U.K.'s Brown Denies G-20 Stimulus Split
In Interview, Prime Minister Says His Country Has Spent Enough, Emphasizes Central Banks' Solutions
STEPHEN FIDLER, JOANNA SLATER, MATTHEW COWLEY
U.K. Prime Minister Gordon Brown, facing growing pressure over the size of Britain's fiscal deficits, sought to play down a split among the Group of 20 leading nations over stimulus plans and said the U.K. was already taking big steps through a combination of government spending and interest-rate cuts.
In an interview in New York with The Wall Street Journal, Mr. Brown tried to smooth the sharp public differences among the biggest players in the global financial system before the G-20 meets next week outside London -- and also nip any dispute with his own country's central banker over whether the U.K. should spend more.
This week, Bank of England Gov. Mervyn King told an influential Parliament committee there is little room for further U.K. stimulus. "There is no doubt that we are facing very large fiscal deficits over the next two to three years," he said. "But 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."
That joined a growing chorus of European leaders, including European Central Bank President Jean-Claude Trichet in an interview the Journal published Monday, who have stressed that ballooning fiscal deficits could backfire and damage public and business confidence.
On Wednesday, outgoing Czech Prime Minister Mirek Topolánek, in remarks to the European Parliament, slammed U.S. President Barack Obama's stimulus plan as "the road to hell" that European Union governments must avoid, according to the Associated Press. The Czech Republic currently holds the EU's rotating presidency; Mr. Topolánek's government lost a no-confidence vote Tuesday in the Czech Parliament.
The U.S. and U.K. have until now emphasized the need for a significant fiscal boost through tax cuts and extra government spending, while France and Germany have focused more on better regulation of financial markets. Still, Mr. Brown, in his comments Wednesday, said talk of divisions between the leading governments had been exaggerated.
He said the summit wouldn't be an attempt to strong-arm countries into announcing stimulus packages. "Nobody is suggesting that people come to the G-20 meeting and put on the table the budget they're going to have for the next year," he said, adding that the timing of such decisions was up to individual countries.
He depicted fiscal stimulus as just one of three ways the U.K. authorities are boosting the economy. He suggested they had already pursued all three, raising questions about whether a further fiscal boost was likely in the annual budget announcement due April 22.
"We're doing it by interest rates being incredibly low, we're doing it by our fiscal stimulus and we're doing it by what is probably not yet understood by the public as one of the most effective and quicker ways of getting activity moving in the economy -- by quantitative easing," Mr. Brown said. In quantitative easing, central banks inject money into the economy by direct purchases of financial assets.
The prime minister added: "If you take these three changes that have happened over the last few months together, that is where you look for results, in the combination of these three."
The U.K. government has kept plans for its April 22 budget closely guarded. Treasury chief Alistair Darling has said repeatedly that the government will do "whatever is necessary and for as long as that is necessary" to lift the economy, but he has also reiterated his government's commitment to bringing down borrowing in the medium term.
Mr. Brown said that while official interest rates in the U.S. and U.K. were lower than in Europe, he expected the European Central Bank, which sets rates for the 16-nation euro-zone economy, to cut its rates further. The ECB has trimmed its policy rate to 1.5%, the lowest in the central bank's 10-year history, from 4.25% in October, and markets expect a further quarter-percentage-point cut at its next meeting April 2.
Mr. Brown reiterated a warning against protectionism. "The greatest danger we face as trade starts to fall is that countries will resort to protectionist measures," he said, pledging that preventing such moves would be at the top of the G-20 summit agenda.
Mr. Brown stressed that he saw more consensus than disagreement among nations on the way forward. There was broad agreement, he said, on the need for common rules regarding accounting standards, regulation of banks, and remuneration.
"A world without standards is going to be a world without stability," he said. "The purpose of the G-20 [summit] is to agree on action we can take together, not to impose a single regulator," an idea he called ridiculous.
The G-20 summit is the start of a process, Mr. Brown said, which "must end with the reform of the global institutions." He argued that institutions like the International Monetary Fund and the World Bank must change to address the challenges of a globalized economy.
Mr. Brown said he doesn't expect the G-20 to discuss the issue of a supranational global reserve currency, which has been raised recently by Russia and China.
The U.K. prime minister said that while the short-term economic focus will be on deflation, longer-term inflationary threats like higher oil prices will need to be dealt with once global growth resumes. Mr. Brown warned against falling prey to what he called "undue pessimism," joking that he had recently seen a newspaper headline that read "England collapses before lunch." "Luckily, it was only cricket scores," he said.
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