The trillion dollar question: Will Gordon Brown's 'New World Order' pay off?By JAMES CHAPMAN - Daily Mail Last updated at 9:30 AM on 03rd April 2009
The G20 summit has brought the end of the recession within sight, Gordon Brown claimed last night.
World leaders hammered out an agreement including a $1trillion rescue package for the global economy and tougher regulation of financial dealings.
The Prime Minister hailed it as 'a new world order' and compared it to the Marshall Plan, which rebuilt shattered Europe after the Second World War.
He said it could lift the world out of recession by next year.
U.S. President Barack Obama called the deal 'by any measure historic' and said of the world economy: 'The patient has stabilised.'
London's FTSE 100 Index remained buoyant in the wake of yesterday's agreement.
It opened slightly lower today, down 31 points, but remained above the 4,000 barrier it soared through yesterday for the first time since February.
The Dow Jones industrial average gained 216.48, or 2.8 per cent, to close at 7,978.08, posting its best four weeks since 1933
Overnight Asian markets also climbed with Japan's Nikkei up 1.3 per cent while Hong Kong's Hang Seng climbed 0.5 percent. Stocks in Australia and Taiwan also gained over 1 per cent.
But critics queried how much of the announcement involved new money and just what it could achieve both across the world and for suffering families and businesses in the UK. The G20 deal, which the Prime Minister has spent months negotiating, includes:
- A $250billion global ' overdraft' facility for troubled economies
- Sanctions on tax havens and bank bonuses and tougher international financial regulation
- A $500billion boost for the International Monetary Fund to bail out failing nations
- $250billion in support for world trade
- A common approach to cleaning up banks' toxic assets.
There was no mention of the further tax cuts and spending rises once favoured by Mr Brown and President Obama.
Instead, there will be another G20 summit in New York in September to assess the impact of the $5trillion fiscal stimulus already pledged by countries across the world.
Germany, which joined France to resist increased borrowing, said bluntly last night it had not been prepared to 'burn more taxpayers' money'.
The two countries claimed their brinkmanship at the summit had persuaded 'Anglo-Saxon' economies to agree to tougher intervention in financial markets.
Mr Brown, however, insisted the tensions had been overstated.
Aides said other world leaders were already branding it the 'London consensus' - a replacement for the old ' Washington consensus' which regarded markets as best left to their own devices.
Mr Brown said: 'I think a new world order is emerging, and with it the foundations of a new and progressive era of international cooperation
He insisted the package would not be a 'quick fix' but confidently predicted it would mean the global downturn coming to an end sooner than expected.
That could let him go into an election next year claiming credit for any 'green shoots' in the economy.
The most unexpected measure agreed at the summit in London's Docklands was a $250billion new 'overdraft' facility for troubled economies. Essentially, it will mean 'printing money' - a last-ditch strategy already employed by the Bank of England - on an international scale.
The IMF will let countries cash in ' special drawing rights' to protect themselves from collapse. It will come with far fewer strings attached than the IMF loan humiliatingly sought by Labour Chancellor Denis Healey in 1976.
Mr Brown insisted Britain was not proposing to make use of the IMF facility, which is designed to shore up economies in Eastern Europe.
The increased cash for the IMF came from various countries - $100billion dollars each from the EU and Japan and $40billion from China. Britain's contribution has yet to be negotiated.
On financial regulation, it was clear that any idea of an all-powerful global body had been too big a step.
Instead, a new Financial Stability Board will work with the IMF to ensure cooperation between national watchdogs.
World leaders claimed the tighter rules would sound the death knell for the laissez-faire Anglo-American way of banking and conducting financial markets.
There will be greater regulation of hedge funds and credit ratings agencies.
A common approach to cleaning up banks' toxic assets has also been agreed, with countries either absorbing them into 'bad banks' or using taxpayers' money to underwrite them. Mr Brown said banking bonuses that encourage short-term risk taking would be reined in, though there was no sign of the fixed cap that France and Germany had wanted.
Tory leader David Cameron welcomed parts of the deal, particularly the boost to IMF resources.
He said: 'Now the focus should switch back to our domestic economy-because small businessmen needing a loan to keep their businesses going are still suffering.
'Our public finances, the level of our deficit, is truly horrific and we need to act on that now.'
In the Commons, shadow chancellor George Osborne said the G20 agreement would seem 'very remote' to most voters and would not stop the UK getting £1trn into debt.
He said the failure to win support for a new fiscal stimulus vindicated the Tories and critics including Bank of England governor Mervyn King. Mr King shocked ministers last week by questioning the wisdom of increasing borrowing further to kick-start the UK economy.
Chancellor Alistair Darling struck a less extravagant tone than the Prime Minister. He told MPs: 'I do think we need to be both realistic about what we have achieved today.
'But I think there are grounds for optimism in the sense that even six months ago I would have found it difficult to imagine that we would have been able to get 20 countries together and come to a substantial agreement.'
German finance minister Peer Steinbruck said he was pleased a further debtfunded fiscal stimulus had been abandoned, declaring: 'I'm not willing just to burn money, taxpayers' money.'