Monday, 28 June 2010

When Dave met Barack

There’s been much speculation in the UK since the election victory of the Conservative Party’s David Cameron about how the new prime minister will get on with US president Barack Obama. The relationship between the men and women who have led the two partners in the so-called “special relationship” has been closely scrutinised for years.

There was the famously close relationship between Ronald Reagan and Maragaret Thatcher – two leaders whose ideologies had barely a hair’s length between them. Then there was the notoriously bizarre close friendship between Tony Blair and George W. Bush following September 11th - two men on opposite ends of the political spectrum united by their shared Christian evangelism and anti-terrorism crusade. That buddy-buddy relationship didn’t work out so well for Mr. Blair’s political career or for the UK as a whole.

Gordon Brown’s relationship with Barack Obama wasn’t exactly close (their first meeting was notoriously bungled) but the two men were singing from the same hymnsheet: during the economic downturn the best remedy was an injection of public spending and strong state action. Together they were able to convince the rest of the G20 nations that this was the best course of action, resulting in the consensus and unity of purpose displayed at the 2009 G20 summit in London.

By contrast, this weekend’s G20 meeting in Toronto showed little such consensus. In fact, the final report of the meeting displayed almost the exact opposite sentiment as that of the April 2009 summit. With world leaders adopting drastically different approaches on what action to take to guide their countries out of the economic downturn, the G20 could do little but agree to disagree. They resolved only to adopt “differentiated and tailored” methods for guiding economies out of the crisis. It is reflective of the fact that we are in a very different place than we were at in April 2009. Back then, all economies were dealing with the same problem, and it was an easy call to take unified action. Now, different regions are dealing with very different problems, and each country wants to take very different remedy action.

This reality was painfully evident this weekend in the division between Europe and America. And this division was personified by the cold relationship between Mr. Obama and Mr. Cameron. The Obama administration has made known its displeasure over the dramatic cuts to the British economy the Conservatives have made since coming into power in May. Obama is of the same mind with Gordon Brown, who warned during the campaign that making drastic cuts to the UK budget now would jeopardise the country’s fragile economic recovery.

The two leaders were already set for a confrontation on the issue on the sidelines of the summit this weekend. But Cameron didn’t help his already testy relations with Obama when, only hours after arriving at the summit, he told the British press in a rather offhand way that British troops should be out of Afghanistan by 2015. The assertion made a bad week for Obama even worse. He has already been dogged by questions and uncertainty over the Afghan mission after he was forced to fire his top general there last week. Obama has never set a date to withdraw all American troops from Afghanistan. Cameron’s comments raised awkward questions for Obama at a time he could little afford them. And this was even before the two men had their first official meeting in Toronto. Their public photo-op was just painful to watch, the two men clearly have no chemistry with one another. Obama's crack about warm beer (what is it that Americans insist on believing British people drink their beer warm? They don't!) seemed to visably annoy the prime minister. And their attempt at a toast was cringe-worthy in its awkwardness.

But it is the economy, rather than the plan for Afghanistan or beer preferences, that is the biggest gulf between Cameron and Obama. In fact, Cameron is only the representative of a larger conflict between Europe and America. Cameron isn’t the only European leader making drastic cuts and adjustments. Similar cuts have also been announced in Italy, Ireland, Spain and of course, Greece. Less drastic but still severe austerity measures have also been taken in France and Germany. The Obama administration has warned that if all of Europe makes these drastic state spending cuts at once, they could plunge themselves back into recession.

But the reality is that Europe is now Conservative dominated. The big three countries now all have centre-right leaders, and the few Socialist-led countries left in Europe (in red on the map to the left) are paralyzed by their economic problems and have been forced to make Conservative-style cuts that are normally anathema to the left. Before the British election in May Obama still had one strong centre-left voice in Europe backing his call for robust stimulus measures and bail-out packages – Gordon Brown. Now that Brown is gone there is near consensus for drastic state spending cuts across Europe, which is the exact opposite route that the Obama administration has chosen to go in.

We now have an intensely bizarre situation where a centre-right Europe is slashing away at state spending while a centre-left America is increasing state spending. Economists are of two minds over which is the best method to help a country out of recession, but so far the recovery in the United States has progressed much faster than in, for example, the UK. Only time will tell which economic model was best. But with Europe and America having chosen very different roads, there’s no doubt that they will end up at very different economic destinations from where they began.

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