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04.03.09

The Day Obama Fell to Earth

All is not quite what is being claimed for the London summit, says Andrew Neil. In fact, the president didn’t get what he came for.

All is not quite what is being claimed for London summit, says Andrew Neil. In fact, the president didn’t get what he came for.

President Obama hailed yesterday's G-20 accord in London as "historic"—and in the sense that the world's major economies have agreed on joint action to tackle the global recession caused by last year's financial meltdown, it is. But, on the morning after the night before, it's time for a reality check. All is not quite what is being claimed.

For a start, the president did not get what, for him, was the original purpose of this G-20 summit: a coordinated global fiscal stimulus. The British media may still fawn before the Obamas the way the U.S. media used to, the first lady can even touch the Queen in Buck House without being sent to the Tower of London; but the Obama charisma and character could not get an extra cent out of the world community. Not even a sou (actually, especially not a sou since it was the French—along with the Germans—who scuppered the whole idea of a stimulus).

He is the first superstar president since JFK, but at the G-20 summit, America was just one country among many.

This was a wake-up call for the White House: The rest of the world outside America is still pretty much a one-party state for the president, but he cannot sweep all before him. He is the first superstar president since JFK, but at the G-20 summit, America was just one country among many. The only superpower, to be sure, and economically still the most important. But not dominant: indeed incapable of getting its way on some important issues.

For the president, his first foray into international summitry has brought him down to earth with a bump. He will hit the ground again today at the NATO meeting in Strasbourg, France, where the rhetoric of solidarity will be strong but the president will fail to get any major commitments of new troop deployments to back his planned "surge" in Afghanistan. Only the British, once again, are likely to oblige.

Americans need to get used to this diminished status. The rise of the European Union, India, and China is turning it from superpower to first among equals. The U.S. used to account for more than one-third of the global economy; now it is under a quarter and falling. And for all the Obama talk of a new multilateral era of cooperation and consent, there will still be times when America will have to act, as in Afghanistan, with or without its allies.

America's newspapers and networks don't quite get it this morning. They have been mesmerised by all the talk of trillions at the G-20 and have gone along with the British spin, which says London was a triumph. “This is the day that the world came together to fight the global recession, not with words but with a plan,” said British Prime Minister Gordon Brown and the American media nods its head. But unlike those of us who've covered Mr. Brown for decades, U.S. journalists are unaware that there is no one better at dressing up old money as new. The man is a master of statistical illusion, able to conjure up billions, even trillions, of new money, apparently out of thin air. So let’s have a closer look at the "historic" London "triumph".

Brown put a price tag of $5 trillion on what was agreed yesterday, the largest global accord "the world has ever seen" amounting to a "program of support to restore credit, growth, and jobs in the world economy." Impressive—except that it contains all the tried and tested Brownies of statistical inflation, repeat announcements and double counting.

It turns out, as an embarrassed British Treasury official was forced to admit later, the $5 trillion figure relates to the cumulative increase in government borrowing across the G-20 between 2008 and 2010, compared with 2007. All of it was in the pipeline long before the London summit and not an extra penny was added to it by the G-20 yesterday.

Even the extra $1 trillion for the IMF needs to carry a health warning. True, almost half is new money to allow the IMF to extend financial help to the many countries which will come knocking on its door this year, begging bowl in hand, starting with Mexico and with most of Eastern Europe forming an orderly queue behind it. But most of it was announced before the G-20 summit. Japan gave $100 billion last November, while the E.U. pledged the same last month.

In London, China pledged an additional $40 billion, which was disappointing ($100 billion was expected) for a country with a $2 trillion kitty and there were no new commitments from the U.S. or Saudi Arabia .

Even the $250 billion of Special Drawing Rights—SDRs, the IMF's own currency—is less than it seems. Creating SDRs, a currency basket based on the dollar, euro, yen and sterling, is new money but only in the sense that printing money is new money: It doesn't cost the G-20 a penny. It is the equivalent of quantative easing on a global scale—but then $250 billion in the context of the global economy really is peanuts. Not an extra penny of cold hard cash has been pledged by anyone. But China will be happy as it wants SDRs to replace the U.S. dollar as a reserve currency.

As Brown and his spinners were pumping up the supposed achievements of the London summit, even the British prime minister couldn't resist taking a swipe at America, claiming that the "Washington consensus" of market economics was dead. On Wednesday, Obama had lavished excessive praise on Brown, who is lagging badly in the polls. And this is how he was repaid. When you can't even count on the British to be nice to you, Americans will know something serious has changed.

Andrew Neil is a publisher and broadcaster working out of London, New York, Dubai, and the south of France. He is chairman and editor in chief of Press Holdings Media Group, publishers of The Spectator, Spectator Business, and Apollo.