Britain is in recession. More than half of young Spaniards are out of work. The Greek people are turning away from the political mainstream. But over the past two years, the leaders of Europe’s largest countries have been telling the world there is no alternative. Every day that this denial has continued, faith in the ability of any politician to bring real change has ebbed away.
The divide in politics now is between those who think the lesson of the past two years is to offer more of the same and those of us who know now is the time for a different course. It is a divide between those who face the global economic storm having run out of ideas and those with a plan for putting right what has gone so disastrously wrong.
As this crisis has deepened, David Cameron has spent his energy engaging in political positioning, on show again in his speech to the Institute of Directors this week. His response to every downturn is to lecture the eurozone and to argue that nothing is his fault. But the reality is that his economic failure has let Britain down. His intellectual failure is central to the inaction that is holding back the European and global economy. It is costing jobs in Britain and across the world, as well as destroying faith in our democracy to meet the challenges we face.
At the end of August last year I wrote an article in these pages that called for concerted action to address the stalling global recovery. I said: “We face global economic threats that can only be addressed by global economic leadership. There is no time to lose.” Nine months on, that leadership is still to emerge. And people are pa ying the price.
They have been let down by leaders across Europe who have forgotten the first lesson of globalisation: that its legitimacy depends on whether we succeed or fail together. It is a lesson that should underpin firm, co-ordinated, action at this weekend’s G8 summit. And that should lead to the rejection of the Cameron-Merkel-Sarkozy approach and progress towards a lasting solution in Europe.
Mr Cameron cannot help solve this crisis because he is such a central part of the problem. About Britain, he claims “we are moving in the right direction”. Really? Recovery turning to recession, no growth for almost two years, a million young people out of work, and borrowing forecast to be £150bn higher than planned as a result. We have come to expect such crass arrogance but it does make you wonder on what planet the prime minister is living.
Everything about his approach shows him to be a desperately out-of-touch politician keener to avoid responsibility than assume it. Italy aside, Mr Cameron is the only leader at the G8 who has led his country into a double-dip recession.
It is true that we are in the midst of a global crisis, but that is precisely why his decision to reject a balanced approach two years ago was so reckless. It has meant Britain was hit earlier and harder than others. And the mutually reinforcing complacency of “Camerkozy” economics has meant this error has been replicated across our continent.
It did not have to be like this. On the other side of the divide is President Barack Obama, whose balanced deficit plan has led the US to at least return to growth. He has now been joined by President François Hollande, who shares his focus on growth and jobs.
It is this battle of ideas that needs to be resolved in favour of those who know it doesn’t have to be this way – that something can be done.
First, the G8 should start with the recognition that demand matters. Just as in the 1930s, when “beggar thy neighbour” protectionism helped produce collective depression, so today all countries’ pursuit of collective austerity is once more failing us all. Every big economy cutting demand simultaneously, irrespective of their relative positions, closes export-led routes to growth for those countries that must take urgent action on their deficits.
Last November, in the communiqué of the G20 in Cannes, world leaders in a number of countries, including Germany, promised to boost domestic demand if “global economic conditions materially worsen”. Many asked at the time how bad things had to get.
But they have now unquestionably worsened. Action is long overdue. This is the time for countries that enjoy historically low interest rates, such as Germany, to recognise they must collectively support demand.
Second, there needs to be a sustainable solution for the eurozone. Exposed countries need to tackle their deficits. But, instead of ever more unrealistic demands being made of countries already struggling to cope, there need to be shared solutions for a shared problem threatening to engulf them all.
The collapse of Lehman Brothers teaches us there is no such thing as an orderly default of an organisation the size and complexity of a global bank. The same applies to a European state. So within the eurozone the European Central Bank should be stepping up to its role as lender of last resort, while there should also be greater fiscal integration and a firewall sufficient to stand behind the Spanish and Italian economies.
Third, uncertainty around the world’s banks needs to be resolved. Widespread belief that banks, especially in the eurozone, have losses on their books that threaten their capital positions will not go away simply with wishful thinking. The lesson from Britain is that action on a massive scale is needed to draw a line under concerns about the viability of major banks if confidence is to return.
The focus of world leaders at Camp David this weekend and in Europe in the days ahead should be to agree on a programme of collective action, a shared agenda for growth and the abandonment of outdated mantras that nothing can be done – a final rejection of the Cameron-Merkel-Sarkozy approach. Only that will put the recovery back on track and start to restore the reputation of our politics.