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What does Sarkozy's walkout threat signal?

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Paul Mason | 12:09 UK time, Tuesday, 31 March 2009

"It is easy to predict the agenda of the Conference. A number of resolutions will be passed declaring that many things ought to be changed, but without a serious intention of changing them."

So wrote JM Keynes on the eve of the London Conference of 1933.

I have said it here at essay length and I will put it down in bullet points today. Unless there is a tangible, concrete outcome at the G20 there is the risk that the world economy moves from deep recession to slump. The World Bank's prediction today of a 1.7% shrinkage of global GDP surpasses the IMF's prediction two weeks ago of a 1% fall.

It does not sound much but if you consider the famous IMF dictum that anything less than 3% growth is a defacto world recession, then we are four percentage points into the mire. The problem is not the depth: it is the length. The World Bank report today warns that a weak recovery in 2010 could get swamped by a new wave of financial backwash. We need to remember, essentially, that in addition to the "toxic assets" banks also hold good assets that can turn bad overnight driven by unemployment, wage cuts, bankruptcies and trade collapse.

It's not my job to advocate specific policies, but clearly the range of policy tools to stop this happening include: fiscal stimulus, monetary easing - via zero interest rates and printing money, currency devaluation and state protection for industries and sector.

Every one of these responses poses point blank the issue of competition and protectionism. I will spell out the brutal logic for the polticians: if I splurge my taxes on saving the British car industry, then I want at least some of the money to go to Birmingham (or in Sarkozy's case, Billancourt) instead of Bratislava; I print billions of new pounds, then it's going to drive the value of my currency down and boost my short term export position; I intervene to drive my own currency down ditto; and if I create jobs in North West England I want at least some of them to go to UK nationals with votes here, not Polish people with votes in Poland (this latter, incidentally, is impossible to specify under EU law).

So the only way of avoiding rival bailouts is to co-ordinate the bailout strategies. That does not mean everybody adopting the same strategies, or ignoring the huge cost to future taxpayers that the most stricken economies (Britain and the United States) will leave as a legacy.

The G20 will not, it is clear, deliver everything. But how should we interpret the threat by President Sarkozy to walk out and refuse to sign the communique if there is "false success with language that sounds good but contains no commitments"? The same as we have to interpret Barack Obama's decision to "get tough" with a Detroit car industry whose workers idolise him and whose bosses expected him to bail them out.

The politicians are coming under pressure from the electorate to deliver tangible protection for their jobs, their taxes and their fiscal infrastructure. This is called democracy - and unless it can be mediated through some form of commonly agreed actions at a global level it will tear the world economy apart.

The world economy incidentally has a head start on the protectionists: global exports have slumped - by an average 40% annualised rate in the developed world. This is not caused by "protectionism": it is caused by the fragility of globalisation, which I interpret not as a "threat to globalisation" but a flaw within it. Multi-country supply chains and the end of vertical integration, both features of the last 20 years, have caused the export-supply economy to react like a tortoise in fear. Each economy has withdrawn to its shell once credit began to dry up.

I now looks like there will be some tangible outcomes: there will be a world regulatory body - the Financial Stability Forum will become the Financial Stability Board. But it will not have any teeth other than surveillance and cross-border co-ordination. There will be money for the IMF but in part that's because, to maintain the EU rule of no state bailouts, the EU countries are having to bailout Eastern Europe via the IMF rather than using the ECB. Fiscal Stimulus - there will be strong words but action is constrained. Monetary stimulus will be interesting - because there will be pressure for Europe to fall into line and adopt some form of unconventional monetary easing (printing money).

Will it stop 1.7% GDP shrinkage turning into a long stagnant decade? Nobody knows, for the simple reason that we've never had a global recession in the globalised economy. I cannot find anybody warning in advance for example: watch out, if global growth falls by 6 percentage points then global exports will collapse by 40%. There is massive potential for one or more countries to mess things up - for example America could transfer the cost of the crisis to China in a big dollar devaluation: this is why I am getting calls from serious global businesspeople insisting that, for example, China's demand for a new global reserve currency is not off-the-wall and needs to be listened to.

If the shadow of the 1933 conference - which failed for good reason - stands over the ExCel building this week, then the shadow of JM Keynes should loom over the proceedings and the protestors.

Gordon Brown laid out five tests for success at the summit. Keynes laid out just one:

"Our plan must be spectacular, so as to change the grey complexion of men's minds. It must apply to all countries and to all simultaneously."

Keynes warned the world's leaders against economic solutions that left out social and economic justice - for weak nations and poor people. He warned the world in 1919 not to impose harsh reparations on Germany; and he warned them in 1933 not to impose deflationary policies that would prolong depression. And he also warned the left, the predecessors of today's protesters: though sceptical of the Conference outcome he warned the readers of the New Statesman not to wish for the failure of the half-measures already enacted. You will not like what happens if it does fail, was the message. And they did not.

Of the delegates he said:

"Fear and greed, duplicity and incompetence, but above all conventional thought and feeling, have brought their collective performance far below the level of the participants regarded as human individuals. But here is a last opportunity. Finis Coronat opus."

Which I think means, in Latin, get your act together.


  • Comment number 1.

    More bad, bad news here:

    You don't think they're trying to solve anything this week, do you? Fiscal stimulus = inflate away sins, that's all.

  • Comment number 2.

    Sarkozy's walkout threat as your piece implies (I think) that it is one of two things either.

    a) A hollow jesture for self interest reasons, to play to his home crowd..who as we all know love that kind of thing.. but they usually do it with trucks accross port entrances.

    b) Genuine concern that if the world does not do something of real substance (along the lines of your Keynes quotes) they may as well all walk out anyway for all the good it will do them. That at least would be an honest assessment of the true state of afairs.

    Or possibly

    c ) Both i.e. a shot to nothing politically in his particular situation:)

    Personally I predict he will consider the mere threat of walking out enough to play to his home crowd (so he wont) and he will figure the jumbled statement bound to emerge from this will be too confusing for anyone to know whether he should have worked out or not.

    unfortunately, human nature being what it is I think not enough pain has been felt yet globally by the masses for this conference to do anything.

    When the pain is felt to the point that the politicians feel it more keenly I think the Chinese idea of a global reserve currency that is not aligned to an individual country is a good equitable idea given what has happened. Why should the dollar maintain that position?

    It is certainly the largest economy but it is far from well managed. What are the chances the states will see it that way though? Again unfortunately i suspect their pain threshhold will prove to be very high before they consider a reserve currency that is not their own.

    What a shame.

    Humans are so predictable.


  • Comment number 3.

    If Sarkozy walks out, he will polarise opinion about himeslf between those who will admire his conviction and those who think he is behaving like a spoiled brat. Either way it is clear that the threat has everything to do with his image and nothing to do with problem resolution. Mr. Brown's fondness for tests in sets of five ( - remember the Euro tests?) seem to be carefully crafted so that one can always achieve four but never quite square the circle. Obama will arrive with all the right sound bites about protectionism but it won't prevent a 'Buy American' campaign back home.

    These are just a handful of examples. My point is a very simple one. How can you expect resolution from people who say one thing and do another, that put their personal agendas ahead of the global problem and are torn between the needs of the global economy and their own domestic political powerbase?

    As the 'new kid on the block', it is to be hoped that Obama is yet to be tainted too much by cynicism not to try knocking heads together but I have my doubts.

  • Comment number 4.

    all that China is saying is 'don't devalue because that is what we have been doing for years to maintain an advantage over you'.

    china would have more credibility on currencies if they stopped keeping theirs cheaper than basket case economies in the west.

    'walk outs' and other forms of 'political pouting' like talking about 'morality' are just self indulgent nonsense.

    what is not in the communique

    an admission the political class are also responsible.

    an admission the market knows best and is the best arbiter is a false belief.

  • Comment number 5.

    It is all very well saying to spend our way out of recession, but I agree with the guy Liam Halligan on last night's panel - inflation is the next looming crisis on the agenda, contrary to what politicians in this weeks G20 summit would have us believe.

    #4 bookhimdano wrote:

    all that China is saying is 'don't devalue because that is what we have been doing for years to maintain an advantage over you'.

    Just out of curiosity, can you be so kind to show me which Chinese official has made the above quote?

  • Comment number 6.

    Thanks for a thought-provoking article Paul. I've written an analysis of why global trade might be so fragile - according to traditional, rational economic theory it should behave just like local trade. But of course it doesn't.

    The reason is that people are irrational, but in specific ways. It's important to recognise this is as big a threat to trade as explicit protectionism:

    [Unsuitable/Broken URL removed by Moderator]

  • Comment number 7.

    Regrettably the G20 is in crisis mode, and cannot see the big picture.

    There are two main aspects to economics; creating wealth and distributing it.

    It seems that economists have been seduced by the second aim and have failed to fully understand the former. Their defence appears to be that wealth creation will arise through efficient wealth distribution, therefore acknowledging the lack of genuine emphasis on the former question. This is nothing more than intellectual abdication of the highest order. A profound ignorance of gargantuan proportions.

    A damning indictment of this is the mirage of the last 20 or 30 years of "prosperity" created by the financial sector. Why weren’t economists challenging High Finance (especially derivatives) for merely transferring wealth, not creating it.

    We were not becoming wealthy through being more productive as a nation, or even through the charade of globalisation. Getting lower cost labour to make the same things in the same old way is not "innovative"; it actually pushes wages down, whereas true innovations push wages up.

    Tinkering with monetary policy, fiscal stimuli and reserve currencies just excacerbates the narrow focus. The current economic canon stands accused of completely forgetting how to create genuine wealth and social prosperity. Sound economic principles of innovation and productivity improvements have been drowned out by the unscrupulous obfuscation of financial swindling.

    To paraphrase Von Mises: A man should not delude himself that he has found an innovative way to heat his house, by burning all his furniture.

    Unlike the 1930s and 40s, there is clearly a more fundamental economic crisis lurking beneath the surface. And in the absence of a latter-day Keynes, who can we turn to, to articulate the gravity of this most portentous predicament?

  • Comment number 8.


    Another excellent factual piece and thank you for treating your readers as adults.

    Two brief responses:

    Sarkozy's threatened walk-out is the act of a man who knows that he is unable to throw punches at the right weight. France has a contribution to the discussion and understands better the the UK the right balance between "self interest" and "protectionism", but clearly feels inadequate to set out her arguments at this level.

    Jericoa (#2) - I would caution you to look beyond the immediate utility of a new global reserve currency. Whoever backs this currency holds some pretty important levers of power, and is it coincident that the current incumbent has also assumed the role of global policeman? Would there be a smooth transition of control?

  • Comment number 9.

    Such is the nature of political brinkmanship that the threat of a French walkout can't be all it seems.

    Certainly, M Sarkozy is playing to his domestic gallery - but since the basics of the final communique have already been drafted this can only be because he knows that he will get what he wants - and so will look to have achieved this by his threat.

    Of course, it could be that he knows that he will not get what he wants, and is preparing for a dramatic gesture. But I somehow doubt this.

    The most that he could hope to achieve at this late stage would be the addition of some weazel words into the text to spare his blushes. Walking out of the G20 would look daft to everyone and lay him open to the allegation that he scuppered the one chance to sort the crisis out.

    I can think of several leaders who would find the emergence of such a scapegoat very convenient.

  • Comment number 10.

    What no inventory?

    Re: 40% drop in exports.

    There's just no need to shuffle stuff round the planet at the moment. There's heaps of goods sitting as inventory about the countryside. Driving over the M5 a few weeks back I was awestruck by the following sight:

    Overconsumption begat overproduction.

    Traditional economics is paying the price for ignoring the role played by inventory; and boy have we amassed inventory; in our homes, in our supermarkets and in freight terminals the land over.

  • Comment number 11.

    Seems like I might have posted a broken URL previously (message 6) so here is the corrected link:

  • Comment number 12.

    " This is called democracy - and unless it can be mediated through some form of commonly agreed actions at a global level it will tear the world economy apart."

    You made the case for urgency and the dangers lurking to global output. You've rightly pin-pointed the currency angle as crucial. You sense, as I do, that more shocks will arrive. QE is designed as a currency deflator ( did Mervyn say this?).The lending capacity deficit is kept out of view. Perhaps the politicians know that they would have made the situation worse by coming to London having hyped expectations, only for them to be dashed in the communique.

    Only the leadership of great statesmen can mediate democracy to achieve global action - tell me, where are they?

  • Comment number 13.

    Good article Paul.

    No one trusts them to do what needs to be done do they?

    A global regulator is going to be as effective as the UN: no more than a talking shop at the whim of international politics and national sef-interest of various little temporal pacts.

    It will not work for those who need it to work, but will serve the interests only of the rich and powerful global companies over the short term. The politicians do not have the will-power to ensure such a regulator will serve the interests of a global population.

    If Sarkozy is serious about this G20 meeting and what needs to be achieved globally, then what was he and his French business men doing in the Democratic Republic of Congo lately? The weren't there looking to promote decent, infrastructure, healthcare and environmental protection for the congolese, and a non-corrupt, effective regime were they?

  • Comment number 14.

    #8 fairlopian tubester.

    I take your point, I suppose I was hoping a new global reserve currency would be backed by the US / EU and China primarily. An absolutely hopelessly idealistic state of affairs on my part!

    Also on reflection, would the process actually be affected significantly if Sarcozy left?

    Hype gets the nod over substance yet again in terms of media reporting of what is going on in the world.

    I should stop contributing in my lunch hour :).

    Good article by paul here , I also enjoyed Liam Halligans contribution on newsnight last night (#5) What was Ruth kelly doing there anyway, she really struggled I thought..but did better than comical Ali would have done given the same questions I think..

  • Comment number 15.


    Good piece. I have no faith in the G20 to do what is required. Look at how the world (the UN) looks at Zimbawe or Sudan.

    You should write more on the Weimar republic - that where we are going.

    Any suggestions for emigration? Whilst the pound is worth more than toilet paper? I might be able to buy a shack somewhere at least 100 ft above sea level & where food grows easily 365 days of the year.

  • Comment number 16.

    5 ..just out of curiosity, can you be so kind to show me which Chinese official has made the above quote?...

    the commas in my post are to identify the idea behind their currency devaluations. a common enough 'practice' [the commas are mine ;)]

    or maybe you don't know the currency market? do a search for chinese currency manipulation.


    Democrats prod Obama to press China on currency

  • Comment number 17.

    Paul wrote:

    "The G20 will not, it is clear, deliver everything."

    'Buy' on expectation and 'sell' on the reality!

    Look, the World will be lucky if these 20 gigantic egos stay in the same room for long! All together they are fairly witless (and together they might just be able to change a light bulb, but not bright enough to be able to program a washing machine) and we will be lucky if one or two of them go off in a huff. So it is just as well they only have less than 15 minutes each to prance upon the stage.

    Let's face it we have invested far far too much expectation in the G20 meeting. You journalists are to blame for this.

    Anglo Saxon journalist love having a bête noire and who better than the French after all almost anybody else would either be unfair or just too too boring.

    Luckily the short length of time limits the harm that can be done.

  • Comment number 18.

    Bertrand Russell addressed all these issues - global trade imbalance, protectionism, inflation and national debt and the damaging self interest of bankers in his 1932 essay 'The Modern Midas ' ( published in 'In Praise of Idleness', Routledge 2004 )

    His undogmatic conclusion was the same as maybe the Chinese suggest now - a global currency, and a single regulatory body.

  • Comment number 19.


    As the indictment of Westminster's finest proceeds apace, expressions of surprise are to be heard rising generally. Why?

    How is 'best practice' in MPs defined by political parties? I assert that they look for: defence of the leader, defence of the party and defence of self - especially when one or all is/are indefensible. To this end, dissembling, obfuscation, sleight of tongue, empty rhetoric, answering unasked questions and leaving the asked unanswered, are all practised arts. The type of person who espouses such practices should be monitored and controlled, not given free access to easy money.

    In short: the Westminster party-ethos draws to itself individuals or a certain kind, defined by cheating, lying and stealing. Who better, one might ask, to run a country that excels in banking, warfare and braggartry? Jericoa has written of 'Spiv Banking'; more correctly, we are a Spiv country, with a Spiv culture, run by Spiv MPs, and it shows.

    There is a pretence that many are without stain. HUH! Even if it is true, they were asleep at the till. Had Westminster a shred of the honour it trumpets, they would resign, en masse, and not attempt to return. We need - and deserve - a very different calibre of MP, if Britain is to achieve any sort of greatness in the future.

  • Comment number 20.

    We need some fresh and more detailed thinking about the whole global financial crisis. The current crisis is not caused by banks lending too much credit. If this were the case substantial inflation would have resulted which it has not. Rather the crisis has been caused by a substantial long term increase in productivity in the real economy which means that wages have become insufficient to buy the output of goods and services, or to repay the credit used to buy them. This process occurs gradually over time if productivity gains are not fully fed into real wages but partially into increased business profit, and if that increased profit is not fully channelled into dividend income and consumer expenditure. This appears to have been the case in 2005-2007. Credit has therefore been excessive against household income but not against GDP output. Without the credit, GDP would go into recession. The only policy corrective for this is to fund aggregate demand by alternative instruments such as a citizen’s income. This would be funded by a government bank with a flexible credit ratio to achieve the aggregate citizen’s income required. Current policy instruments have been exhausted. This is because they are based on the initial false diagnosis of excessive credit. Read more on this at

  • Comment number 21.


    the reason for low inflation is because the money has been going to china [among others] that have a culture of saving and not spending.

    and an economy driven by grey labour who send money home and keep wages low.

    Saving,which to the western mind, seems almost from another planet.

  • Comment number 22.

    I always enjoy your strike out enjoy... insert ..respect.

    I think the problem with the summit is that from miles back they have all known no agreement is possible... to be honest, with the Government it's a bit like listening to someone in the desert saying 'All we need is to agree a plan to find some wood to build a boat and push it to the sea...then we can sail away and save ourselves..."

    It's both kind of, sort of right...but kind of sort of entirely stupid and it's not worth arguing too much either, so everyone turns up for the meeting, nods politely and then wanders off to try and come up with their own plan....

    Everyone knows what everyone knows...though we try and hide it often... so expect some vigorous, even concerted polite nodding, then ...lots of wandering off....

  • Comment number 23.


    Nice e2toe4! Yes, they all do it. "We must sort out this, correct that, attend to the other and ensure that something else does not go wrong."

    As always, Douglas Adams was there first (when Arthur and Ford were trying to comment, positively, on Vogon poetry).

    Just another example of the Westminster mind - the same mind that operates the hand-in-the-till 'economy'.

    No wonder Westminster will not give the voters that extra box on the ballot paper.
    Those chamber-knaves cannot face a massive vote of NO CONFIDENCE.

  • Comment number 24.

    Excellent blog, excellent links.

    Keynes was not only a brilliant mathematician and economist, but a master of communicating in the English Language. His theories had flaws, and the world has moved on, but his writings are well worth revisiting nonetheless.

  • Comment number 25.

    Thanks to #20 for the figures on household borrowing. These are interesting, but I don't see how they can be the whole story.

    They show that over recent years disposable income has been squeezed; and that household borrowing has expanded to maintain consumption/growth. But this reached only £50 billion in 2007 which doesn't seem enough to cause the systemic collapse we are witnessing - nor was a default on these loans the reason for the failure of Northern rock etc.

    To my eye they are the tip of the iceberg - and we were holed below the waterline.

    I'm not sure about the proposed solution, giving everyone a citizen's income, either. Presumably this will be paid out of our falling tax revenues. I do however agree that the current splurge of public spending would have been better directeds towards ordinary people. The Government could, for example, have paid off everyone's mortgage with the money they have given the banks - thereby refinancing the banks and freeing people to spend with one fell swoop.

    The only solution now is for people to work their way through the crisis - paying off their excessive mortgages and personal debts and then paying tax to cover the Governments excessive debts - before they can enjoy the fruits of their labour.

    I wonder whether people will think it worth it?

  • Comment number 26.

    The only real possibility for us is to suspend EU rules;

    - on movement of labour within EU
    - on the obligation to offer state infrastructure projects to firms across all of EU (who then bring in own workers)

    Then we, and other member states, can have meaningful fiscal stimulus.

    And if rules cant be suspended - pull out of a structure that has become, whether it was intended as such or not, a mechanism for big business to maximise its profits to the expense of european workers and people generally.

    Actually I think though that there would be broad support for this, and member states would be more willing to 'fiscally stimulate' if they were getting something ( including political plsu) from national govt spending.

  • Comment number 27.

    Thanks # 25 for your response to my #20. The crisis definitely started by US banks lending home buyers beyond their income ability to repay. My thesis is that this will inevitably happen as productivity reduces the share of wages in the burgeoning output unless all productivity gains are fed into real wages (which they are not and which would in any case produce a massive redistribution of income). £50bn is significant as it represented the bank bale out figure at the end of 2008. The system needs some form of non repayable credit - eg a citizen's income. My proposal is to fund this not from tax revenues but with money created by a government bank with a set credit/assets ratio in the same way as commercial banks create money as a multiple of their deposits. Remember Keynes prescription of paying the unemployed to dig up bottles comtaining cash if the monetarists insist :)

    Geoff Crocker

  • Comment number 28.


    Galbraith said the same thing in "The Great Crash 1929"

    Something along the lines of:

    There will a conference called and the attendees will appear to discus weighty matters when in actual fact they will do nothing. The importance of this is the appearance of "doing something"

    I'll dig out the quote when I get home.

  • Comment number 29.

    Paul, why don't you and Jeremy Paxman put points 1 and 6 below on Newsnight to ministers, central bankers and other financial experts? They get to the roots of the crisis.

    1. Who decreed that 21st-century societies must depend for their supply of money on banks creating it for their own profit? Not God; no Faith scriptures teach it. Not Nature; winds, tides, plants, trees, animals - none use money. Humans made this system work as it does. Intelligent humans can reform it.

    2. Most of the money now used in the international economy is money created as debt in the currency of one country, the US dollar. In national economies most of the money now used is created by commercial banks as debt, written into their customers' accounts as loans. (In the UK, for example, less than 5% is created as coins and banknotes by public agencies, and over 95% by commercial banks.) Central banks try to use changes in interest rates to control how much money the banks create.

    3. It isn't effective. All the ninety recent credit booms and busts in various parts of the world have taken a similar form. The banks have hugely profited by creating too much money in the booms, and have then received huge bail-outs in the busts in order to reactivate their privilege of providing the money supply.

    4. The conventional response to the present crisis is now combining a massive increase in future debt with new top-heavy regulation in order to reactivate the banks' privilege again. These features of the new "financial architecture" ignore what first-year students of architecture know: make sure the foundations are sound before you construct extensions to the upper floors and overload them with heavy burdens. The foundations of "financial architecture" are, of course, money and how it is created.

    5. International monetary reform has now been proposed by Brazil, Russia, India and China, to replace the US dollar with a more genuinely international currency administered by an international authority.

    6.Should national monetary reform not follow that model? It would include:
    1) normalising "quantitative easing" by transferring responsibility to a nationalised central bank to create the debt-free additions to the national money supply which it judges to be in the public interest;
    2) requiring the central bank to give the money to the government to be spent into circulation under normal democratic budgetary procedures;
    3) making it a crime, like forging coins and counterfeiting banknotes, for anyone other than the central bank to create bank-account money; and
    4) denationalising recently nationalised commercial banks to compete unsubsidised in the market for borrowing and lending existing money.

    7. For practical details, including safeguards against governments misusing the central bank's new function for their own political purposes, see (American Monetary Institute) and Newsletter 22 and links (UK).

  • Comment number 30.

    I think sarkozy is worried that the US and the UK will try to push through changes to solve problems thay they have caused and not for the good of the others. France has never allowed mortgages of over 80% so has never had a sub prime problem, only the UK and the US. I back Sarkozy as he is more realistic than Brown. Brown was chancellor for 10 years and now look what he achieved!


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