The importance of Thursday cannot be overestimated

By Rachel Reeves

It is easy to be cynical about what global summits and communiqués can achieve. But what happens in London’s Docklands on Thursday matters. It is an opportunity to send out a clear message, backed with firm commitments, that international resolve exists to tackle the global crisis and to help people affected, here and now.

The recession, and financial crisis that caused it, has put to rest the Tory philosophy of laissez-faire isolationism. It is only through global governmental action that we can move forward, and that is why the decisions made on Thursday matter so much. Whether you are a Chinese villager looking for work in the city, a construction worker in Leeds where building has come to a halt, or a homeowner in negative equity in Virginia, we are all intricately and unavoidably linked in the ups and downs of the world economy.

Despite scepticism from most of the press about the ‘substance’ of any commitments, there will be firm measures announced – including a doubling in the size of the IMF, strict sanctions for tax havens that continue to withhold information, and a global structure for financial regulation (including bringing hedge funds in to the realm of the regulated). It might even happen that an international agreement on bank pay and bonuses is agreed. The importance of such measures should not be underestimated – they will bring an end to unbridled capitalism and greed that got us to where we find ourselves today.

A lot has been said about divisions regarding fiscal policy. I strongly believe that more needs to be done to get cash circulating in the economy again, and that the costs of doing nothing (and enduring a long and drawn out recession) are greater than targeted, temporary fiscal stimulus. But, the divisions between France and Germany on the one hand and the US and UK on the other are overplayed. Germany, for example, has already announced a fiscal package larger than ours – despite their accusations of ‘crass Keynesianism’. Moreover, the larger welfare states in Europe will automatically increase budget deficits in recessions resulting in less need for discretionary packages unlike in the US – which is precisely why US emphasis on fiscal packages is rightly greater. So, while all governments must play their part, they will do so in different ways.

Barack Obama was spot-on in his FT interview today when he called on world leaders to “deliver a strong message of unity” for the sake of the world economy. Although ministers are understandably trying to downplay what the summit can achieve to avoid over-promising and under-delivering it is not an exaggeration to say that Thursday is a pivotal day for the world economy.