls the UK “Zimbabwe without the sunshine”, a strong candidate for most lop-sided comment of the year, smart in form and silly in content.

Between the hype and the black humour, where does the truth lie? Perhaps we can go through three steps in the argument.

And the winner is…

The Oscar-like public proceedings and jostling of media-hungry leaders got pretty wearisome after a mere 24 hours but the theatricality is important for political ratings back home. For all the energy that went it, and though some politicians emerged more strongly than others, it is not clear how much these wins and losses matter . I have my views and you have yours but so what? It is all so ephemeral. Yes, Brown looked every bit a world leader in the eyes of some British press – and has a 3 per cent opinion poll bounce to go with it - but so did Sarkozy in the eyes of some French media, Hu Jintao in China, Obama in the US and so on.

And the reality and substance are hard to pin down. China is cautiously emerging as a major player and Hu Jintao used the opportunity to put diplomatic pressure on Sarkozy over  Tibet. The Franco-German axis was undermined by Sarkozy’s walk-out threat but his flamboyance got him a lot of coverage. Brown seemed to run the meeting effectively and put a lot of energy into preparing it; he won plaudits for all that but on the policy side got less than he was initially aiming for, though reasonably close to his later, adjusted expectations. From reports, it seems that Obama  punched his weight, so he was a long way from making any kind of stumble , and he appears to have moved US-Russian relations forward. So, some modest winners, some modest losers.

The terms of the summit communique and the detailed meaning of what was said in it have already been torn into by commentators irritated by the way in which the participants have been spinning it as a major triumph. Much of what has been presented as new money and new decisions had already been agreed. I find this kind of outrage pretty spurious because spin is part and parcel of politics and summits, so what else would you expect these political leaders to do? Called by politer names, such as building confidence, spin is also central to the whole business of getting the major economies moving again. Since the credit crunch began we have become used to arguments that take as given that money is an artefact of faith, that credit is about belief, and that reputation is the key asset of any enterprise.

With this background, it is hard and maybe pointless to get very specific about net political gains and losses. 

… the International Monetary Fund! – Er, what?

Second, coming at this from a different angle, the big institutional winner is the International Monetary Fund and, ultimately, judgements about the summit swing on attitudes towards it.  The summit agreed to treble IMF reserves from $250 billion to $750 billion and make an extra $250 billion available in the form of Special Drawing Rights (i.e., loan availability). In other words, of the fabled $1.1 trillion dollars the summit decided, decreed and directed, the IMF is handling $750 billion, almost 75 per cent; the remaining big money from the summit was $250 billion available to support trade through governments’ agencies for export credit and investment, and $100 billion of cheap loans through the multilateral development banks. On top of this direct enhancement of its financial role, the IMF is also going to monitor fulfilment of the undertakings and implementation of policy by governments, and will work with a new international Financial Stability Board policing the financial sector.

If the IMF is essentially reliable as an instrument for the world’s well-being, then all of this must be good news. Contrariwise, if the IMF is unreliable, all this is obviously bad news.

However, that doesn’t quite sum it all up. The unfortunate fact is that there is no other institution that can take on any of these roles; if a new one is wanted, it has to be started from scratch or, at least, by breaking down the existing international financial institutions and building a new one out of the ruins. Many distrust the IMF as the main institutional bearer of the free-market rich world economic consensus dating back to the 1980s, with the mandate to apply rich world rules and norms in the poor world. For them, this absence of institutional alternatives leaves three possible next steps in the argument:

• Either the world does not need these big resources to be mobilised, which seems hard to argue given the world’s current economy and the situation of the poorer countries and the poorest people even in the richer countries;
• Or it does need these resources to be mobilised but there is no way to do that effectively, so we are doomed.
• Or it it does need them and this is the best way it can be done and while a long way short of perfect – well, that’s what there is and that’s where we are.

Now it is true that, as is the way with many summits, there is less here than meets the eye. Much of the extra $500 billion had already been agreed. The two sets of $250 billion are not real money yet but, rather, the availability of credit support. The IMF is not in charge of what most people would understand as a $1 trillion stimulus package. In many ways, therefore, what counts most is its role in assessing performance of governments and ensuring that international financial regulation works better.

On this, the response of many will be simply to scoff. From their point of view, the IMF is an intrinsic part of the world financial system that now appears dysfunctional and those people who have been running the IMF have been fully committed believers in that dysfunctional system. To ask them to administer the transition from the old, dirty system to a new, shiny financial system is like asking speed addicts to be traffic cops.

Yes, the International Monetary Fund!

My own view is that the first big plus is that the G-20 decision is based on asserting the necessity of reform in the financial sector. It is a major step forward in world politics. This is not a random view expressed by a campaigning politician. It is in a carefully worked, diplomatically worded communique, subjected to examination at the highest political levels. It deserves to be taken seriously.

Even so, without teeth, this political commitment could in the end amount to very little. This is what is important and even remarkable about giving the policing role to the Financial Stability Board and the IMF, even if the latter is a flawed institution. It gives a reasonably precise location of responsibility. That precision does not actually cover responsibility for all the tasks the comunique outlines but there is at least a place at which to direct future praise, criticism and proposals for improvement, along with a poorly defined standard (better than none at all) against which future criticism and praise can be calibrated.  For true believers, confirmed critics and the open-minded alike, the G-20 decision sets out useful terms and space for continuing debate about the shape of the global financial system.

And compared to expectations?

And the third and final part of assessing outcomes is to compare them with expectations. I set out my stall in posts on 23 and 31 March, and in the second one I said that success on four points would allow me to feel the summit was about 75 per cent successful:

1. Global Financial regulation: The summit went after tax havens as expected but my argument was that it had to be about more – it needed to be about changing banking culture and about closing the gaps between different national systems of regulation. That’s essentially what paragraphs 14 and 15 of the communique are all about – consistency of different countries’ regulations, the new Financial Stability Board, a critique of financial sector practices including excessive gearing of debt to assets and excessive pay for top bankers. Implementation is everything but as far as the words are concerned, I think the issue was pretty much nailed.
2. Support for poor countries: It’s hard to figure this out in the communique and that is itself a cause for concern. Of all the sums being bandied about, it looks as if the low income countries are getting only $50 billion. Economic assistance to weaker economies is primarily oriented towards the more vulnerable of the emerging economies, such as eastern Europe, which means middle income rather than low income countries. However, the boosted IMF reserves and part of the Special Drawing Rights may be available to some low income countries. Possibly the most important statement in the communique for poor countries – though it is brief – is about the Doha round of trade negotiations. It is clear the G-20 leaders wanted to say they have not yet given up on Doha but there was nothing about how to iron out their differences. Even so, the firmness of the wording against protectionism is welcome because what hits the poorest countries hardest is when the terms of trade are rigged against them through a combination of different kinds of trade barriers.
3. Low carbon economy: I wanted the importance and broad direction of a green recovery to be recognised by the summit. To be frank, it’s a bit gestural, especially when compared to the paragraphs about money committed, trade and financial regulation. They say in paragraph 4 that they have “pledged to do whatever is necessary to … build an inclusive, green, and sustainable recovery” – but apart from repeating the sentiment 23 paragraphs later, they say nothing further. They pledge its centrality while demonstrating that it remains peripheral. Nonetheless, a marker has been put down and they also commit to reaching agreement at the December climate summit in Copenhagen. Every government that is a major player on the issue was present at the summit; silence was possible, the issues could have been wholly parked, or they might have supported efforts anybody wanted to make in a green direction while committing themselves to nothing at all. Here they did actually say something and while there is no detail and no bite to it, saying it is already something.
4. Global risk: I wanted recognition of the dangers that arise from world recession, especially because of its impact upon the poor. A single bullet point sidelines this issue, giving it to the UN to consider.

Out of all this, I reckon my bottle of expectation is right on the dividing line between half full and half empty.

The expectation game has been played, the sherpas have marked out the path to the very apex of the summit, the walk-out gambit has been played and declined, the deals have been almost finally cut with only a few billion dollars worth of detail to tap into place, and today the results will be out:

• Financial regulation looks like being strengthened;
• On economic stimulus, the emphasis will fall on implementing already announced packages rather than producing new ones;
• But there will be a boost for the IMF – either to $500 billion or to $750 billion;
• And the IMF will also be given the task of monitoring governments’ fulfilment of their stimulus plans and announcements;
• There will be additional aid for poor countries, though how much is one of the issues reportedly still being argued out;
• And old figures for trade financing will be re-announced.

Likely gaps are in dealing with bad debts in the international banking system as the IMF is calling for, greening the economic recovery and acknowledging the full extent of global risk in the crisis.

A separate thought: it is hardly breaking news that Gordon Brown is unpopular in Britain (more like broken news), widely blamed for City-focused, bubble-reliant policies that took the UK into recession, and deeply distrusted because of it - but has anybody noticed what a good pre-summit he has had?

It is not just the cosying up with Obama at yesterday’s press conference. It is not just the foolish way Sarkozy over-stated his position and threatened a walk-out that would, in whatever circumstances he carried out the threat, make him look silly and wholly lacking in influence. But it somewhat to do with the way that mis-step by Sarkozy left the Franco-German alliance drifting in the breeze, making Angela Merkel look oddly querulous, removing the option of an alternative (non US-UK) axis with the summit. And it is more to do with the way Hu Jintao has waded into the stimulus argument on Brown and Obama’s side.

With Brown having managed to back away from his previous over-identification with a new package of measures for a fresh global economic stimulus, the list of likely outcomes is getting perilously close to his own preferred list.

Summit success for Brown? It may be quite entertaining to watch the Brown-hating headline writers at work tomorrow.

The Expectations Game

The Expectations Game gets played during every election campaign, at summit meetings, at budget time and, nowadays, stimulus-time, and not only before and during party conferences and conventions but also in the build-up to key parliamentary debates and even hearings. These days, massaging expectations up and down is a crucial political skill – and perhaps the hardest part of communication because this is a competitive game in which the number of teams and players is variable and anarchic. A quick review is in order.

The teams

Imagine yourself as a Brown or Obama and think about the other players.

Opposition: Some of them oppose you – they want something different from you. For example, China wants a new IMF and Germany wants no new stimulus. To make it more complicated, they have their own Expectations Games to play. For example, Russia wants no stimulus so opposes America on that but President Medvedev wants to make nice with Obama. Meanwhile President Sarkozy wants action or he will walk out (though his spokesperson massaged that expectation down from ‘will’ to ‘might’ almost as soon as Sarkozy aired the walk-out idea). These different games cut across yours and make it hard for you to control the agenda and the news cycle.

Interference: Meanwhile, there are players without a game of their own who are running deliberate interference. They will down-play expectations when you want to bang the drum and turn up the volume if you want to go modest. These are your political opponents on the home front and they are just gagging for you to trip up; they don’t mind whether you do this by disappointing bloated expectations or by maintaining modest expectations while others take the lead, hit the mark, and reap the rewards. So the interference players feel no responsibility to be the slightest bit consistent in their comments and criticisms. Confusion and white noise are their stock in trade. They will, of course, jump on anything the opposition teams and players say. For example, when the Australian Prime Minister says that a new coordinated package of economic stimulus was never an issue, they take that as a blow to Brown and Obama, rather than as Kevin Rudd playing Aussie Rules Expectations. Mind you, he’s going to face trouble from his own interference if Obama gets a result that he can spin as a major new economic package. 

Spectators: This is a spectator sport. Some of the spectators are just there for the fun – commentators, pundits, bloggers and the like. They can be idealists or sceptics, sometimes on alternating days of the pre-summit week. And there are the earnest, demonstrative spectators, 35,000 of whom have already mobilised on the streets of London, with more expected in the next few days. For both the earnest and the fun-loving, the great thing about this spectator sport is that it’s participatory. Running onto the field of play with a new ball or a sudden change of rules is the gold standard as far as the spectators are concerned.

The results

Against all of this background noise, who knows what to think about what will qualify as success or failure? Well, everybody actually. That’s the nature of the game.

Despite its knockabout and theatrical nature, this is a serious business. I have two decisions I would like to see and two statements that I shall call acts of recognition. If the summit scores four of four, I will regard it as successful, but because these constitute relatively modest expectations, success in this form will only fill the bottle to the 75 per cent level. It would be solid achievement but not spectacular. Additional achievements of any significance, different ones etc will obviously fill the bottle to different degrees. Or not.

So here is what would three-quarters fill my bottle:

Decision: Global financial regulation This is about much more than tax havens. It’s about regulating the operation of the international finance sector. It has to slow down, allow banks to perform as a public service, and generate investment capital by mobilising actual wealth rather than papier mache manoeuvres. I don’t buy the case that this cannot be done. Even less do I buy the case that it should not. I do accept that, as the Chair of the UK Finance Services Authority, Adair Turner, has argued, it can advantageously be started by the EU; others will almost certainly want either to join or copy a viable-looking new regulatory system. It can also be started by a group of states who take the new system of regulation upon themselves - a group of 19 states plus the EU would just about fit the bill.

Decision: Support for poor countries Accepting the case that stimulus packages so far implemented need to be given some more months to work, it remains true that too little has so far has been done to provide support for poor countries. Their development prospects are being knocked sideways by the global recession. What is needed is a combination of trade openings, investment capital to keep key economic and social infrastructure projects going, and stand-by finance for short-term damage limitation. Re-capitalising the IMF to a much larger level is a small part of this. Rich countries promising to meet targets for their overseas development aid is another part of the picture. Additional special financial arrangements are a third part. Stabilising investment and sustaining established projects are a fourth part. The biggest and best part of this (though unlikely) is to revive the Doha round of trade negotiations and get fair terms of trade for the products of developing countries.

Act of recognition: Low carbon economy This is not the meeting at which participants will agree on the details of a low carbon pathway for economic development henceforth. But in the midst of recession, while there is time to ensure the recovery is green, and in the year of the Copenhagen summit for a new treaty on global warming, this is a timely opportunity for world leaders to clarify their intentions and display their sense of responsibility, making clear their commitment to the low carbon recovery for rich and poor countries alike, and likewise making clear their agreement on the broad terms of what to do. Recognition of the importance of this and the definitive abandonment of all excuses for inaction, whether they emanate in their different but uniformly shabby varieties from America, the EU, China, India or Russia – these are reasonable expectations of this meeting.

Act of recognition: Global risk As I have argued in earlier posts, the economic recession exacerbates the risk of violent conflict for at least two or three years ahead. The worst prospect – the ‘perfect storm’ in which all the ingredients for disaster come together – is of a regional war in the developing world that governments in rich countries do not have the capacity or energy to address because they are wholly focused on social crises unleashed by the recession. The first step in managing risk is to recognise it. Nothing more than assurance that this issue is on the agenda of the richest and most powerful countries in the world is required or possible from the G-20 at this stage in its evolution.

That the challenges are immense is doubted by no-one. The Obama administration’s agenda on the day it opened for business included two protracted wars, the worst economic recession in over six decades, a messed up world banking system, the long unfolding emergence of new powers onto the world scene, the impact of climate change and the dark legacy of how this and other key issues were neglected by the last US administration. It faced not only these issues but their knock-on political effects of uncertainty and division both at home (masked by the vote and the atmosphere of yes-we-can change) and abroad (masked by the almost universal welcome and fascination that greeted the new President). And it did so burdened not only by a surfeit of expectations and admiration that demanded immediate progress on multiple fronts simultaneously, but also by the curious American system of having to invent the government and get it approved by the Senate during the first weeks and months on the job.

With these challenges, expectations and constraints upon him, it is perhaps not surprising that Obama has already begun to disappoint. The knocking noises off started as soon as he swung into action on the economic front. Some of the objections and complaints can be dismissed. It is inevitable that most Republicans and even some Democrats will oppose some of Obama’s economic stimulus package and budget, and some will predictably oppose the whole approach. And those who oppose what he intends to do are inevitably among those who decry the lack of action as Treasury secretary Tim Geithner took a whole two months till now to get his show rolling. Never mind the paradoxes or the lack of logic. That is what politics is about. It’s what politics is for.

But there are more serious critiques to be found as well and these are surfacing in international commentary. In the April issue of Prospect magazine, Bartle Bull declares Obama’s wagon to be losing its wheels and offers a list of failures and examples of incompetence. Some of this list is laughably inaccurate while parts of it are bolstered by unargued optimism about the scale and length of the current crisis and some dodgy comparisons with the 1930s; it’s a bit silly, for example, to take the car industry as an indicator of this recession’s light impact in the US when output has already fallen by 50 per cent for the three big companies and the signs are that at least one of them (Chrysler probably) is going to go bust. And Bull is evidently full of bile, casting Obama’s election campaign as ’the lie of the century.’ But even if his basic antipathy leads his analysis astray in several places, he nonetheless scores some hits, if more tellingly on the handling of the machinery of government than on the substance of policy.

The current issue of The Economist magazine has a more nuanced and balanced overview of Obama’s first two months in office, which is critical  in significant respects but believes the President ‘may at last be getting a grip.’ Note the ‘at last.’

This seems to me to be the legitimate core of the critique of Obama’s initial weeks in office. When everybody wanted and expected him to move fast and deliver immediately, and when that was what he and his transition team wanted to do, some things have moved very slowly. In particular, the administration has yet to be fully constructed. The US Treasury team is barely there at all; to date, just two of 23 confirmable positions indeed been confirmed by the Senate. At this time, to go slowly on the Treasury is hard to excuse. Gus O’Donnell, the UK’s top civil servant as  Cabinet Secretary, has complained there is nobody in when he calls.

Surely State, Treasury and Defense were the top priorities; with Robert Gates staying at the Pentagon and Hillary Clinton breezing through her confirmation hearing as Secretary of State, why was all the energy not poured into getting the Treasury functioning at full speed? Instead, it has been slow going preparing the nominations (so it is not the Senate’s fault) and the situation has been made worse as ten nominees for senior positions have withdrawn after being named.

Yet on other issues Obama and team have moved extremely quickly. Obama has announced the closure of Guantanamo, the review of strategy in Iraq and a timetable for reducing troops there, and now the strategy in and towards Afghanistan has also been reviewed and revised. Whether the administration can deliver results on these issues inevitably remains an open question, and you may or may not like the policies that have been worked out and announced, but you can hardly tag this as a do-nothing administration.  

Meanwhile fundamentally new approaches have been taken towards Russia and Iran. The Iranians have responded robustly but are almost certainly mulling the implications while Russia has responded with interest and what looks initially like readiness to engage. None of this looks in the slightest like an administration that has lost its sense of direction; it seems to have plenty of forward momentum, despite the complexity of the questions it is addressing.

So the picture is full of light and shade: it does seem to be on the domestic and economic front that Obama is facing most problems and on the international front that he has made most strides. Even on the home front, however, while building the administration goes slowly, they are hitting their stride on policy, as indicated by the budget, the stimulus and now the automobile industry. Again, you may like or dislike the policies but the administration has been getting its act together and that is now visible, even if, so far, with less distinction than in foreign policy.

Obama could do with recovering some ground on domestic and economic issues. The G-20 summit this week focuses on the world economy. That could offer just the occasion for him to use his still strong international credit to strengthen what is, despite enthusiastic doom-sayers, a domestic position that is so far only marginally weakened. 

Obama  is in nothing like the political position of Gordon Brown. Nonetheless he probably wants a G-20 success just as much as Brown does, and for approximately the same combination of reasons – to strengthen the world economy, to stand strong as a leader, and to win some plaudits at home.

In the early New Labour years, Brown was tagged as the Euro-sceptic in the Cabinet, grumbling and worse about Tony Blair’s insistence on getting Britain out of the EU fringe where it had languished since Margaret Thatcher. So what’s happened now?

Interpretations

• Could it be that Brown was so moved by his EU counterparts’ enthusiasm when he secured British ratification of the Lisbon Treaty that he decide he loves the EU after all? – Unlikely.
• Could it be that Barack Obama encouraged him to play a bridging role between the US and the EU? – Not impossible: it makes sense, it’s what Blair tried to do and what Brown seems now to be trying, but whether it’s at Obama’s suggestion, only those who were there would know.
• Could it simply be that Brown is attempting to corral EU opinion in favour of his (and Obama’s) preferred economic options ahead of the G-20? – Likely, but not the full story.

It would be a mistake to read Brown’s speech in Strasbourg on 24 March as a conversion – whether real or fake, profound or superficial – to a Europeanist cause of some kind. This was not a speech pitting Europe and the US against each other; alongside a world role for Europe, he talked of “a new era of heightened cooperation between Europe and America.” It sounded strangely like T Blair in the brief prime of New Labour.

Now, of course, this could all be pure blather. But there are reasons why it’s almost certainly not. The reasons are one part tactical, and one part strategic.

The tactics

Putting together a successful summit is a demanding and subtle task. Brown has clearly decided on a gameplan that mixes quiet background work with some grabs for the headlines. If it works, it will let him and his senior officials set not just the agenda but the tone for the meeting – and he is aiming for an interventionist, activist tone. This would meet his domestic political need to use international status to win back support and trust within the UK. And it would meet the international economic policy goals that the UK government and US administration genuinely share.

Activism, however, cannot go so far in either tone or substance that it leaves the majority of G-20 participants behind, or even a significant minority of them. Whenever there is a whiff of European uncertainty about what Brown has to say, such as from German Chancellor Angela Merkel, or the toppling Mirek Topolanek, the Czech premier who currently holds the EU Presidency and has just a no-confidence vote, the Conservative opposition jumps up and says that if the European don’t like it, it must be wrong. Leaving aside the irony of the Conservatives suddenly using EU opinion as gauge by which to judge British government policies (the Conservatives are so profoundly anti-European they will not even work with European Conservatives after the June Euro-elections), the difficulty for Brown is that he is trying to lead without power, and a powerless leader depends on the consent of those he wants to follow, so any disagreement puts the whole effort at risk.

All of this inevitably leads Brown to see the tactical sense in edging closer to the European mainstream, both so as to maintain an agreeable unity among EU leaders, and so as to minimise the distance between them and the US for the sake of a successful G-20 summit. It is a high-risk, high-stakes approach to the summit. In that sense, it suits the risky times we live in.

The strategy

And then there is the bigger picture. UK foreign policy since the end of empire has basically swung between Atlanticist and Europeanist orientations. Where Ted Heath was Europeanist from 1970 to 1974, Margaret Thatcher was aggressively Atlanticist from 1979 to 1990. Harold Wilson from 1964 to 1970 and Tony Blair in his initial period from 1997 to 2001 both tried to square the circle and be Euro-Atlantic – not as heatedly Europeanist as the true believers wanted, but not Eurosceptic either, and close to the US without sacrificing everything else to the desired ‘special relationship.’ Both sought to be the Euro-Atlantic bridge.

Notoriously, Blair failed. It is hard to keep on being a bridge when the gap between two sides is expanding, and Bush made the gap into an unbridgeable chasm. Moreover, whatever the Bush administration claimed to value and admire about Tony Blair, they did their own wheeling and dealing to split the new EU members from the longer established ones – the new Europe / old Europe distinction invented by Donald Rumsfeld in the prelude to invading Iraq – and that ceaseless interference from across the Atlantic consistently weakened Blair’s position. Less well remembered, Harold Wilson did not so much fail with the bridging as give it up, concentrating in his brief second term on winning the referendum to keep Britain in the European Economic Community.

Blair’s experience showed that, in the abstract, the choice for UK foreign policy is between a US and a European orientation. In reality, of course, the choice is not limited to two pure options – all pro-US or all EU-focused. Under Blair it looked that way but only because of the corner Bush kept on shoving him into. Under current circumstances, choices are available between nuanced mixtures of the US and EU foci.

But the point is that a choice has to be made along that US-EU continuum. The dream of a wholly independent UK foreign policy, shared both on the Labour left for several decades and in the Tory shires forever, is a distracting myth.  The alternative to making a choice on the US-EU continuum is not to have a foreign policy at all. The country’s government would still have foreign relations, of course, and react to events as they unfold, but it would not have a policy.

Seen in that light, what Brown is doing is bigger than manoeuvring for domestic political advantage or firming the agenda and tone for the G-20 summit, though it includes those. Rather, he is re-positioning UK foreign policy at a place on the US-EU continuum that is further from the US than Tony Blair of 2001-2007 vintage, and much more like the older Blair of 1997-2001.

So that’s why he sounds like that Tony Blair, then, because he’s doing the same thing. And he has started doing it at more or less the first opportunity – the first safe opportunity, anyway – the first time after the Bush administration has been unlamentedly laid to rest that the international spotlight has rested on UK policy.

Can it work?

It will be interesting to see if Brown can make this work. Where neither Wilson nor Blair could keep the trick going for long, one would not expect Brown to. But, to be honest, until this week, I did not expect him to try. All his sounds had been purely Atlanticist. With his Euro-Atlantic variations this week, he has come up with a refreshing change of tune.

The difficulty for Brown, however, is that he is opting to make his play in the G-20, where China, India, Brazil and others come into the picture. And he is doing so in the early months of a true world crisis, a potentially world-changing crisis. He may be choosing the right place on the US-EU continuum, but is that the right continuum on which to make the choice?

By way of preface, it has to be said that multilateral summits are not necessarily the best forums in which to deal with the biggest problems and the G-20 summit has some particular flaws. First, there’s disunity: world leaders are at sixes and sevens about how to deal with the recession – or perhaps at billions and trillions. The US and UK have put in trillions and want to put more into the effort to find a route out of recession. Some EU governments have put in billions and first want to see how that works out before committing more.

Second, there’s newness. The G-20 has emerged out of nowhere to be this year’s must-meet summit, effectively replacing the G-8 (so last decade). Not all the ‘sherpas’ – the government officials who prepare the agenda and pre-cook the final communique – have worked together before: China, India and ten other governments are new players at this level. Actually, what this level really is hasn’t yet been defined to everybody’s satisfaction. And on the topic of newness, there’s the Obama administration, so new it has not yet got even a handful of senior officials in place in the Treasury.

So realism would tell one not to overburden the G-20, not to expect the London summit successfully to get through a big agenda of big issues. Realism suggests this new international institution should start modestly. The trouble is that  there are some big problems that have to be discussed; these days, nothing less than high ambition is realistic. If the summit visibly ignores key issues, there is going to be a lot of justified criticism.

The agenda and much of the outcome have been fixed by now, so what follows is not a proposal for what the G-20 summit should discuss. But these are four issues that at present I do not see most governments paying enough attention to, or if they are there are uncomfortably good grounds for believing that too much of what is said is spin and blather with little real substance behind it. They are the kinds of issue a G-20 summit can address and to which it can make an important contribution. Whether it will is something we will shortly get to find out; maybe at that point we shall have a better sense of how long the recession and its consequences will be with us.

1. International financial regulation

There is going to be discussion of this topic and there has been a lot of pressure about tax havens. That’s good. But the problem of creative tax avoidance is not going to be solved by tax havens closing their doors and opening their books, and, anyway, there is much more to financial regulation than ending tax avoidance.

Anybody who has been following the leaks by the Barclays mole to the LibDems and thence to The Guardian about the bank’s Structured Capital Markets department and its strategies for legal tax avoidance can see that there are two key issues here. One I will pick up below. The other is the problem of the differences between different national tax and legal systems; these differences create the openings through which Barclays’ wide boys drove their solid gold coach and all its horses. The only solution to this problem is international cooperation and international financial regulation – attacking the tax havens will not even do half the job.

But it is not only or even primarily over tax that financial regulation failed us in the build-up to the credit crunch. It is in regulating the basic activities of the major financial institutions themselves. And here, whether you look at Iceland, Ireland, AIG, Lehman Brothers and its last-minute whisking home of billions from London, or Czech borrowers with loans in Euros, part of what you see is the need for stronger regulation at the international level. Firmer national regulation must be backed by firmer international regulation and the multiple nationals bits have got to be consistent with each other and with the international pieces.

For all of this, given the will among the national players, an event like the G-20 is essential.

2. The banking culture

A while back, I wrote about the importance of rethinking banking as a public service, out of which it is acceptable to make money, just like public transport, rather than as something driven purely by a business/profit ethic. The Guardian has reported on an organisational culture in the Barclays tax avoidance team that is about as antithetical to the idea of providing a public service as it is possible to get. Super-macho, smart, ruthless and deeply immature behaviour is recounted as the norm. But this is only a particularly vivid demonstration of a problem we have all now read about on countless occasions: the big banks and other financial institutions have made a point of employing people who like taking risks with other people’s money by the tens of billions. And when the house of cards came tumbling down, the ones who walked safelyand prosperously out of the wreckage were those self-same bankers. The weekend story about allegations of intimidation aimed at directors of the Royal Bank of Scotland who asked awkward questions only drives the point home.

If today’s anger against bankers is going to turn into something positive, it will be because, now that governments have taken such major stakes in the banking sector, they can use that leverage to attack the predominant organisational culture. Banks need to become steady, boring and reliable. Flash gits can surely find other places to work. 

An event like the G-20 could help this process along: it could act as a focus for taking the anger and turning it into a practical and positive direction. But this is one of those issues that politicians and summits are often very bad at dealing with because what counts is not in the end a matter of big headlines but a question of how banks behave day-to-day for a long time to come.

3. The low carbon recovery

At the risk of getting tediously repetitive about this, one clear route out of recession and a way of getting something good out of the whole sorry mess is by using recovery as a springboard for green investment, with an initial emphasis on energy and ground transport. Because new technologies that are within reach but not yet stably developed are required, these are areas that need and will reward investment. This approach allows politicians to chart a route around the problem of offering low-growth policies in the middle of a slump. And it is the way you answer the challenge from the automobile worker about her/his job prospects if we want to take on global warming. S/he has not much by way of immediate job prospects as recession bites, but could have much better prospects if car companies got incentives from governments to develop zero-carbon ground transport.

If national governments were ready, an event like the G-20 would be the climactic moment of winning this argument and getting policy to move. But actually the G-20 is not needed for individual governments to make this kind of move and the smart ones will go ahead regardless of what other governments do because it is, well, smart.

4. Global risk

There is starting to be increasing recognition of what in an earlier post I referred to as the risk of a perfect storm - the possibility of a violent conflict triggering a major crisis in a poor region, made into a more serious risk by the way that rich governments are necessarily focusing most of their energy and attention on their own economies amid recession. The same term was used by the UK government’s Chief Scientific Adviser to describe the combined effects of food, water and energy shortages in the coming two decades.

More generally, layers of risk are being revealed as the economic recession unfolds. Some of these layers are created by recession, as markets shrink, investment falls and migrant workers send less money home to their families; some are exacerbated by recession because political energy and financial resources are being absorbed by rich country problems; and some have little or nothing to do with recession and, like climate change, have been building for many years and demand immediate remedial action.

Given the structural shortcomings of the UN system, an event like the G-20 is wholly essential for generating broad enough unity and the sort of high-level attention that these long-range problems deserve. Global risk will continue to rise unless and until it is mitigated by global action.

There is, in short, a great deal for the G-20 summit participants to do. Let’s see how they fare.

To solve Rubik’s Cube, you have to cope with multiple possibilities and the interdependence of all the different parts (see below for more on the Cube). Get one wrong and it’s all wrong. That’s today’s crisis. That’s the challenge.

Sides 1 & 2: Credit crunch and recession

The first two sides of the crisis cube are the credit crunch and the economic recession. These are closely related (as are all six sides) but nonetheless different. Remember back in September/October of 2008 how the discussion was about the difference between a crisis in the finance sector and the ‘real economy’? Perhaps the recession could have been stopped if the full ramifications of the credit crunch had been spotted earlier. But they weren’t.

So now we have on the one hand the unwillingness of banks to lend to cover the debts generated through madcap borrowing and lending, with values that are based on debt and financial assets falling through the floor, the writing down of huge amounts of paper wealth, and an international banking system that would have jammed completely were it not for government interventions to underwrite debt and cover past, present and future losses. This means that investment capital is in danger of becoming chronically unavailable. For businesses that roll over their debts – i.e., pay them off on time by taking out new loans to replace old ones – this effect is potentially catastrophic.

But it is not only because companies have been running on debt that there is a recession. The lack of investment capital means projects that are underway are being cut back and new ones are being shelved. That is affecting consumption, which is reducing trade, which is bringing output down. Exports and manufacturing have slumped dramatically since late last year. The IMF now expects the world economy to shrink during 2009. Even if it does grow, it will be marginal, it will not be in the wealthier countries, and for almost all countries where there is growth it will be at a rate that is below population growth, which amounts to what most people understand by economic shrinkage.

3rd side: Social impact

Governments are desperate to get a handle on the first two sides of the cube because the third is a potential explosion. In 2008 many countries saw riots over the price of food. As the economic crunch has bitten in Europe, it has produced violent protest in Greece, Latvia, Lithuania, Bulgaria and France. The government has been toppled in Iceland and in Ireland there has been mass protest. Small protests in the UK have been treated by some as harbingers of worse to come, with garish headlines about a ‘summer of rage’ popping up a couple of weeks back. Little noticed by international news media, Copenhagen has been suffering all kinds of social violence; this appears to be non-organised in the sense of having no political agenda, and some of it is straightforward drug gang warfare, but in the country that in 2008 came out of an international survey as the happiest country in the world, it’s a sign of the times.

Policies that are designed to get the two economic sides of the cube sorted must also grapple with the social dimension. There is increasing pressure to provide more secure social safety nets – if senior bankers can have them, why not the rest of us? – but the trouble is that, politically and historically, if not in logic, a strong social safety net is associated among other things with job security, which means making harder to fire people, which restricts the flexibility of the labour market which is essential if new entrepreneurial endeavour is to be unleashed to get us out of the grip of recession. Reacting to economic crisis by reducing labour market flexibility is hardly the way to go; a labour market free-for-all, on the other hand, risks an awful lot of sacrifice of hope and prosperity for far too many people. Balancing a strategy for economic recovery with a strategy for social stability may be one of the hardest challenges in this crisis.

4th side: International conflict

While doing everything that they can for their own economies and social stability, governments must also pay attention to the international dimension and especially the implications for conflict. This can itself be understood as having at least three components.

• First, will one government’s measure to ease the crisis be the last straw for another country? Beggar-my-neighbour policies are the spectre that haunts the world economy and explain why there is so much riding on the outcome whenever there are international meetings and summits with the crisis on the agenda.
• Second, is somebody going to be tempted to make a move for short-term advantage in a long-term rivalry? The opportunist might calculate (or simply hope) that the rival is distracted or weakened by the crisis, or just not care about the medium-term consequences if there is some immediate political gain to be won for domestic credibility or international leverage. China and the US are playing footsie in the China Sea. Russia is seeking an airbase in Venezuela.
• Third, there are the implications for violent conflicts in developing countries, already struggling to get by, hit by the food price crisis of 2008, and now taking a threefold hit from the economic crunch – loss of investment capital, loss of export opportunities, and loss of income sent home by migrant workers because the international labour market is collapsing. These effects of the current crisis will increase conflict risk because they put more pressure on economic and political systems that are barely stable to begin with.

The crisis makes international cooperation more important than ever – there is no exit route from recession for any country alone – at the same time as it introduces new problems that make the international environment less conducive to cooperation on the scale required. Philosophically, we can remark that if it weren’t difficult it wouldn’t be necessary. But the practicalities are about trade-offs and compromises with reluctant partners and irritating adversaries, which muddies things up at a time when what everybody wants is to have a clear policy.

5th side: Climate change

Last week’s meeting of climate scientists in Copenhagen revealed that global warming and climate change are even more advanced than previously understood and that coordinated inter-governmental action is required with greater urgency, depth and breadth than ever. Sacrificing the international focus on climate change while dealing with the economic, social and political crisis of today will be self-defeating and self-destructive. Denial of the science of climate change and deferral of policies to address it are equally and profoundly irresponsible. So the economic recovery, the return to more stable social relations and the process of building peace all have to be green tinged. Last week at a conference convened by UK DFID, Prime Minister Gordon Brown declared that the recovery from recession would be transformative because it would be low carbon. Yes – except that it is so much harder to achieve the sort of large-scale bold innovation that implies when the lights are going out and jobless totals are soaring.

6th side: International institutions

And lastly, we can talk about international solutions to international problems as much as we like, but it will come to nought if we don’t recognise that another part of the problem in this crisis is the lack of international institutions with which to deal effectively with the other five sides.

The economic institutions could not provide enough regulation of global finance. They offer thousands of holes between national jurisdictions for clever lawyers to help banks and big corporation escape tax. They are not large enough to establish firm foundations for the safe operation of international finance. The World Bank and International Monetary Fund and their associated bodies were designed in a world that had yet to experience 1980s/90 style globalisation. The challenges of the last three decades are beyond them because they were not designed for this era. The result has been a series of financial crises over the last three decades that have rocked the global economic system but not kicked it in the teeth – not until late last year.

The institution of the G-7 was added in the 1970s as a result of the crisis of 1973-4 – the rise in oil prices and the end of the long boom that had characterised economic history since recovery from World War II. Though expanded to the G-8 to include Russia, the group is too narrow for today’s needs and is effectively a dead letter.

It is probably a bit overblown to say, as some commentators have said, that we need a new ‘Bretton Woods’ – the site of the conference that produced the World Bank and the IMF and ushered in the managed capitalism of the first three decades after 1945. But it is not enough simply to mimic the 1970s pattern and replace the G-8 by the G-20 while boosting the financial weight of the IMF two or three-fold. Something else is needed – decisive agreement on an international mode of financial regulation. The current attack on tax havens makes good copy but it only scratches the surface; the big boys like Barclays don’t only go to the Cayman Islands or the Isle of Man to escape tax in the UK, they go to Ireland or the Netherlands and benefit from the fact that these countries have perfectly good but different tax systems.

On the climate front, the current international institutional architecture is over-stretched. A superb climate deal at Copenhagen in December this year could be entirely undermined if there is no proper institution to interpret, focus, coordinate and enforce the agreed outcomes. Agreements without institutions are fine statements but not much more.

On peacebuilding, the UN architecture is now stronger than it has ever been, but it still has significant deficiencies. These are under discussion during these months. Some of the pieces are in place but not all and not only the UN system as a whole but also all the main actors in international politics still have a long way to go in understanding the challenge of building long term peace and in using the instruments that have already been created.

There is a whole lot of new design and construction of institutions to undertake.

The hands of politics

The hands that shift the sides of the cube around, whose owner is prematurely triumphant at getting one side sorted out, only to curse upon realising that this one-sided solution has done nothing but bring chaos to the other five – these hands are, of course, the political leaders and policy-makers.

Rubik’s Cube is only a metaphor of the crisis we now face. But when I think of it this way, I find myself thinking that our adversarial systems and cultures of politics, in which everything the other sides says must be wrong because it is the other side, a political relationship in which discussion is consistently driven down to the level of yah-boo – I just find myself thinking that this way of thinking is not good enough. Those hands on the Cube need help from other hands – from commentators and thoughtful citizens, and maybe from opposition politicans too.

RUBIK’S CUBE may be world’s best selling toy. It has six square sides, each consisting of 3×3 small squares (there are versions with 4×4 and even 5×5 small squares). A pivot mechanism allows each side to be rotated separately. Solving Rubik’s Cube means getting the six sides of the box organised so that each side is made up one single colour. Only when the last piece of the last side has clicked into place and no piece is out of place can we say the puzzle of the cube has been solved. According to Wikipedia a classic 3×3 Rubik’s Cube has about 43 quintillion possible combinations of the small squares. For those who prefer their incomprehensible numbers in figures and with precision, that’s 43,252,003,274,489,856,000.  So that’s quite a lot.

Before the credit crunch started to crunch us, and therefore well before the global recession began, world power watchers started discussing what some saw as the revival of the autocratic powers, meaning the rise of China and Russia. It was all about how the rise of a liberal democratic world order, which some commentators seemed to think was a foregone conclusion with the end of the Cold War at the turn of the 1990s – the end of history and all that – had been stymied by, primarily, a resurgent Russia and a steadily growing China. Hard-nosed realists wanted hard-nosed policies to confront the autocrats: less reliance on the strengthening web of treaties and laws in the international system, more emphasis on alliances of states with congruent interests and compatible ideologies. And with this they tended to want less emphasis on influence and leadership in an all-inclusive world system and more resort to good old-fashioned power – not necessarily military action as a knee-jerk, but political pressure based on economic weight and, if necessary, military might as a last resort. With the idea that US foreign policy could foreground a League of Democracies, John McCain’s presidential campaign was part of this kind of thinking which, while it is traditionally close to the heart of US foreign policy-making, had to some degree been pushed to the margins not only under the Clinton presidency in the 1990s but also by Bush’s go-it-alone style.

The discussion about the balance of advantage in the global power game is never-ending. Hardly surprisingly, it is now taking in the effects of the global economic crunch. And not surprisingly, China is some commentators’ favourite to come out of the crisis as the big winner. An article by Roger Altman in the Jan/Feb issue of Foreign Affairs gives a good taste of how one version of the argument goes. In another article in the same issue, Daniel Deudney and John Ikenberry comment critically on the autocratic revival theory.

Discussing this, we need to bear in mind the complexity and elusiveness of power and the slowness and above all unevenness with which it moves (see my post of 16 January for more on this). It is surprisingly difficult to pin down who gains, who loses, and how – though we recognise the long-term results when we see them. Nonetheless, an economic crisis like this one might either trigger a step-change in the world power balance or reveal a change that has already slowly built up.

Another reservation is that the view that there has been an autocratic revival looks like an effort to produce a long-term explanation for what was in part a short-term phenomenon. The Bush administration was so astonishingly incompetent in so many aspects of foreign policy that it often made its rivals look good. By contrast, looking at what happened to Tony Blair and Britain’s standing in the world, Bush had a great talent for making his closest allies look awful.

To be fair to Bush, some sort of recovery by Russia from the depths to which it was sinking in the mid-1990s was inevitable. And in President Putin, Russia had a leader who was tough-minded, tactically nimble and strategically focused. He was able to get Russia’s fractious elite into line behind his policies because the costs of being out of line became unfeasibly high. Part of what seemed to some American commentators like a systemic revival of autocracy was actually just evidence that Putin could normally out-manoeuvre Bush. But then, so could Ahmedinejad and Chavez who, as well as having tactical smarts like Putin, also had the benefit of rising oil income – until prices crashed.

Combined with these conjunctural, short-term challenges to America, there was the long-term rise of China. This is real. It is largely based on sustained and fast economic growth over the past three decades that has put China on track to be the world’s second largest economy in the not very distant future. Stellar growth rates have given China economic clout, which it has utilised with mostly quiet and mostly effective diplomacy. This takes its direction in part from a desire in the Chinese political, mangerial and intellectual elite to get as far as possible away from the weakness and humiliation in which the country spent the century up until the Communist revolution in 1949. But while this suggests a raw power motivation, and though China has modernised its armed forces and brandishes them at Taiwan every so often, military strength is not the basis of its much enhanced world standing in the past decade nor is it the core of its foreign policy.

Today, Russia looks a less daunting rival for the USA. Four reasons can be adduced for this. First, the war with Georgia crystallised growing worries among foreign investors about Russia’s reliability in long-term business partnerships and the Russian stock market took a serious hit. Second, the economic crunch and especially the fall in oil prices have hit Russia hard. Third, there has been a change in leadership and, with Putin no longer President but very much on the scene as Prime Minister, the inevitable appears to have happened – faction-fighting in the Kremlin. Fourth, the US now has an administration of, at least initially, incomparably greater competence in foreign policy, which is not only mending relations with allies but also with adversaries including Russia. While this may be temporary, Russia does not today look a likely candidate to exploit the economic crisis and gain a great increment in power. There’s nobody I have read or heard of who thinks Europe will enhance its power, and why would they? So that leaves China.

Let’s take a step back to take a look at this. The question is whether the economic crisis could give US power such a hard knock that, as it reels backwards, a space is left into which another great power steps. Reasons for thinking that this could occur basically swing on the importance of finance in the US, the importance of US finance in the world, and the centrality of finance in the current world economic crisis. In Fixing Global Finance,* Martin Wolf writes, “Finance is the brain of the market economy.” America has long dominated that brain. In 2005, US financial assets, after accounting for debts, were worth a little under 40 per cent of the global total, with just over 40 owned by the Eurozone countries, Japan and UK combined; all other countries together owned only half the US total. But within this wealth and the power it generated lay a core weakness. The US became the world’s largest borrower, importing capital on a vast scale. This was the key global financial imbalance that paved the way to the credit crunch and then recession.

America had the advantage of repaying debts in its own currency, unlike many countries that have been hard hit as their currency collapsed and their debts accordingly soared. But, as now seems obvious but was not recognised so clearly at the time, the American debt system could not last for long. While it did last, it was not only the American elite and middle class who benefitted; the gains were actually very widespread.

American indebtedness is now castigated as irresponsible but for a time it actually helped stabilise the world economy – but only for a time. Ideally, a new stability would have been found by a gentle easing down of US borrowing, balanced in the global picture by major exporting states running smaller trade surpluses. China was constantly being asked to do this but it didn’t happen. So when the position in the US began to unravel because the sub-prime loans market was unsustainable and too many banks were making too many ill-considered loans and investments that offered only short-term returns, the whole world system was knocked out of kilter. Of course, the US was not the only country where banks were behaving like this, but it mattered much for the world when this happened in the US because of its enormous scale.

So now take a look at what comes out of this thumbnail sketch. China is in a position of greater internal financial stability than the US because it has not been borrowing madly. However, in other respects it is not so well off because so much of its industrial activity is geared to exports.  It could be a source of capital loans and investment in many countries but also needs the resources it has husbanded over the years of growth to see it through the low period. In the longer run, it could boost domestic demand, import more, run smaller surpluses but today it does not really look as if it is in a position to step forward and assume a commanding global politico-economic role and lead the world out of recession.

Meanwhile, the US may indeed be knocked backwards by the economic crunch if the new administration’s first and second stimulus packages don’t work, and if the G-20 summit in London in April doesn’t generate a unified economic recovery plan. In such an event, if the US leaves a space that China does not fill, the world will look like the 1930s, when the UK stepped back and the US was not ready or able to step up: there will be no clear global regulation, little coordination of policy and not much stability in the world system. The world trading system needs reform, the finance sector needs reform, and decisive moves towards a low-carbon economy must be taken – but none of these things will be anywhere near being possible.

Since that scenario is clear to most people, it probably won’t come to pass and one or both of two other scenarios will materialise:

• Either the Obama administration’s first or second stimulus packages will work and it will lead the way out of crisis. There is a good chance of this because the American internal market is bigger than any other country’s and since the 1930s has been robust, motoring early US recovery from a series of smaller crises and recessions.
• Or the G-20 summit will generate a unified recovery plan.
• Or both.
• And regardless of whether the G-20 plan actually works, if everybody buys into it, that will be the only game on the planet, that will be the designated route out of crisis, and leading the way will be the Obama administration.

Did I imply above that China is the most likely candidate to emerge as the world’s major power after the recession? I was kidding – the US is.

*Yale University Press, 2008.