Gordon Brown: Europe needs a global rescue
The G8 summit at Camp David failed to find a plan for economic growth in Europe and to deal with a euro crisis that goes beyond debt. It may seem strange to propose that the world’s second-richest continent needs a global rescue. But today’s European consumers are too fearful to spend.
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Of course, at the next meeting of the European Council, agreement will be reached on what will be called “a growth strategy” – a 10 billion euro boost to the European Investment Bank, a continental infrastructure fund, structural reforms to liberalize markets, and possibly also the introduction of cyclically adjusted deficit limits. But these measures will either take too long or be too slight to yield a big enough boost to growth this year and next.Skip to next paragraph
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The unpalatable truth is that European countries can no longer rescue themselves from stagnation without international support. What should have happened at the G8 – and what must happen at the G20 next month – is a coordinated global response that will help Europe decisively address the two elements of the crisis that are being ignored.
First, as their banks are restructured, the world must underpin Europe’s economy with help for a firewall strong enough to insulate Spain, Italy, and other countries. Now that Greece has brought the continent to its moment of truth, a financial re-engineering is a prerequisite for the survival of the euro. But Europe’s stability fund of around 700 billion euros, even when backed up by the International Monetary Fund, is nowhere near large enough to persuade the rest of the world that Europe can master the storms ahead. A larger firewall is now needed as Europe considers anew a French plan for the creation of euro bonds, ponders Italy’s proposal for a European-wide system of deposit insurance, and fights off a flight of capital from its periphery.
Second, to give weight to the European growth initiative, the G20 needs to return to the global growth compact first agreed in London and Pittsburgh in 2009. Ten years ago the Western consumer could drive the world economy forward. Ten years from now the Asian consumer will be the driver of growth. The G20 should plan to raise overall global growth by speeding up the opening of Asian and South American markets. It should also seek help from the International Monetary Fund to negotiate a deal in which China creates more global demand by increasing consumer spending and India further opens its markets to imports.
In return, America and Europe should speed up capital investment in infrastructure, which would reassure Asia of the West’s commitment to growth. A growth compact could make the West confident it can benefit from an export-led drive to the East, and make the East confident there can be revitalized demand in the West.
The whole world will benefit – and we will have helped pull Europe back from the brink. The alternative – a lost decade of European unemployment and stagnation – can and must be avoided.