Posted on Tue, Mar. 31, 2009
last updated: March 15, 2013 11:58:25 AM
LONDON — With economic peril spreading around the globe, President Barack Obama and other world leaders will convene Wednesday in London, desperate to avoid the mistakes that plunged the planet into the Depression in the 1930s and seeking common approaches to jolt their economies back to life.
Obama landed in London on Tuesday evening, ready to plunge into meetings Wednesday and Thursday. Topping his agenda is affirming national government plans already under way to spend $2.5 trillion to stimulate economies and working out a new global framework to regulate financial markets. This could include extending the regulatory net over hedge funds and offshore tax havens, as well as identifying gaps in regulation between countries.
Another crucial goal: making sure that developed countries avoid protectionism, or shutting themselves off from international trade, a key mistake that helped worsen the worldwide depression more than seven decades ago.
Obama and European allies also seek to empower the International Monetary Fund and World Bank to boost economies great and small and to discourage the erection of trade barriers.
That may be difficult given growing political pressures in many nations. Thousands of protesters are expected to flood London's streets, underscoring how the loss of jobs and pensions in Europe magnifies social stresses and political tensions.
The American president is the fresh face among world leaders, many of whom already were in office when the global financial system went into cardiac arrest last fall. Starting with a dinner Wednesday evening, Obama and colleagues then will work through the day Thursday on what originally had been billed as rewriting the global rules for finance.
The meeting involves the G20, a group of 19 countries with major economies plus the European Union. Together they represent 85 percent of the world's economy, from old European powers to emerging powerhouses such as China and Brazil. Others beyond the 19 are attending as well, including Spain and the Netherlands.
"The stakes for this summit are very high," Michael Froman, the White House's deputy national security adviser for international economic affairs, said in a London briefing Monday. "They are magnified by the fact that much has happened since the last G20 summit in November."
The global financial crisis has deepened since then and countries now are focused on halting the bleeding and restoring growth.
Yet in the weeks leading up to this summit, trans-Atlantic tensions mounted. The Obama administration criticized European allies as not doing enough to stimulate their economies, and they retorted that the United States is moving too slowly to put new rules in place to rein in large financial institutions.
Both have backed off since, but the Obama team suggested that success will be measured in tone, not detail.
"What's important is that there is agreement to do whatever is necessary until growth is restored, there's agreement to take sustained effort until growth is restored and there's agreement to ask the IMF to monitor both what's necessary and what's being done by the G20, and to report back on a regular basis," Froman said. "Every country has adopted stimulus. They're in the process of implementing it."
France and Germany have warned against a summit that seeks a consensus so general that it lacks relevance.
French newspapers reported this week that President Nicolas Sarkozy would insist on benchmarks for gauging progress on the imposition of new regulations over finance. He threatened in mid-March to walk out of the G20 summit if serious progress isn't being made.
In an interview with London's Financial Times published Friday, German leader Angela Merkel hadn't backed off from her emphasis on regulation instead of spending.
"The crisis did not take place because we were spending too little but because we were spending too much to create growth that was not sustainable. It isn't just that the banks took over too many risks. Governments allowed them to do so by neglecting to set the necessary (financial market) rules and, for instance in the U.S., by increasing the money supply too much," she said.
The United States and England, however, are unlikely to support hasty moves to new regulation.
"Self-interest wins in the end always, and the United States and the U.K. get more out of financial services than anyone else. We have the two world financial capitals. It's not in our interest to have other people write the regulations or have regulations that try to average across many nations," said Vincent Reinhart, a former top economist at the Federal Reserve.
Likewise, he cautioned, big nations such as China and Russia, and the smaller but important European powers, see it in their interest to impose new rules on London and New York.
"I don't see how you reconcile that difference in national interests," said Reinhart, who's a scholar at the American Enterprise Institute, a conservative research center. "I think it's going to be very hard for the U.S. to make this summit a success."
Obama did steal some of the European thunder last week, outlining his own vision for a tougher new regulatory environment that included new oversight for hedge funds, which control vast pools of global capital. It included a call for new rules that would force banks to keep more cash on hand and prevent them from investing so heavily with borrowed money. That's amplified the global financial crisis.
Even if not resolved in London, pressure for new global rules will remain.
"We're still trying to fragment regulation in a global financial market, and we're discovering it doesn't work," said David Wyss, the chief economist for rating agency Standard & Poor's in New York. He expects little more than a framework to be accomplished this week. "I think there will be some attempt to smooth the feathers."
(Hall reported from Washington.)
MORE FROM MCCLATCHY
McClatchy Newspapers 2009