By Henry Hilton

Commentary Feb. 20, 2009 - 06:25AM JST ( 4 )

Questions over the health condition of former Finance Minister Shoichi Nakagawa at the latest G-7 meeting mirror a far wider problem in the global economy. Nakagawa’s rambling responses at his press conference unintentionally reflect the difficulties facing all industrialized nations as the recession turns into a depression. Uncertainties and confusion are gripping the world economy and it is far from clear if anyone has much idea how we are going to get out of the mess.

The latest statistics make for gloomy reading. Japan and Germany, once the unrivaled twin “locomotives” of growth and success, appear to be performing little better than the Anglo-Saxon economies. Predictions for how everyone is likely to do for the rest of 2009 are uniformly black.

What is clear, though, is that it is no longer permissible to say that it was simply the fault of the markets and that the whole situation can be relied upon to self-correct over time. This school argues that we should just sit back and wait patiently for the inevitable beginnings of recovery to kick in and then get back once again to business as usual.

Yet with the global financial system and economy appearing to be in its worse shape since the great depression of the 1930s, history suggests that merely twiddling our thumbs is a pretty pointless exercise.

The alternative stance is to recognize that we are all in this together and that recovery is more likely to emerge through joint action and cooperative measures. Concerted intervention by all the G-7 members, ideally plus the wider G-20 grouping that includes vital players such as China, India and Mexico,is the pious mantra of politicians in the West.

Unfortunately, this is far easier said than done. Governments in democracies have to answer to their electorates and it is here that huge stumbling blocks quickly emerge. It is one thing to advocate policy measures that boost domestic demand, safeguard banks and avoid currency manipulation but quite another to deliver on such noble goals. U.S. President Obama is already getting it in the neck for appearing to endorse a degree of protectionism through “buy America” measures in his recovery plans, while British banks have largely retreated from once lucrative overseas markets leaving holes that are unlikely to be filled by others.

Equally there are major devaluations underway that must give large and possibly unfair advantages to exporters in countries such as Britain, who suddenly find almost overnight that the selling price for their goods overseas is far cheaper. Whether the damage that this instantly creates for those economies, such as Japan, that have to date maintained far stronger currencies is sustainable, remains to be seen.

Economic historians keep telling us that we should not over-exaggerate the parallels between today’s recession and the prewar depression. Yet it is surely doing a disservice to ignore the obvious similarities that are now emerging.

For example, we are going to hear a great deal more shortly on the subject of the “P” word. Finance ministers know that the threat of protectionism is growing and though they wish it would go away, the temptation to support France’s car industry or America’s steelmen will only grow.

What is lacking above all is any competent leadership from within the G-7 nations. The problems are relatively easy to identify but crafting a global consensus on how best to solve them without beggar-my-neighbor practices appears improbable at present.

Snigger all you may at Mr Nakagawa’s faux pas, but hands up anyone who can point to an international figure who looks even half able to run the show. The world’s economic crisis has yet to produce an outstanding figure who might take the lead and turn things around.