Coronavirus: What Boris Johnson can learn from Gordon Brown’s response to the financial crash

The crises aren’t identical, but many of the responses remain the same, writes Sean O'Grady

Brown speaks at the London School of Economics in 2016 (Getty)

Some politicians are made by a crisis; others are destroyed by one; but Gordon Brown may be the first ex-prime minister to have had his reputation greatly enhanced by a crisis almost 10 years after he left office.

The Covid-19 epidemic has had the curious effect of making people feel nostalgic about the (relatively) good old days of the banking crash. In a series of statesmanlike interventions this year, Gordon Brown and Alistair Darling, his chancellor at the time, have reminded us how calmly and assuredly they guided Britain, and indeed the world, through a financial crash that could have left the globe in a prolonged economic slump. Comparisons with now are inescapable.

Boris Johnson, in other words, is in danger of making one of his most maligned predecessors look good. This is, though, at least a little unfair. Brown’s initial response, like Johnson’s now, was uncertain. Like the Covid-19 pandemic, the crisis that began in 2007 had few if any precedents. At first there was a similar mood of denial – assurances from the authorities that the economic fundamentals were strong and there was no need for panic. There was at first no great rush to slash interest rates or boost economies; if anything inflation was a slight worry. Northern Rock, the first casualty, was supposed to be an outlier, and its shares were being traded long after it publicly got into trouble. It was a “liquidity” crisis they said – not enough cash at hand in a basically sound system. In reality it was an “insolvency” crisis – the banks were basically busted.

However, as the contagion (financial then) spread and Lehman Brothers went bust, the authorities quickly learned they needed to do more than just loan the banks more money, or just take their bad debts or “toxic assets” off their hands and dump them on the backs of the world’s taxpayers. That was the flawed approach of the US Fed, rejected by congress.

The essential insight that the then Bank of England’s governor Mervyn King and Brown shared was that the only way to stop the panic was to nationalise the stricken banks. The Bush and Obama administrations (then transitioning) followed suit, as did the Europeans and others. People genuinely thanked Brown for “saving the banks” or even “saving the world”. It was Brown’s finest hour, easily.

The lesson of leadership there was to analyse the problem, develop the solution, and then implement it. Coronavirus is an even trickier foe than the financial mayhem, but the point stands; and of course we have another compass in financial confidence now.

The other lesson of the Brown years is that, as he reminds us, a global crisis demands a global response – and a massive one. Here, the same techniques used in 2008 and after are being repeated – billions and trillions thrown at economies and the banking system. We hear once again the same catchphrase as the one the ECB used in the euro crisis – “whatever it takes”. The monetary and fiscal bazookas have been unleashed again, and may just be starting to to repair sentiment. Brown is right to say that the G7 and G20 structures are weaker now since the rise of Xi, Trump and populist nationalism, but Johnson makes his own bad luck when he refuses to delay the end of the Brexit transition and adds obstacles to international trade and investment at a moment when we will be desperately trying to revive it.

As Brown found to his cost, however, outstanding acts of global leadership do not always yield political success – as with the 2010 general election. In that regard, he had one thing in common with Winston Churchill, who discovered quite how ungrateful the voters can be when he was crushed at the polls in 1945. How the voters will judge Boris Johnson’s crisis leadership remains to be seen, for it is far from over, but he should not count on making much political capital out of “squashing the sombrero”.