I suspect Gordon Brown let out a roar of delight on hearing that the US government has reversed course and is going to take an equity stake in nine of the banks that it is bailing out. This deviation from the Paulson plan brings the US response to the financial crisis more closely into line with what is being done in this country and allows Brown to claim that he is setting the policy agenda that the world is following. This is an exaggerated claim—as Fraser has noted—but to be fair, the British model is better than the appalling, original-version of the Paulson plan.
The Prime Minister should enjoy this moment for things are going to start going wrong for him again soon. In today’s press, Rachel Sylvester, Iain Martin and Philip Johnston all give examples of the problems that Brown will have to face in the coming months. First as Rachel Sylvester argues, at some point Brown will have to do some combination of raising taxes and cutting spending. This will not endear him to the nation. Iain Martin notes how Brown’s dithering on bonuses means that those working for the effectively nationalised bank at sub-board level will still receive bonuses and at around the same time that these banks begin to repossess peoples’ houses. Again, this won’t sit well with the country. Finally, Philip Johnson points out that much as Darling and Brown say they are not going to interfere in the day to day running of the banks, the public will hold them responsible for the actions of these banks.
Yesterday when Paul Krugman was awarded the Nobel Prize for Economics on the same day that he wrote a column lauding Brown, it was tempting to declare that Brown’s luck had changed. But the realities on the ground remain unchanged. To borrow a phrase, the fundamentals of Labour position are still weak.
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