by Adam Tooze
The London G20 was not mere theater. The incorporation of a key group of emerging markets into global economic policy was a genuine innovation. The ratification of the IMF deal was to prove particularly important. In the years to come it would prove to be a vital resource, ironically enough, for Europe. But if this was the future of global governance, perhaps the gibes about the Congress of Vienna were not entirely wide of the mark. It was exciting for London to be hosting America’s glamorous new president, and the faded fixtures of 1990s Cool Britannia were out in force. The message of confidence issuing from the meeting, the huge boost to IMF resources, was good news, above all, for financial markets in London, New York, Tokyo, Shanghai, the media that served them and the audience of investors around the world, large and small. But when talking IMF quotas or tax havens, public participation was not welcomed by the British or the Americans, let alone the Chinese or the Saudis. As a political event the summit was an airtight cabal of executive power, housed in the cavernous bunkers of the ExCeL conference center, shielded from tens of thousands of protesters by a gigantic police mobilization.50 In the course of the confrontations in the City of London, a homeless newspaper vendor was fatally injured by the police, adding fuel to indignant protests about repressive police tactics. Inside the conference hall, Gordon Brown proved that he was perfectly suited to the role of Treasury secretary to the world. But his position as prime minister of Britain seemed ever more precarious. Indeed, Brown’s advisers worried that their boss, having become used to thinking in terms of trillions, might be losing touch with the humdrum reality of a medium-sized country heading into a deep recession.
Though he advocated stimulus at a global level, at home Brown was boxed in. A week before the summit, on March 24, 2009, Mervyn King, governor of the Bank of England, had given evidence to the Treasury Select Committee of the House of Commons and added his voice to those of the Germans, French and Chinese arguing against any substantial fiscal stimulus. “Given how big those deficits are, I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits,” he opined.51 King thus flatly contradicted the prime minister, who that same day was addressing the European Parliament in Strasbourg and calling for governments to do “whatever it takes to create growth and the jobs we need.” It was an extraordinarily high-stakes political intervention by the governor of the Bank of England, straying beyond monetary policy into the realm of fiscal policy, and it rattled the markets. The following day, the Treasury suffered the first failed gilt bond auction since 1995.52 An offering of £1.75 billion of thirty-year UK Treasury bonds attracted only £1.67 billion in orders. At 0.93, the cover ratio was believed to be the worst in history. The Opposition could barely contain their Schadenfreude. Tory spokesman Michael Gove quipped that King had “cut up the Prime Minister’s credit card.”53 Vince Cable, for Britain’s third party, the Liberal Democrats, spoke rather melodramatically of a “very British coup d’état.” The governor of the Bank of England had sent “his tanks down the Mall” to “put the Government under house arrest.”54 With the budget deficit yawning to £118 billion, and financial markets jittery, Prime Minister Brown needed the expansive vision offered by the G20 to hide his own limited room for maneuver.
IV
Given that resistance from France and Germany had kept any firm fiscal policy commitments off the G20 agenda at London, it was something of a surprise that the final communiqué spoke in grandiose terms of $5 trillion in fiscal expansion that would save millions of jobs and “accelerate the transition to a green economy.”55 Where that enormous figure came from is something of a mystery. Over the weeks that followed it was left to outside agencies such as the IMF to do the work of compiling data about the emergency spending programs that had been launched around the world. The results were striking.
In total, between 2008 and 2010, crisis-fighting expenditure would come to $1.87 trillion, or $2.4 trillion in PPP-adjusted terms—counting only discretionary spending and emergency tax-cutting measures. It was not $5 trillion, but it was nevertheless historically unprecedented. What was even more striking was the distribution of this spending. Whichever way one measured it, in 2009 and 2010, Asia and the emerging markets produced the most dramatic response to the crisis. Russia, Indonesia, Korea, Turkey, Brazil and Argentina were now in a position to launch truly substantial fiscal responses.56 According to the IMF’s figures, in 2009 Russia’s discretionary crisis response more or less matched that of Germany or exceeded it in PPP terms.57 And these figures were a serious understatement of China’s effort. They did not include the huge lending boom. By comparison, despite the size of the EU’s economy, Europe’s fiscal response to the crisis was derisory, barely more than 10 percent on the most generous measure. It was a sign of things to come. The only Western fiscal stimulus that weighed seriously in the balance was that launched by the United States.
Global Stimulus: The Discretionary Fiscal Response of the G20
stimulus % GDP
2008
2009
2010
Argentina
0
1.5
0
Australia
0.7
2.1
1.7
Brazil
0
0.6
0.8
Canada
0
1.9
1.7
China
0.4
3.1
2.7
France
0
0.7
0.8
Germany
0
1.6
2
India
0.6
0.6
0.6
Indonesia
0
1.3
0.6
Italy
0
0.2
0.1
Japan
0.3
2.4
1.8
Korea
1.1
3.9
1.2
Mexico
0
1.5
0
Russia
0
4.1
1.3
Saudi Arabia
2.4
3.3
3.5
South Africa
1.7
1.8
−0.6
Turkey
0
0.8
0.3
UK
0.2
1.4
−0.1
US
1.1
2
1.8
stimulus in PPP $ billions
2008
2009
2010
Argentina
0.0
10.6
0.0
Australia
6.1
18.6
15.6
Brazil
0.0
15.5
22.4
Canada
0.0
24.6
23.0
China
39.3
335.2
326.3
France
0.0
15.9
18.7
Germany
0.0
49.8
65.5
India
26.4
28.9
32.2
Indonesia
0.0
24.2
12.0
Italy
0.0
4.0
2.1
Japan
12.8
97.8
77.7
Korea
14.8
53.3
17.7
Mexico
0.0
25.2
0.0
Russia
0.0
117.5
39.4
Saudi Arabia
26.9
37.9
42.6
South Africa
9.9
10.4
−3.6
Turkey
0.0
8.6
3.6
UK
4.5
30.3
−2.2
US
161.9
288.4
269.4
Regional shares
302.6
1196.7
962.4
China
13.0
28.0
33.9
Other Asia
17.9
17.1
14.5
Europe
1.5
8.4
8.7
US
53.5
24.1
28.0
ROW
14.1
22.5
14.9
100
100
100
stimulus in $ billions
2008
2009
2010
Argentina
0.0
5.7
0.0
Australia
7.4
20.9
21.2
Brazil
0.0
10.0
17.7
Canada
0.0
26.0
27.4
China
18.2
158.3
160.6
France
0.0
18.9
21.2
Germany
0.0
54.7
68.4
India
7.3
8.2
10.3
Indonesia
0.0
7.5
4.5
Italy
0.0
4.4
2.1
Japan
14.5
120.8
98.9
Korea
11.0
35.2
13.1
Mexico
0.0
13.4
0.0
Russia
0.0
50.1
19.8
Saudi Arabia
12.5
14.2
18.4
South Africa
5.3
−2.3
Turkey
0.0
4.9
2.2
UK
5.6
32.5
−2.4
US
161.9
288.4
269.4
Regional shares
243.4
879.5
750.7
China
7.5
18.0
21.4