Ahead of the G20 meeting in London next week, the head of the Bank of England (BoE), the UK’s central bank, called for caution over attempts by Prime Minister Gordon Brown to get other European countries to agree to come up with additional stimulus packages to kick start the world economy.
In a speech to the European Parliament yesterday (24 March), British Prime Minister Gordon Brown invited Europe to “take a central role” in leading the global reaction to the economic crisis.
Brown called for Europe to take the lead in “replacing what was called the old Washington consensus with a new consensus of our times”.
He called for a coordinated “worldwide fiscal and monetary stimulus,” saying this would be “twice as effective in every country if it is adopted by all countries”.
The distinctly Europe-friendly speech was delivered as Brown begins a consensus-building tour which will take him to the US and South America ahead of the G20 London summit on 2 April.
Meanwhile, back in London, Mervyn King, governor of the Bank of England, suggested that the British government should be “cautious about going further” in using fiscal measures that would “expand the size of our deficits”.
Speaking before the British Parliament, King said “there is no doubt that we are facing very large fiscal deficits over the next two to three years”.
“I think the fiscal position in the UK is not one where we could say, well, why don’t we just engage in another significant round of fiscal stimulus,” he warned.
It is unusual for the Bank of England to comment on the British government’s budgetary policy, and King’s evidence has invited criticism of Brown’s policy of fiscal stimulus from political figures in the UK and in Europe.
Implications for the G20
German Finance Minister Peer Steinbrück has already made his thoughts clear: “There is a very clear reticence to participate in the race, which seems to be triggered time and again, over who has the biggest fiscal stimulus package,” he told reporters at the recent EU summit (EURACTIV 20/03/09)
George Osborne, finance spokesperson for Britain’s Conservative opposition, said that King’s statement leaves “Gordon Brown’s political plans for the G20 and the budget in tatters”.
Stephen Byers, a former minister in Tony Blair’s government, feared that the G20 might result in “a set of high-minded declarations and vague reassurances”.
In a sign that the British government is attempting to downplay expectations for the outcome of the G20 meeting, British officials said “the test of it will be what happens in the following months”. The official added that “we are not expecting countries to make domestic announcements at the summit”.
The comments also undermine the Obama administration’s calls for an increased fiscal expansion in Europe. The US president has written an article published in 30 newspapers around the world calling for fiscal stimuli in G20 countries that remain “robust and sustained until demand is restored”.