Newspaper article The Evening Standard (London, England)

Why Brown Is Right to Fear the Shockwaves of War; City Comment

Newspaper article The Evening Standard (London, England)

Why Brown Is Right to Fear the Shockwaves of War; City Comment

Article excerpt


CHANCELLOR Gordon Brown seems a lot more worried by the economic impact of the crisis over Iraq than are most City analysts.

For the most part, the latter assume the Americans will achieve their objectives fairly easily and without collateral disruption of oil supplies in neighbouring Middle Eastern countries such as Kuwait and Saudi Arabia. Once Saddam is toppled, they believe, the new Iraqi regime will pump sufficiently more oil to bring about a long-term decline in its price. This, of course, will be good for the world economy.

It may all turn out to be true in the medium term, but getting from here to there is the problem that seems to concern the Chancellor. He implied last week that the Government would not be deflected from its chosen course on Iraq because of the adverse economic consequences that could follow. He was well aware that the substantial rise in the price of oil which has already taken place on war fears was slowing the global economic recovery and casting a shadow over his Budget forecast of 2% to 2.5% growth in Britain. He also remarked that the world suffered a similar oil price shock three years ago and got through it.

Brown is being careful not to raise too many fears but the Bank for International Settlements and the International Monetary Fund have shown less sensitivity. The IMF suggested in its financial stability review that the world is in no state to cope with another economic shock. The collapse of American investor confidence after corporate scandals, the danger that a leading financial institution might yet have to close its doors because of losses brought on by the dot com boom and subsequent collapse and possible drying-up of the flows America needs to cover its trade deficit, all worry the Washington-based organisation.

It is easy to see why. …

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