President Barack Obama said Sunday he would push world leaders this week for a reshaping of the global economy in response to the deepest financial crisis in decades.
In Europe, officials kept up pressure for a deal to curb bankers’ pay and bonuses at a two-day summit of leaders from the Group of 20 countries, which begins on Thursday.
The summit will be held in the former steelmaking center of Pittsburgh, Pennsylvania, marking the third time in less than a year that leaders of countries accounting for about 85 percent of the world economy will have met to coordinate their responses to the crisis.
The United States is proposing a broad new economic framework that it hopes the G20 will adopt, according to a letter by a top White House adviser.
Obama said the U.S. economy was recovering, even if unemployment remained high, and now was the time to rebalance the global economy after decades of U.S. over-consumption.
“We can’t go back to the era where the Chinese or the Germans or other countries just are selling everything to us, we’re taking out a bunch of credit card debt or home equity loans, but we’re not selling anything to them,” Obama said in an interview with CNN television.
For years before the financial crisis erupted in 2007, economists had warned of the dangers of imbalances in the global economy — namely huge trade surpluses and currency reserves built up by exporters like China, and similarly big deficits in the United States and other economies.
With U.S. consumers now holding back on spending after house prices plunged and as unemployment climbs, Washington wants other countries to become engines of growth.”That’s part of what the G20 meeting in Pittsburgh is going to be about, making sure that there’s a more balanced economy,” Obama told CNN.
China has long been the target of calls from the West to get its massive population to spend more. It may be reluctant to offer a significant change in economic policy when Chinese President Hu Jintao meets Obama this week.
The U.S. proposal, sketched out in a letter by Obama’s top G20 adviser, Michael Froman, calls for a new “framework” to reflect the balancing process that the White House wants.
“The Framework would be a pledge on the part of G-20 leaders to individually and collectively pursue a set of policies which would lead to stronger, better-balanced growth,” said the letter, which was obtained by Reuters.
Without naming specific countries, the proposal indicates the United States should save more and cut its budget deficit, China should rely less on exports and Europe should make structural changes – possibly in areas such as labor law — to make itself more attractive to investment.
To head off reluctance from China, Froman’s letter also supported Beijing’s call for developing countries to have more say at the International Monetary Fund. The IMF would be at the center of a peer review process that would assess member nations’ policies and how they affect economic growth.
Some economists have worried that a trade dispute over new U.S. import duties on Chinese tires could make it hard for leaders to renew their pledges to avoid protectionism, let alone discuss a major rethink of the world economy.
Nonetheless, calls for a new equilibrium are growing. “We need to have rebalancing of growth and increase in consumption in the emerging markets to have enough growth in the short term,” International Monetary Fund chief Dominique Strauss-Kahn told the Financial Times.
In Pittsburgh, the first of several expected anti-G20 protest marches took place with hundreds of demonstrators demanding that governments create more jobs by spending more money on public works.
“(This) is a jobless recovery and there is the prospect of a permanent high unemployment economy.” said Larry Holmes, of protest organizers Bail Out the People Movement. Bigger protests are expected on Thursday and Friday.
EUROPE PRESSES ON BONUSES
European officials renewed calls on the summit to curb bonuses paid to bankers. Massive payouts linked to risky investments are widely seen as a factor in the credit crisis.
German Finance Minister Peer Steinbrueck said he supported a Dutch proposal to limit banking executives’ bonuses to the level of their fixed annual salary, the kind of idea that U.S. officials, mindful of Wall Street’s concerns, oppose.
German Chancellor Angela Merkel, who is seeking re-election next weekend, said Saturday she was “thoroughly optimistic” that a deal could be done on reforming financial markets.
French President Nicolas Sarkozy has tempered his calls for bonus caps, possibly paving the way for a G20 deal tying payouts to bankers’ long-term performance, not quick bets.
Steinbrueck, a member of the center-left Social Democrats, said he would press G20 countries to examine the idea of a global tax on financial transactions to curb excesses.
A U.S. draft of the summit communiqué did not mention this plan, German magazine Der Spiegel said. But G20 sources told Reuters the idea would be discussed by leaders.
The European Union should impose limits on bankers’ bonuses even if the United States does not, European Commission President Jose Manuel Barroso said on Sunday.
The United States is keen to show Europe that it is taking steps to rein in excesses in financial markets. But the pace of U.S. regulatory reform has been slow, hindered by opposition from a powerful banking lobby and the Obama administration’s focus on healthcare reform.
Those delays could get longer still because the Senate’s top legislator on financial regulation favors a more radical streamlining of bank supervisory agencies than the changes proposed by Obama.
The G20 leaders are due to discuss other issues in Pittsburgh, including climate change ahead of important United Nations negotiations on emissions levels in December.
The EU’s Barroso will warn on Monday that the talks “are dangerously close to deadlock at the moment … and the world cannot afford such a disastrous outcome,” according to excerpts of a speech he will make in New York [See IJ web site: http://www.insurancejournal.com/news/international/2009/09/21/103896.htm.]
(Additional reporting by Michelle Nichols in Pittsburgh, James Vicini and Caren Bohan in Washington, Gregory Blachier and Anna Willard in Paris; Writing by William Schomberg in New York; Editing by Chris Wilson and Eric Beech)