U.S. softens stance on global economy
White House drops pressure on Europe to spend more
LONDON – The Obama administration on Saturday moved to quell a public war of words with European leaders on the need to boost government spending to combat the financial crisis, backing away from calls for nations to mirror U.S. efforts.
The change in tone comes as President Obama prepares to make his first trip across the Atlantic this week for a series of meetings, including Thursday’s economic summit in London. In recent days, a number of European leaders have sharply criticized U.S. calls for more global stimulus.
The summit, which will bring together heads of state from more than 20 nations, inspired tens of thousands of protesters to take the streets of European capitals Saturday to voice distress over economic issues. U.S. and European officials say nations are set to agree on a number of sweeping measures, including a broad overhaul of global financial regulations and an expanded role for the International Monetary Fund.
But Europe and the United States appear unable to bridge philosophical differences over the wisdom of more government spending to jump-start the world economy, now poised for the first global recession since World War II. The administration had earlier backed a proposal for nations to spend 2 percent of the value of their economies on stimulus efforts. But officials in Europe have countered that enough public funds have been spent, with Czech Prime Minister Mirek Topolanek, whose country holds the rotating presidency of the European Union, last week describing U.S.-style stimulus spending as “the road to hell.”
U.S. officials on Saturday dismissed any notion of a rift, adding that they would not press nations this week to adopt spending targets. They said Obama had spoken to many leaders via video conference ahead of the summit and they were in broad agreement on a range of issues.
“Nobody is asking any country to come to London to commit to do more right now” on stimulus, said Michael Froman, deputy national security adviser for international economic affairs. Instead, he said, countries are likely to endorse a more general pledge to “do whatever is necessary” to prop up the world economy.
Although most European nations have launched fiscal spending programs, nearly all have fallen shy of U.S. targets. Froman’s comments appeared to reflect a recognition that the White House simply may not be able to persuade its European counterparts, particularly Germany and France, to open their wallets again – suggesting that the summit’s main achievements are likely to come elsewhere.
Nations, for instance, are set to agree on reforms to the global financial system. There is a growing consensus, officials say, for reforms laid out by Treasury Secretary Timothy Geithner last week that would, among other things, impose new regulations on hedge funds. Nations are also set to create codes of conduct for offshore tax havens. The push for those codes led nations including Switzerland to pledge changes to their banking secrecy laws to avoid being blacklisted by others in the Group of 20.
Administration officials said nations are also set to agree on coordinated oversight of the global financial sector, bringing regulators from major countries together to consult about the risk level of the world’s 25 largest banks. “This kind of coordination is a real achievement,” a European diplomatic source said. “If you think it is easy to get 20 countries to agree to such changes, you are wrong.”
Leaders will also seek to bolster and, to some measure, reinvent the International Monetary Fund, an institution established at the end of World War II to help ensure the stability of the global economy and monetary systems. The IMF’s finances, however, have been harshly tested in recent months as nations in Eastern Europe and other emerging markets have fallen into crisis. The United States is pressing for a massive cash injection to help the IMF cope, calling on nations to almost triple the agency’s resources to $750 billion. The Europeans are calling for a more modest increase to $500 billion.