Protectionism will spell an end to global recovery

FINANCE Minister Brian Lenihan was in relaxed mode when he addressed over 100 parliamentarians in Dublin this week whose conference topic was The World Financial Crisis.

Delegates from 30 of the 55 participating states of the Organisation for Security and Co-operation in Europe (OSCE) were in Dublin to hear the minister say that market capitalism was facing its biggest challenge since the Great Depression.

His unscripted remarks were a reminder of how central bankers across the globe, and indeed his own advisers, were caught totally off guard by the emerging credit crisis in the US.

His own officials told him at the time the crisis would be contained within the US but after the Lehman collapse the contagion spread pretty rapidly and forced the Government to guarantee Irish banks.

With a certain sense of satisfaction the minister noted how the rest of the world were to quickly replicate the Irish move although the initial reaction to what was done here was sceptical.

So a merited pat on the back for himself and for the Government.

A point he did not mention was the fact that the gun was to the Government’s head because of the awful mess Anglo Irish Bank was in at that time.

Further proof of that debacle emerged yesterday with the massive write-down of bad debts for the first half of the current

financial year at Anglo.

The minister stressed in his address to the OSCE conference that the balance sheets of the global banking sector have to be revitalised if the global economy is to have any chance of getting back to normal.

He also acknowledged that the so-called “light touch” regulation that plunged the global banking sector and the world economy into its worst crisis in living memory was a thing of the past.

Another speaker at the conference warned of a further threat to the global economy. The danger of protectionism raising its ugly head over the next year or two cannot be discounted said Austin Hughes, one of this country’s most respected economists.

Hughes warned that the protectionist noises starting to emerge could really set back the recovery that is allegedly emerging at the present time.

His point was borne out by the scramble across Europe to protect jobs in General Motors’ operations.

The Germans have already pledged billions of aid to any new owner to keep their operations in Germany afloat.

Britain has 5,000 jobs at risk at Vauxhall as the US parent scrambles to off-load its entire European operations including Saab in Sweden in order to try and salvage its core US business.

For years the car industry was the most powerful lobby in Washington and successfully prevented the Japanese and others from gaining a toe hold in the market as they continued to produce grossly inefficient gas gusslers on the back of cheap petrol.

But nothing is forever and the US car makers are now on their knees, requiring billions from the US government to stay afloat, having lost significant market share to more efficient Japanese and other overseas markets in recent years.

This week’s jostling for position between Germany, Britain and the other counties is a taster of what could be coming down the tracks as jobs are threatened.

In times of pressure, unity and common cause go out the window and, as the GM story shows, the ideals of open markets and free enterprise get short shrift.

If protectionism takes root we risk undermining the gains created in large part by more open trading policies.

The other danger is the potential inherent in such action to damage the global recovery which, for the record, has not started to take root at this stage.