Britain’s beleaguered Prime Minister, Gordon Brown, who is still struggling in the domestic opinion polls and battling with the international financial meltdown, would have been cheered greatly by reading the New York Times earlier this month.

Writing in its opinion pages, Paul Krugman one of the paper’s columnists and professor of Economics and International Affairs at Princeton University, asked simply “Has Gordon Brown, the British prime minister, saved the world financial system?”

Although Krugman said it was slightly premature for the question to be answered fully, he glowingly praised Brown for “defining” the “character of the worldwide rescue effort, with other wealthy nations playing catch-up.”

Krugman argued that, despite its relatively small economy, you would not expect Britain to be playing “a leadership role” in such turbulent times. However, the “Brown government has shown itself willing to think clearly about the financial crisis, and act quickly on its conclusions. And this combination of clarity and decisiveness hasn’t been matched by any other Western government, least of all our own.” This was a ringing endorsement for Brown from an influential commentator like Krugman, who coincidentally won the Nobel Prize for Economics this week.

Others agree. One financial advisor I spoke to last week, whilst quick to point out that he was at the different end of the political spectrum from Brown, readily praised his action to try and stem the collapse of the British banking system.

But whilst Brown is keen to be seen as the key international politician solving the financial crisis, one action he has undertaken recently is likely to do just the opposite. Earlier this month he appointed the veteran Labour politician Peter Mandelson as the government’s new Business Secretary. As Mandelson is no longer a Member of Parliament, he has to be made a Lord in order to take up the appointment.

Mandelson is an almost mythical political figure: hated and admired by his critics and followers. Along with ex-UK Prime Minister Tony Blair, Mandelson and Gordon Brown are credited with creating “New Labour,” that went on to win three general elections.

He is seen as being one of the original “spin doctors” who twist and massage their message. Known for political subterfuge, he was once dubbed the “Prince of darkness” by his critics.

Mandelson is also unique in that he has already resigned from the Government twice. In the late nineties, he had to resign when it was revealed he had borrowed £373,000 for the mortgage from a millionaire Labour MP who was then subject to an investigation by Mandelson’s own government department. After he was brought back into the Labour government again by Tony Blair, Mandelson had to resign a second time, after it was alleged he had tried to intervene to get a passport on behalf of a prominent Indian businessman. Although a subsequent inquiry found that Mandelson had done nothing wrong, it was too late to save his job.

Brown explained his decision to bring Mandelson back into the cabinet as business secretary, by saying: “Serious people are needed for serious times.”

But Mandelson’s appointment by Brown stunned everyone. For the two men, although once close, have been feuding for the last fifteen years. The Conservative William Hague, who is the shadow foreign secretary, said it was a “stunning failure of judgment” by Brown. On the other end of the political spectrum, the veteran Labour left-winger, John McDonnell, called it an “extraordinary step backwards” to “reinstate possibly the most divisive figure in Labour’s recent history.”

And divisive the Mandelson – Brown split has certainly been. Their feud goes back to 1994 when Mandelson made the pivotal decision to support Tony Blair rather than Brown for the Labour leadership. The feud is graphically explored in the diaries written by Tony Blair’s former Communications Director: Alistair Campbell, which is seen as being one of the definitive books on New Labour.

Campbell describes the political and personal relationship between the two men as a “wall to wall disaster area”. Campbell’s diaries explicitly details how: the “real bane of Tony Blair’s life was Gordon Brown’s and Peter Mandelson’s inability to get on” and that the rift between them was “so deep that it was impossible to do anything much about it”. In fact Mandelson and Brown “hated each other”.

Over the last few years, the relationship between the two men is said to have thawed considerably. Although this did not stop the right-wing Telegraph pointing out that, at a recent meeting between Peter Mandelson and the Conservative Treasury spokesperson, George Osborne, that Mandelson had “dripped pure poison” about Brown to Osborne.

The interesting thing about Brown’s reappointment of Mandelson is that it is a move in the wrong direction, if his government is going to reign in the financial sector. Everyone knows argues that the current crisis means that we should move from an unregulated banking system to one that is regulated and works in the public interest, not just for the greed of city bankers.

However Mandelson is far too close to business interests generally and also to the financial industry, including accountancy firms. The role of accountancy firms in the current crisis is crucial, just as they were in the collapse of global giants Enron and World Com earlier this decade. When Enron collapsed it caused the dissolution of Arthur Andersen, at the time one of the world’s top accountancy firms, that had failed to notice the fraud at the heart of Enron.

In the current crisis many people are now asking how could the accountancy firms audit the books of banks and mortgage companies and not notice that something was so terribly wrong again? Could it be that accountancy firms are part of the problem?

Prem Sikka, the Professor of Accounting at the University of Essex, has been tracking accountancy firms for decades, and also Mandelson’s relationship with them. “When he was at the Department for Trade and Industry [DTI], he started making very favourable noises to accounting firms”, argues Sikka. According to Sikka, when Mandelson was at the DTI he gave auditors greater protection from lawsuits than had existed before. He did this by introducing “proportional liability” for accountancy firms, who before had had unlimited liability. This made it harder for injured parties to get compensation from accountancy firms and gave greater protection to the accountancy firms.

Then within months of being sacked as the Minister, Mandelson had been offered a £40,000 deal with the accountancy giant Ernst and Young to carry out “executive networking.” So he had went from regulating accountancy firms to working for them.

After Mandelson lost his job a second time, he resigned from being an MP and reignited his political career as EU Trade Commissioner, in Brussels. When he arrived in 2004 to take up his job, he was heckled by protestors brandishing a giant puppet. They accused Mandelson of having “strings that are pulled by European lobby groups and multinationals”.

Mandelson was quick to annoy his critics at the European Parliament too. When the Green MEP from Italy, Vittorio Agnoletto asked a question on the close relationship between the Trade Department and business lobby groups, Mandelson dismissed the criticism. He said: “I am not conscious of any incestuous or damaging relationship.” He ignored the long list of evidence compiled by his critics.

The following year, in 2005, the corporate watchdog, Corporate Europe Observatory, submitted a complaint against the European Commission after Mandelson’s Department had started blanking out the names of industry lobbyists in documents released under EU rules to make official documents public.

After a two year investigation, in a significant rebuke to Mandelson, the European ombudsman ruled that his office had been “wrongly blanking out the names of industry lobbyists” in the documents. It said that “disclosure of names of individual lobbyists is essential”. The failure to reveal this information “would constitute an instance of maladministration by the commission”.

Since then, Mandelson has been at the forefront of removing barriers to trade and investment. He has pandered to the corporate lobbyists who want a de-regulated open financial system. As the Sunday Times once noted, Mandelson is regarded as “being close to the financial services lobbyists who are pushing for the liberalisation of rules around the world.”

For example, Mandelson was there in May 2008, when the body set up between the EU and US to foster greater economic ties and deregulation, called the Transatlantic Economic Council (TEC) met for the second time in Brussels. According to the official news release: the TEC continued its work to “eliminate barriers to transatlantic trade” and “advance capital market liberalization, and strengthen support for open investment regimes.”

By bringing back the “Prince of Darkness” to his government, Gordon Brown has signaled that whatever the short-term quick fix for the banking sector, the longer term will see more of the same. Mandelson will make sure his banking friends get a good deal. And that is bad news for everyone.