Leader: Growth must be the goal

IN A deliberate echo of Gordon Brown’s dramatic statement of October 2009 that global leaders had 50 days to save the world economy, Chancellor George Osborne declared on Friday that Europe had six weeks to save the euro. At the end of that period leaders of the G20 countries will meet in France, hopefully in the knowledge that they have a strategy for addressing the factors that threaten the second financial meltdown in five years. Those factors are daunting, not least because they are linked: the sovereign debt crisis; the lack of economic growth in America and Europe, with China’s boom threatening to wane; the threat of a new banking collapse; and the prospect of Greece (and potentially other European nations) defaulting. Make no mistake, the world economy is in peril and, unlike 2009, there are complex political issues hampering the economic strategy necessary for a rescue.

There are those who argue it is irresponsible to keep “kicking the can down the road” rather than ruthlessly tackling some of the key dilemmas right now. In particular, some economists urge the removal of Greece from the Eurozone as quickly as possible, as a shortcut to what they see as an inevitability in any case. This approach is understandable, but ultimately misguided. It prejudges the international effort and places the most pessimistic complexion on any stabilisation deal. It also ignores the fact that abandoning Greece – and possibly Portugal, Italy and Spain – would cause a convulsion in the world economy that would itself have consequences that would need to be borne, not least by British banks. Judged on narrow self-interest, propping up the euro will, ultimately, cost us less in the short term than bringing about its destruction. Sometimes it is better to kick the can down the road a little while longer, rather than open it now and find it is, in fact, a can of worms.

Europe’s politicians have to make their mark on this crisis in the same way Gordon Brown – for all his many faults – stamped his authority on its 2009 predecessor. In particular, it is time for Angela Merkel, the German chancellor, to live up to her rhetoric on holding the euro together. If that is indeed to happen – and it would be the most desirable outcome, if delivered within a coherent and stable framework – then Germany has to accept the consequences in financial support for those areas of Europe lacking Germany’s economic rectitude and discipline. That will be a tough sell to the German voters, who – like the Greek electorate – have the capability to scupper any political solution to the euro crisis by threatening to vote out leaders who take decisions with which they disagree. If Europe’s leaders are too easily deflected by the threat of unpopularity, the full potential of this crisis will be realised. This is a time, above all, for statesmanship rather than political partisanship.

There is, however, a timing issue. Every month that passes without a comprehensive strategy for stability is a month in which corporate chiefs hesitate over investment, and entrepreneurs press the pause button on new initiatives. At a time when every instinct for growth must be encouraged and nurtured, extended delay does the opposite. The G20 summit may head off a new banking collapse, but it will not, by itself, save the world economy from a Japanese-style decade of flat growth and economic stagnation. In a parallel with addressing the structural flaws inherent in the euro and international finance, the world needs a strategy for growth. Granted, this is easier said than done, especially when that growth depends on a resurgence of confidence on the part of businesses, lenders and – most importantly of all – consumers. But that must be the goal. And the first step towards it is for world political leaders to show imagination, unity, bravery, boldness and vision.