Politics is about leadership, and that's what the world badly needs from the G20 meeting in Cannes tomorrow.
This is not the time for warm words and empty statements. Instead, we need a new way forward. To construct a global plan for growth, ambitious enough to address the scale of the challenge the world economy faces. And then to build the political consensus needed to make it happen.
No-one should doubt the seriousness of the situation. Growth across most of the EU has stagnated: yesterday it was announced that the UK grew by just 0.5% in the last year; in the previous quarter Japan's economy shrank by 0.5%; and, after strong growth at the start of the year, Germany's economy has slowed down and is expected to grow only by 1% in 2012.
In both Europe and the US unemployment has been rising since March, despite the better labour market performance in Germany. Across the EU nearly one in 10 of those who want to work are not doing so. The figure is only marginally better in America, where unemployment remains over 9%. Youth unemployment in Sweden is even higher at 22.8%.
Political failure
In the face of these worrying developments people around the world have rightly looked for political leadership. But it has been notable by its absence.
In the US, political deadlock has left President Obama dealing with a Republican Party playing brinkmanship over the debt ceiling.
In Europe, after months of hesitation, faltering progress has been made in the past week. But more is needed. There must be no repeat of the wait and see approach of which there has been too much recently.
A plan
People across the world have a right to expect more from their elected leaders than shrugged shoulders.
Our challenge to leaders meeting in France is that they must provide confidence to markets and citizens that they are finally getting a grip. Meeting that challenge would mark a turning point, with a agreement of a plan that matches the scale of the crisis.
First, we need a new deal based on the understanding that lack of demand is undermining the global recover. In that context, immediate collective austerity simply will not work. Developments in the Eurozone show that the IMF's Christine Lagarde was right to warn: "slamming on the brakes too quickly will hurt the recovery and worsen job prospects."
And support for that demand must go beyond how we address fiscal deficits. As the OECD said this week, we also need greater exchange rate flexibility and domestic demand in surplus economies.
Second the summit provides an opportunity for world leaders to reiterate their commitment to fiscal sustainability, while recognising that debt problems are best dealt with on the basis of solutions tailored to the situation faced by each country, rather than through a simple one-size-fits-all ideological response. The lessons learned from the Swedish financial crisis in the 1990s, where debt was halved as a share of GDP, serves as a good example.
For countries that enjoy record low borrowing costs, President Obama has set out an approach that will work: a balanced plan to support jobs and growth now, alongside serious medium-term deficit reduction including both revenue raising and spending cuts. Others, including the UK Government, would do well to listen rather than remain locked into a programme that shows they have lost touch with the needs of their economy, businesses and people.
Countries with large deficits and high borrowing costs need to take action to reassure investors. For Italy in particular, a clear commitment to addressing debt sustainability is essential.
Third, we need to maintain the pace of banking reform. That means providing confidence that banks have the capital they need to operate in a world where suppressed growth is feeding back into higher defaults. And when populations are rightly asking how a just burden sharing can be found, the G20 should commit themselves to introducing a Financial Transaction Tax across all major financial centres. We also need to see agreement to the separation of retail and investment banking to address the risks of a finance sector which is too interconnected and too big to fail. Better regulation of rating agencies also remains to be addressed.
Fourth, the meeting in Cannes must send a message to the world that politicians have heard the concerns of their citizens and they understand the scale of the crisis. Living standards are being squeezed, unearned rewards at the top too often create greater inequality, and retrenchment of valued education spending risks undermining the knowledge economies we need for the future. People across the world understand it was flaws in free-market capitalism that caused this crisis. They need to hear the positive case for responsible capitalism which will get us out of it. The role of political leaders is not to protest, it is to set out a different course for the future. Only by doing that will we begin to restore the confidence, the lack of which is holding back the recovery.
As we saw in 2008, a global economic crisis can only be addressed by global economic leadership. There has been precious little of that in evidence in the past 18 months. Now is the time to turn the corner. To set out a plan that addresses the reality of faltering growth and rising unemployment. A plan that faces up to the G20 leaders' first responsibility: the responsibility to lead.