Finance ministers meeting in Scotland over the weekend agreed to maintain fiscal stimulus, but cracks are starting to form in their consensus
Proposals for a transaction tax to underwrite banks' risk-taking split the G20 summit at the weekend, but there was agreement over the need to maintain fiscal support.
Gordon Brown's suggestion of a so-called "Tobin tax" received a mixed response from the global financial community and the US Treasury Secretary, Tim Geithner, slapped down the proposal. A "day-by-day" tax on speculation is "not something we are prepared to support", he said. Jean-Claude Trichet, the president of the European Central Bank, was also lukewarm on the issue. "I am not personally convinced," he said.
The row was described by the Tories as "embarrassing". But Downing Street said the tax was just one of a series of measures put forward as possible candidates to "re-balance risk and reward", none of which had the Prime Minister's particular endorsement. Other options include an insurance fee, a resolution fund, or contingent capital arrangements. "We are not trying to set out pre-determined conclusions," a spokesman said.
Alongside the row over a Tobin tax, the agreement on the need for continued fiscal stimulus appears more solid. "The recovery is uneven and remains dependent on policy support, and high unemployment is a major concern," the G20 communiqué issued at the weekend said. "To restore the global economy and financial system to health, we agreed to maintain support for the recovery until it is assured."
But behind the ostensible harmony, the shared interests forged at the height of the financial crisis are starting to diverge. Some countries are already going their separate ways (see box). Australia and Norway are both already tinkering with monetary policy, although their commodities-fuelled economies have few implications elsewhere. But last week's statement from the ECB also included noises about an exit strategy: "...looking ahead, not all our liquidity measures will be needed to the same extent as in the past." And within 24 hours of the weekend's G20 communiqué, Manmohan Singh, the Indian Prime Minister, signalled that stimulus measures are set to be withdrawn from 2010.
But the real problems will come from a resurgence of tension between the Anglo-Saxon economies of the UK and US, and that of Germany. As a big trading nation, Germany was horribly exposed to the global downturn, but will rebound faster than economies reliant on financial services and the property sectors.
The German government is already eyeing its exit strategy. The new coalition of the Christian Democrats and the Free Democrats won Germany's general election in September on a pledge to get the public finances back into shape and cut €24bn (£21bn) from the nation's tax bill. Add to that a constitutional amendment put through by the outgoing "grand coalition" setting a zero limit on annual borrowing for state governments, and a 0.35 per cent of GDP cap on federal government, all by 2016. Both are in direct conflict to the spirit of the communiqué.
Meanwhile, the UK government may talk up stimulus, but reality looks quite different. From January 2010, VAT will go back up by 2.5 per cent, and April will see the start of the new 50p tax rate for higher earners. National insurance contributions, fuel duty and air passenger duty are also all set to rise in the coming years, while swingeing public spending cuts are also expected to try to curb the UK's ballooning national deficit.
Local priorities: Countries going their own way
So far Germany has acquiesced in calls for maintaining fiscal stimulae. But the new government won on a tax-cutting pledge and the constitution requires reduced public debt by 2015. Domestic politics will likely beat global rhetoric.
Manmohan Singh, the Prime Minister, said yesterday that India would "wind down" its fiscal stimulus from 2010 as growth rises to 7 per cent. Inflation is a big concern for a country where millions live on just $2 (£1.20) a day.
Australia has raised its interest rate twice since September, taking it to 3.5 per cent. The country saw just one quarter of contraction, at the end of 2008, thanks to continuing commodities exports, particularly to China.
Norway was the first European nation to tighten monetary policy with last month's quarter-point interest rate rise. its oil and gas industry insulated it from the worst of the downturn and ensured a swift recovery.