G20: East London is no Bretton Woods

Anybody expecting the G20 summit to deliver all the answers to the global crisis is sadly deluded

Larry Elliott
guardian.co.uk, Thursday 2 April 2009 11.30 BST

The Excel centre in East London is cavernous and cold. It has the feel of an airport terminal, with hundreds of journalists munching the free food as they wait for something to happen. It is an unprepossessing venue for the New Bretton Woods.

Nor is it remotely possible that four hours of talks will lead to the same sort of comprehensive – if flawed – blueprint for global finance that emerged from the more salubrious surroundings of the Mount Washington Hotel in New Hampshire 65 years ago.

That's not to say today's talks are pointless. They are not. Nor is it to say that nothing meaningful will be agreed. It will. But anybody expecting the London summit to deliver all the answers to the global crisis is sadly deluded.

Why? Because the elements that made the original Bretton Woods possible are not yet present. The crisis, while serious and widespread, is not yet nearly as serious as the Great Slump of the 1930s, and may never be. It is worth remembering that US GDP fell by a quarter between 1929 and 1932. Sadly, the lesson of history is that resistance to radical change is only overcome when the situation becomes really desperate: a combination of mass unemployment, fascism and war provided the necessary pre-conditions for Bretton Woods 1.

While the current situation is certainly serious, a petrified banking system and a sharp contraction in economic growth does not yet amount to a 1930s-style economic collapse. As a result, there is still a feeling that with some running repairs the global financial system can be returned to how it was before August 2007, with perhaps slightly tougher regulation. That explains the schism between the Americans and the Europeans about whether the priority should be to provide a boost to the global economy or to re-regulate the financial system.

Any solution to the crisis that fails to address the unbalanced state of the global economy during the bubble years is doomed to fail. What needs to happen is that the surplus countries – such as Germany and Japan – need to spend more at home and export less; the deficit countries – the United States and Britain in particular – need to export more and spend less. That is easier said than done: indeed, Britain and America seem far keener on boosting domestic spending through tax cuts and spending increases than are Germany or Japan.

So while there are signs that the summit is heading in the right direction – on financial regulation and on tax havens, for example – there is still a long way to go before the job is complete. The original Bretton Woods took place when the economic storm had abated; it was relatively easy to analyse what had gone wrong and what needed to be done. This summit takes place in the middle of the crisis; any final settlement will have to wait for the dust to settle.

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