[A-List] US & UK: bastions of Keynesianism

["Michael Keaney" <michael.keaney@xxxxxx>]

Clever Gordon, rehabilitating Keynesian economics through the back door
whilst the social democratic Europeans cling to the monetarist orthodoxy it
took them so long to learn. How ironic.And note how careful Gordon is to say
that it is the UK from which the US is learning -- not the other way round.

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Britain backs US in G7 row over kickstarting global economy

Charlotte Denny in Paris
Monday February 24, 2003
The Guardian

Open hostilities broke out between Europe and the US and Britain this
weekend over how to kickstart the fragile global recovery.

At a fractious meeting in Paris of the financial ministers from the world's
seven most powerful economies, senior European officials and politicians
warned that President George Bush's $695bn (£440bn) tax cut could
destabilise a world economy already undermined by threat of war against
Iraq.

Mirroring the widening transatlantic rift over disarming Saddam Hussein,
Britain stood alongside America to defend the Bush administration from
attacks by the rest of Europe over its ballooning budget deficit.

The continental European financial leaders expressed their unusually
strongly-worded concerns about US economic policy at the first G7 meeting
attended by the new US treasury secretary, John Snow.

Wim Duisenberg, the president of the European Central Bank, described the
record shortfalls in America's public finances and between its spending and
earnings abroad as a "cause for concern".

Speaking on behalf of European finance ministers, Nikos Christodoulakis, the
Greek finance minister, said the Bush tax cut was unlikely to achieve its
aim of boosting the US economy and that the surge it could cause in US
borrowing could become everyone's problem.

European countries fear that the re-emergence of the so-called "twin
deficits" - on the US budget and on its current account - could prompt a
damaging run on the dollar if investors lose faith in the world's largest
economy. The greenback has already fallen by 25% against the euro in the 12
months.

Mr Snow dismissed Europe's concerns. The tax cuts would pay for themselves
over long-term through faster growth, he said. He also shifted some of the
blame for America's booming current account deficit on to its G7 trading
partners which he said were not growing fast enough to buy America's goods.

Mr Snow received support from Gordon Brown who said increasing government
borrowing was the appropriate action during economic downturns. The
chancellor was forced to admit last November that disappointing growth would
push up borrowing in Britain. "We believe that the action which is being
taken at the moment in the UK is right as well for the US," Mr Brown said.

Ministers patched over their differences sufficiently to issue a communique
which called on the leading economies to go for growth, a marked change in
emphasis for a body which has until recently been mainly concerned with the
dangers of resurgent inflation. "If the economic outlook weakens, we are
prepared to respond as appropriate," the ministers said.

But the divisions over how best to respond to slowing growth remained as the
G7 meeting closed. Britain and the US, which have already cut interest rates
over the last two years, favour increasing government borrowing to offset
ongoing economic weakness.

The tax cut package has received a rough reception in America where
Democrats have accused Mr Bush of giving most of the money away to America's
wealthiest families. Independent tax experts estimate that nearly half the
benefits will go to the 1% of richest Americans.