Brown has saved the world's financial system: Krugman

Washington, Oct 14 (IANS) Though British Prime Minister Gordon Brown's financial rescue plan has been hailed worldwide, the most notable endorsement came from Paul Krugman, who won the 2008 Nobel Prize for economics.

In an article titled 'Gordon does Good' published Monday in the New York Times, the Princeton University scholar has lavished praise on Brown for his timely action against the ongoing financial turmoil.

'Brown and Alistair Darling, the Chancellor of the Exchequer, have defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up,' Krugman said.

He praised Brown's policy of equity injection into the market which is the solution to the recent financial crunch advocated by many economists, and even favoured privately by Federal Reserve chairman Ben Bernanke.

The British premier has poured an astonishing 37-billion pounds ($62 billion) of taxpayers' money into a bail-out scheme buying stakes in Royal Bank of Scotland, Lloyds TSB and Halifax/Bank of Scotland.

'The British government went straight to the heart of the problem - and moved to address it with stunning speed. On Wednesday, Brown's officials announced a plan for major equity injections into British banks, backed up by guarantees on bank debt that should get lending among banks, a crucial part of the financial mechanism, running again...' Krugman wrote in his article.

'We still don't know whether these moves will work. But policy is, finally, being driven by a clear view of what needs to be done. Which raises the question, why did that clear view have to come from London rather than Washington?' he asked.

'This is an unexpected turn of events. The British government is, after all, very much a junior partner when it comes to world economic affairs.'

'It's true that London is one of the world's great financial centres, but the British economy is far smaller than the US economy, and the Bank of England doesn't have anything like the influence either of the Federal Reserve or of the European Central Bank,' he compared.

'Luckily for the world economy, however, Gordon Brown and his officials are making sense. And they may have shown us the way through this crisis,' Krugman said while expressing hope that Britain will play a leadership role in future too.

Gordon Brown's rescue plan has been praised worldwide and Germany, France, Italy and other European governments have said that they would follow suit.