New UK fi­nance min­is­ter Ham­mond to face Brexit grilling at G-20

The Pak Banker - - FRONT PAGE -

Bri­tain's new fi­nance min­is­ter Philip Ham­mond will this week face calls from anx­ious peers around the world to ex­plain how his coun­try can pull off a smooth exit from the Euro­pean Union and min­i­mize the dam­age to the frag­ile global econ­omy.

A month af­ter the Brexit shock ham­mered mar­kets and added to the prospect of more stim­u­lus from ma­jor cen­tral banks, Ham­mond will at­tend a July 23-24 meet­ing of fi­nance chiefs from the Group of 20 lead­ing economies in the Chi­nese city of Chengdu.

There, the for­mer for­eign min­is­ter is likely to come un­der pres­sure to pro­vide clar­ity on Bri­tain's strat­egy for leav­ing the EU and ne­go­ti­at­ing a new trade deal. The process is likely to take years and could put fresh strains on Europe's econ­omy, which has barely re­cov­ered from the euro zone debt cri­sis.

US Trea­sury Sec­re­tary Jack Lew vis­ited Bri­tain twice last week, as the coun­try changed prime min­is­ters as well as fi­nance min­is­ters, to say a deal that tightly bound Bri­tain and the EU was "in the best in­ter­ests of Europe, of the United States and the global econ­omy."

A Cana­dian fi­nance min­istry of­fi­cial said Brexit and its im­pli­ca­tions for pub­lic sup­port for in­ter­na­tional trade would dom­i­nate the G20 gath­er­ing. The shock "Leave" vic­tory in Bri­tain's June 23 EU mem­ber­ship ref­er­en­dum has un­der­scored the deep dis­sat­is­fac­tion among many vot­ers in rich coun­tries with the glob­al­ized econ­omy.

That is some­thing that the anti-free trade U.S. Repub­li­can can­di­date Don­ald Trump hopes will boost his chances in Novem­ber's pres­i­den­tial elec­tion. It also adds to the chal­lenge for the G20 fi­nance min­is­ters and cen­tral bank gov­er­nors to steer the world econ­omy out of a slow-growth rut that has lasted since the fi­nan­cial cri­sis.

Ham­mond said on Tues­day the Bank of Eng­land would take the first steps to help steer the econ­omy through its Brexit shock, and pos­si­ble bud­get mea­sures would not come un­til later this year.

The In­ter­na­tional Mone­tary Fund said on Tues­day it had been plan­ning to raise its fore­casts for global growth un­til Brexit threw "a span­ner in the works" and prompted the Fund to trim its fore­casts. It said the out­look would be a lot worse if Bri­tain failed to strike a friendly deal with the EU.

"Brexit is symp­to­matic of a broader threat to the global econ­omy," Lena Komil­eva, man­ag­ing di­rec­tor of G+ Eco­nom­ics, a con­sul­tancy. "The forces of divi­sion are threat­en­ing the forces of co­he­sion and that makes co­or­di­nat­ing growth poli­cies harder."

Ge­orge Mag­nus, a se­nior eco­nomic ad­viser to UBS, said Ham­mond - who sup­ported Bri­tain stay­ing in the EU - would be pressed to pro­vide some of the miss­ing de­tail be­hind new Prime Min­ster Theresa May's prom­ise that "Brexit means Brexit."

"There will be a strong in­ter­est on the part of the Euro­peans and with vary­ing de­grees the U.S., China and In­dia and other im­por­tant coun­tries, who will want an idea of the dy­namic im­pli­ca­tions that Brexit might have for the EU it­self," he said.

How­ever, with even the start date for Bri­tain's exit process un­clear, Ham­mond will prob­a­bly be un­able to pro­vide much de­tail to his peers, Mag­nus said.

Although he is lit­tle known to many other fi­nance min­is­ters, Ham­mond is no stranger to in­ter­na­tional gath­er­ings, hav­ing served as Bri­tain's de­fense and trans­port min­is­ter as well as its for­eign min­is­ter for the last two years.

He has sug­gested that Bri­tain, which now faces the risk of a re­ces­sion, will take more time to fix its pub­lic fi­nances than un­der his pre­de­ces­sor Ge­orge Os­borne, whose fo­cus on bring­ing down the bud­get deficit brought him into con­flict with the IMF in 2013.

That change in stance is likely to be ap­plauded by the United States, which has long urged other G20 mem­bers to do more to boost growth by in­creas­ing pub­lic spend­ing. How­ever, Ham­mond has lim­ited room be­cause Bri­tain's bud­get deficit of 4 per­cent of eco­nomic out­put is one of the high­est among rich economies.

Be­fore at­tend­ing the G20 meet­ing in Chengdu on Satur­day and Sun­day, Ham­mond is due to meet Chi­nese gov­ern­ment of­fi­cials in Bei­jing on Fri­day. Os­borne pri­or­i­tized Chi­nese in­vest­ment, and Ham­mond is likely to stress that Bri­tain is "open for busi­ness."

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