The Obama Administration appears to be shifting its own measure of success in this week's Group of 20 summit.
With European leaders growing almost scornful in their public rejection of Washington's stated priority of more fiscal stimulus, the Administration now says that G-20 fiscal spending already under way is sufficient for the time being. Meanwhile, President Barack Obama is more openly embracing Europe's priority of strengthening global financial regulatory systems.
The White House conveyed its view ahead of next Thursday's G-20 summit in a Mar. 28 conference call with reporters by Michael Froman, who is President Obama's deputy national security adviser for international economic affairs; Robert Gibbs, Obama's chief spokesman; and Denis McDonough, Obama's deputy national security adviser for communication. The G-20 is made up of the world's largest industrial and developing nations, comprising some 85% of global GDP. The summit will be held in London.
White House Retreats on Stimulus
Until now, the White House has conveyed a drumbeat of insistence that the world must follow the U.S. in stimulating demand as a way to restore growth and shorten the financial crisis. Yet there have been equally steady indications of a retreat, and on Mar. 28 those signs hardened.
"Nobody has asked, nobody is asking, any country to come to London to commit to do more right now," Froman said. He noted that the G-20 nations have already committed to spending 1.8% of GDP combined, just a shade under the 2% mark set previously by Administration officials who cited an International Monetary Fund benchmark.
Froman's remark came after a British reporter mentioned increasingly caustic public remarks about stimulus by German Chancellor Angela Merkel. In an interview with the Financial Times on Mar. 27, for instance, Merkel said: "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."
For a few weeks, the Administration has been calling stimulus and regulatory reform equally important and equally urgent goals. Now it is modulating its message, calling the first goal "concerted action around the globe to jump-start economic growth," in Gibbs' words, and breaking it down into a four-part agenda, of which stimulus is just one. The others are: repairing the global financial system to restore lending, avoiding protectionism, and preventing the spread of the crisis to emerging countries.
Four Priorities for Regulation
On the regulatory front, the Administration also laid out a four-pronged agenda. It wants to expand the regulation of "systemically important institutions, markets, and products"—meaning hedge funds and derivatives markets, among other things—as well as rein in tax havens, beef up capital requirements for big financial institutions, and improve international cooperation among financial regulators.
In taking this direction, the Administration can already claim to have seized the initiative in attacking the crisis. Unlike the other G-20 leaders, President Obama will walk into the summit having already laid out a new regulatory framework for the U.S. economy—albeit one with little in the way of details—which he will no doubt suggest as a model for the other countries.
Making the regulation of tax havens a priority also goes a long way toward ensuring that the U.S. can declare the London summit a success. Europeans have already indicated they see this as a priority as well, and with no major tax havens among G-20 members, there's likely to be little resistance to the argument that such locales should be more transparent and cooperative with the rest of the global economy. Technically, the subject does indeed belong under the broad rubric of regulatory reform. But it doesn't appear to have much to do with this financial crisis or its resolution.