Chastened East meets bullish West

As the Asian financial crisis drags on, Rupert Cornwell joins 25 world leaders at their London summit

IN THE END, it was a quintessential Tony Blair occasion: introduced by a fuzzy, feelgood video narrated by Jeremy Irons that had seasoned Foreign Office men wincing with embarrassment, studded with fine promises and declarations of good intent, adorned by much talk of confidence building - yet in the end of almost invisible concrete result.

That perhaps is to do the two days of labours in London by the leaders of 25 European and Asian countries a mite less than justice. They did approve "action plans" on trade and investment between the two blocs; they did vow to resist protectionism; and they renewed their fealty to the International Monetary Fund. They did launch a modest trust fund to help the transfer of European financial knowhow to Asia, and EU businessmen will send delegations to the region to explore investment opportunities.

And they signed up to a variety of other agreements, ranging from the environment and money-laundering to sexual exploitation of children - even to pool their resources against the dreaded Millennium Bug.

Above all perhaps, if all the talk of confidence-building actually does build confidence, then the exercise will have been worthwhile. But no new major new specific commitments were asked for, or given. One way and another, when the history of the great Asian financial crisis of the late 1990s is written, it is unlikely much space will be devoted to Asem-II.

For all the sweep of motorcades up to the Queen Elizabeth II Conference Centre in the heart of Westminster, and the banquets at Buckingham Palace, and the newly rewallpapered Lord Chancellor's lodgings the real action has been taking place elsewhere: in Jakarta, where Presi- dent Suharto and the IMF were still jockeying over the terms of a rescue package for the single worst-afflicted Asian country; and in Tokyo, where the government is trying to prevent Asia's most powerful economy sliding into recession - and if the boss of Sony is to be believed - even depression, 1930s-style.

The Japanese Prime Minister, Ryutaro Hashimoto, insisted not a word of dissatisfaction had been breathed at the meeting here with his efforts to revive growth: "We have $800bn (pounds 480bn) of net overseas assets, and our government has no external debt. Does that sound like a country on the verge of collapse?"

But that of course is precisely the problem - the reluctance to spend and an ensuing decline in consumer demand which have driven the country's savings rate up to an unprecedented 30 per cent of disposable income, all brought about by an evaporation of confidence in Japan's political and financial system.

Mr Hashimoto insisted that his government was "working on the task", and explained how a budget cutting personal and corporation taxes by billions of pounds was already before the Japanese parliament. Once it had been approved, "We'll look at a next set of measures." Hopefully, in other words, before Japan's declining demand for imports from the rest of Asia delivers another bodyblow to the region's struggling economies.

But Mr Blair, the perfect host, would not be discouraged. The meeting had been "remarkable and important", its ambience and friendship had created the conditions for "a partnership into the 21st century". Charting the future of this partnership will be the task of a specially created "Vision Group" that will report to the next Asem meeting in Seoul in 2000. Indeed, the experts in the group will start their visionary work in Cambridge tomorrow.

The question remains, however: has Asia seen off the worst of the turmoil which has cost it an astronomical $925bn in gross domestic product? Mr Hashimoto (as he had to) insisted it has. But other leaders privately are not so sure. True, Thailand, Malaysia and South Korea had begun to shore up their finances - but at great cost.

"As a debtor, we had to abide by the demands of our creditors," Chuan Leekpai, the Thai Prime Minister, reflected. "Things are better now, but there's no certainty they will continue that way, and we have to abide by the disciplines of the IMF." And therein lies the worry brushed under the carpet this week, that other developing countries, less able to cope with the demands of "liberalisation", will seal themselves off from the world.

For the Asian countries who hold speculation at least partly responsible for their woes, Friday's special statement on the crisis offered little satisfaction, no more than a vague promise to monitor short-term capital flows,and much talk of the need for "transparency" in financial markets.

Since Asem-I in Bangkok two years ago, when the Europeans paid obeisance to the then all-powerful "Asian model", everything has changed. No more of that "We will bury you" talk. The erstwhile Tigers were in London as meek and chastened supplicants, and the values being touted were European values: not just the notion of free markets, but the human toll taken by a crisis whose prime victims were those least equipped to cope with it.

Indeed, if Asem-II is to have a legacy, it will probably be its "social chapter". If spending has to be cut to reassure markets and appease the IMF, "social expenditure" should be protected, and proper safety nets be installed to safeguard the poor. That much- scorned species, the European social democrat, could not have put it better.

So two worlds did not collide this week in London. On paper at least, they have made common cause. Human Europe, to borrow from the Blair peroration yesterday, will not be a "fairweather friend", but will stick by Asia, thick and thin. But the durability of this friendship has yet to be tested. If China holds the parity of the yuan, and Mr Hashimoto can persuade his countrymen to spend the yen, then all perhaps will be well. If not, then all bets are off.