Quick. Someone send for Gordon. What is signally lacking in this new and most dangerous phase of the Great Contraction is someone, anyone, who seems to command the authority to get political leaders to focus on resolving the crisis. In 2008, at the London G20, Gordon Brown banged heads together and got the international community to launch a co-ordinated multi-trillion dollar stimulus that prevented the recession becoming a depression. There seems to be no one around with either the will or the vision to do this in 2011. Which is very unfortunate for the world.
What is most striking about this latest twist to the financial crisis is that it is currently largely political rather than financial. Yes, there are problems about Greek debt and deficits, and there is a great “deleveraging” taking place – that’s a euphemism for paying debts. But we should not be facing the melt-down that followed the collapse of Lehman Brothers bank in 2008, when banks stopped lending to each other and world trade froze. Most of the Western banks have either been nationalised or recapitalised. There is economic restructuring certainly in countries like Britain with over-valued real estate and a bloated and parasitic financial “services” sector. But apocalypse it isn’t.
Germany has been an economic powerhouse of export led recovery. Asia is growing faster than ever. Corporate profitability is high – or was before the banks stopped lending – and there is no shortage of capital around. It’s just that it is being hoarded by banks and companies because they have become gripped by fear. Or rather fear of fear. This is the moment when leadership becomes absolutely crucial to world events.
As Jim O’Neil of Goldman Sachs put it to the BBC yesterday: “The thing that really brought the world to a better place in 2008 was genuine collective action involving both the developed and the developing world through the G20” Perhaps this sense of collective action will happen at this weekend’s meeting of the G20 in Washington. But I’m not holding my breath. There is an ugly mood of economic nationalism sweeping through Europe – mainly focussed on the “sun-Med” states or the PIGS – Portugal Italy Greece and Spain. People are fed up with bail outs and hand outs and constant . Perhaps this is the moment the real crisis begins.