Brown's hopes of global fix fade ahead of summit

LONDON - Gordon Brown's hopes of kick-starting the world economy with a massive cash injection into its financial system have evaporated in the face of resistance led by France and Germany.

The Prime Minister had originally envisaged that Thursday night's
meeting of the G20 leaders of the most powerful economies would take
dramatic action to combat recession.

But British ministers, fearing a stock market slide triggered by headlines suggesting that the summit had failed, have been forced to scale back their expectations.

The communique to be signed by world leaders on Friday (NZT) is expected to contain only a vague commitment by leaders to take all the necessary steps to boost recovery.

German Chancellor Angela Merkel and French President Nicolas Sarkozy, backed by other European Union nations, have opposed fresh efforts to pump-prime their economies. And yesterday the Chinese Government indicated it was not bringing its chequebook to the summit.

Last week Mervyn King, the Governor of the Bank of England, also warned against significant extra spending by the UK Government.

Diplomatic tensions ran high yesterday as the German Government was forced to deny it had engineered the leaks of two draft communiques, drawn up in advance of the gathering, to weaken the British position.

The German magazine Der Spiegel said it had obtained a leak of a paper prepared by Britain calling for a US$2 trillion ($3.5 trillion) global financial stimulus.

The draft claimed that the massive cash injection would boost growth by 2 per cent and create 19 million jobs.

A spokeswoman for the German Government insisted it was not behind the leaks: "We treat all drafts with complete confidentiality."

Britain insisted the figure related to a sum agreed by G20 leaders four months ago in Washington, when they last met.

A second version, leaked to the Financial Times, contained no numbers, suggesting the leaders will not discuss the extent of any financial stimulus measures.

The Prime Minister is now counting on an agreement to pump more cash into the International Monetary Fund, as a boost for developing countries, and an agreement for tighter regulation of tax havens. The leaders look certain to condemn protectionism and to pledge to resume talks over world trade.

The Business Secretary, Lord Peter Mandelson, sought yesterday to play down expectations for the summit. Amid police warnings of violent protests in the City to coincide with the gathering, he also called for an end to "bank-bashing" by politicians and media alike.

Asked about the planned demonstrations, he told Sky News: "They're going to say: 'Right, action now. Decisions today. Changes overnight.' It's not going to happen like that.

"What we are seeing is the beginning of a process and the time to judge the outcome of the G20 summit in London is in a year's time, when people have followed up the decisions that they will have taken."

The Chancellor, Alistair Darling, likewise warned yesterday that the world's economic woes would not "get sorted in one day".

The Chinese Ambassador to Britain, Fu Ying, dismissed suggestions that her nation would pump cash into a recovery package.

She told the BBC: "[China's] reserves are not the money of the Government. The Premier cannot write a cheque on it. It's the money of the Chinese people and the Chinese businesses who left it in the safe-keeping of the Central Bank."

As he prepared to leave for London, on his first visit to Europe as President, Barack Obama declared that popular anger at bonuses paid to US bankers bailed out by the government was "justified" and that "some healthy expressions of anger" had led to US$50 million-worth of those bonuses being paid back.

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