PM Brown Calls for International Cooperation To Weather

UNCLAS SECTION 01 OF 02 LONDON 000023

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV UK
SUBJECT: PM Brown Calls for International Cooperation To Weather
Global Turbulence As UK Faces "Decisive" Year

LONDON 00000023 001.2 OF 002



1. (SBU) Summary: Britain is well placed to withstand the global
economic turbulence because of its low inflation, a history of
stability and high employment levels, the Prime Minister said during
interviews January 4. Gordon Brown said the length of the economic
crisis will depend on the degree of international coordination. He
hopes the April G20 summit will increase the level of international
action. He discussed the need to reform the World Bank and the IMF
in light of the crisis and to increase global supervision through a
college of regulators. Domestically, 2009 will be a "decisive"
year, according to Brown, with large-scale fiscal stimulus projects
and the potential for a second round of bank recapitalization. End
summary.

Brown: UK Well Placed To Withstand Global Turbulence
-------------- --------------


2. (U) Britain is better placed than most countries to withstand
global turbulence because of its economic resilience, according to
Prime Minister Brown. During a January 4 interview with "The
Observer", Brown said that without previously made, long-term
decisions, such as capping public sector pay, the UK would have
entered this testing time without the same degree of flexibility and
resilience. He said the UK was better positioned because of low
inflation, a history of stability, and high employment levels. The
Prime Minister added that HMG's financial decisions to rescue
Northern Rock, improve the transparency of financial institutions,
work towards reform of the international institutions, and to adopt
a better early warning system will help the economy withstand the
turbulence.

International Cooperation: The April G20 Summit
-------------- --------------


3. (U) The length of the economic crisis will depend on the level
of international cooperation. During a January 4 BBC television
interview, Brown said the effect of action taken in Britain could be
magnified twice over if other countries acted in parallel. He added
that the global financial crisis has to be dealt with, at least
partly, by global cooperation. He said the April 2nd G20 Summit
will be used to persuade countries of the importance of
international action. He stressed that with the new U.S.
administration working with the European Union, real progress can be
made in April.


4. (U) The new year provides an opportunity to rebuild the
international institutions, according to the PM. In his interview
with "The Observer", Brown said the IMF and World Bank were built
for a particular set of challenges and need to be rebuilt for the
future. He would like the World Bank to be a bank for environment
as well as development, potentially investing billions in
alternative energy sources for the poorest countries. He said the
IMF should offer an early warning system for the world economy so
that countries do not get caught up in global financial turbulence
without being alerted in advance of the problems. Brown told the
BBC's Andrew Marr that the global crisis was the result of the world
financial system not being properly supervised. He said that
without supervision across borders, namely a college of regulators
that will supervise multinational companies, it would be very
difficult to monitor exactly what was happening.

"A Decisive Year": Domestic Strategy
--------------


5. (U) Out of an 18 billion pound capital investment program
announced in the Chancellor's November pre-Budget Report, only one
billion has been spent. Gordon Brown told Andrew Marr that people
will begin to see increased economic activity as the remaining 17
billion is spent over the next few months. It will be spent on
public works, on keeping people in their jobs, on environmental
projects, and helping more people go to university. Brown said 2009
will prove a "decisive" year with a number of large infrastructure
and spending decisions. Legislation is being considered on
CrossRail (a train line running east to west across London),on
expansion of Heathrow airport, and on a housing bill that would
result in three million new homes over the next few years. (Note:
the UK has a shortage of affordable housing stock.) Brown told "The
Observer" that spending on public works programs would lead to as
many as 100,000 new jobs and act as a counter to the recession.


6. (U) Brown said it was necessary to use fiscal policy because
monetary policy did not have the proper transmission mechanism
through banks to make it most effective. He said that if the
monetary system did not work as it should, if there were no
likelihood of huge inflation, if private investment were not being
crowded, then government should use fiscal policy. Brown told Marr
that President-elect Obama's inauguration will be an important
moment because of the huge economic program he has promised. He

LONDON 00000023 002.2 OF 002


said the U.S. will join the UK in working with a fiscal expansion
program.


7. (U) Marr criticized Brown for failing to get banks lending
again, despite the money spent on bank recapitalization, and
speculated that more money will need to be put into banks to get
money to small businesses. Brown said it was not possible to judge
the success of the recapitalization so early. He said saving the
banks was necessary to help restore their ability to fund businesses
and mortgages. Domestic media has taken Brown's refusal to deny
that more money will be used to recapitalize British banks as a sign
that HM Treasury was considering such a move.

TUTTLE