Former UK prime minister Gordon Brown has warned that the world is not well placed to deal with the next financial crisis.
Phillip Inman, the Observer’s economics editor, reports:
Politicians and central bankers will be denied the tools they used in 2008 when the next financial crisis hits the global economy, Gordon Brown said this morning, arguing that governments will need to respond by increasing debt levels and taxes even more than they did last time round.
The high levels of cooperation among senior policymakers across the world seen a decade ago have largely disappeared, which is a damaging situation when the global economy will need a strong fiscal stimulus following the next financial crash top avoid a slump. Speaking at a TUC conference to discuss the implications of the financial crisis, the former UK prime minister and an architect of the global cooperation a decade ago, said the four pillars to the 2008 rescue were no longer in place.
Brown pointed out that:
- The G20 no longer represents global economic power in the way it was in 2008.
- The rise of protectionism is already restricting trade and undermining the free trade needed to boost all nations following a crisis.
- Central banks are not able to provide a monetary stimulus through cuts in interest rates; this is likely to still be the case many years from now.
- Governments have denied themselves room to provide a stimulus through a misguided focus on high levels of debt and the use of taxpayer funds.
He said: “When you have a Keynesian problem, it needs a Keynesian response.”, adding:
“You cannot talk about a globally managed system. The Financial Stability Board has no power, it can only urge change, it is only by invocation that it can try to bring countries to change their policies.
The G7 was out of date in 2008 and was superseded by the G20, Brown said, adding that the G20 is out of date.
“So the decision-making framework for the next 10 years will need to be different to the one for the last 10 years.”
He rejected proposals gaining popularity on the left in the US for a form of “responsible nationalism” that recommends pulling back from global coordination in favour of addressing national economic problems of stagnant wages and living standards.
He said unilateral action would fail and only a global leadership could rescue economies from a financial crisis.