Expatica news

Crisis summit signals era of big government

DAVOS — The world is entering an era of big government with only state muscle powerful enough to fight the economic crisis, top leaders signalled at the Davos summit.

News of mass job losses and fears of social unrest and protectionism reverberated around the gloomy halls of the World Economic Forum.

But the absence of any senior member of President Barack Obama’s US administration in the Swiss resort and nationalist rumblings in Washington left doubts about how closely the major powers will take up the battle together.

The "go-go years" are over, admitted HSBC chairman Stephen Green talking for beleaguered bankers at the elite gathering. And Europe’s main leaders made it clear that they want a greater grip on the international financial system.

German Chancellor Angela Merkel proposed a UN economy council on the lines of the Security Council that kept squabbling nations apart after World War II.

"Freedom is a necessary precondition for market forces to operate," she said in a speech which condemned "unfettered markets".

"Individual freedom needs to be limited if it takes freedom away from others."

Britain’s Prime Minister Gordon Brown called for a "global regulatory system" with a toughened up International Monetary Fund and World Bank.

Governments have already spent one trillion dollars bailing out banks, he reasoned. The government does not want to be a shareholder in banks but "you cannot leave everything to the market," Brown declared.

Several ministers raised the spectre of dark days ahead.

Police fought anti-forum demonstrators in Geneva and Bern and kept other protesters at bay in Davos, as Brazil’s Foreign Minister Celso Amorim warned: "For more vulnerable nations there is the threat of instability and social unrest with all its dire consequences."

French Finance Minister Christine Lagarde said "social unrest and protectionism are the two major risks of the world economic crisis. I think it’s a risk in Europe, it’s a risk elsewhere as well."

Nearly every prime minister and minister present vowed to fight protectionism.

But with alarm bells ringing over a US Congress measure proposing that only US steel be bought with US stimulus package money, World Trade Organisation director general Pascal Lamy said there are already protectionist "spots on the radar".

"The more governments get involved in the market, the more probable that protectionist measures will come about and that is vicious circle," said South Korea’s Trade Minister Kim Jong-Hoon.

The world is now waiting for a Group of 20 summit in April and world trade talks to send important signals about the intent of governments to work together to ease the pain of the crisis.

The French finance minister said the world was "working against the clock" to get proposals ready for the G20 summit in London.

For most ministers the attitude of the United States will be crucial. China’s Premier Wen Jiabao and Russian Prime Minister Vladimir Putin both took Davos pot shots at the US role in the causes of the crisis and the dominance of the dollar.

There was no high ranking American in Davos to reply and little is known about what Obama thinks about the global regulation advocates.

"I think the world is heading for an era of multi-lateral cooperation," said Howard Dean, until recently the chairman of Obama’s Democratic Party who was in the Davos audience.

"There is going to be enormous pressure because of the direction of the economy, there are going to be politicians who appeal to nationalist interests which is always destructive.

"But I think we are so inter-related now that I don’t think you can avoid the conclusion that we have to work together."

Robert Lawrence, professor of international trade at Harvard University, said the United States will be ready for more intense multi-lateral moves.

"But there is still going to be a very great reluctance to have those activities dominated by people whose votes don’t reflect reality."

Merkel’s proposal for a UN economic council would ring "negative bells" in the United States where the United Nations has a poor reputation, he said.