There’s little to celebrate in global affairs at present, but at least the world has got better at doing summits since 1933. The “G66” London conference of 1933 was a total failure; the US didn’t come and the new Chancellor of Germany, Adolf Hitler, was focused on rearming.
This time around, the G20 communiqué has already been drafted and leaked, and President Barack Obama is leading the way instead of taking a sailing holiday, as Franklin Roosevelt did in 1933.
But still there are echoes of 1933. The US is doing its utmost to reflate, but Europe is hanging back, worried about its currency.
By June 1933, the damage had already been done and the London conference was a kind of retrospective. Both Europe and America had been attempting to defend the gold standard by raising interest rates, and thereby turned a sharemarket crash into an economic depression, but Roosevelt had abandoned that approach while Europe still clung to it.
This week’s London summit comes earlier into the depression, and fiscal and monetary responses are already well advanced – except poor Europe is again being held to ransom by a central bank that is fixated on inflation and defending the euro.
Meanwhile the G20 diplomats have been working for weeks to draft a communiqué that is sufficiently short on detail for their bosses to safely sign.
It was published in the Financial Times last night, with a few blanks in the IMF section for the sums to be inserted, and brackets around their aspirations for the impact of the fiscal expansions produced so far on world growth (2% increase in output) and employment (20 million jobs).
There is a renewed commitment to free trade and to an “open economy based on market principles” (not capitalism, you understand), a broad commitment to reforming financial regulation and a nod to the “European Central concerns” about inflation with a commitment to an “exit strategy” from the fiscal expansions taking place.
On the whole it is unsurprisingly short on detail and specific commitments. They have learnt from the mistake of the Washington summit last November, when a specific promise was made to complete the Doha round of trade negotiations before year’s end. They did not come close, of course.
In London this week, they will stick to something more general: “We are committed to reaching rapid agreement, on the basis of progress already made, on modalities leading to a successful conclusion of the Doha round…”
In London in 1933 the leaders also committed themselves to restoring free trade. President Roosevelt had already repudiated the Smoot Hawley Tariff of 1930 and appointed a strong advocate of free trade, Cordell Hull, as his secretary of state and leader of the delegation to London.
But the 1933 conference fell apart over currency differences, with Roosevelt bitterly complaining about the “artificial and temporary experiment” with currency stabilisation in Europe.
As a result, the 66 leaders who attended the conference went home and resumed “beggar-thy-neighbour” policies of protectionism, accelerating the world on its trajectory towards World War II.
This time around, swift action has saved the financial system (so far), interest rates in most countries have been reduced to zero or close to it, many countries have started “quantitative easing” (printing money), and there has been a massive, co-ordinated fiscal expansion.
But in some ways the task this time is larger and more urgent. Ambrose Evans-Pritchard, writing in the London Telegraph, says world manufacturing is now collapsing at three times the speed it did in the early 1930s – “the damage that occurred from late 1929 to early 1931 has been packed into six months”.
Japan’s exports fell 49% in January, and its industrial output has fallen 31%, 24% in Spain, 19% in Germany, 17% in Brazil, 13% in Russia and by 11% in Britain and the US. This has all happened since last September, when Lehman Brothers went under.
Having stabilised the financial system, the task of the G20 leaders now is to rescue globalisation and trade. That will take more than a vague confirmation of their “commitment”.
This article first appeared on Business Spectator
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