As leaders from 20 of the world's leading economies gather this week in London, they will be trying to put to rest recent differences between the Obama administration and key European countries over just how much deficit spending is needed to hoist themselves out of an intense global recession. If they can tamp down the talk of dissension in their ranks, they might able to show skeptical publics that they are getting a handle on a global financial crisis that is slashing jobs, savings, and credit to the deepest extent since World War II.
Global trade is projected to fall 9 percent this year, and the overall size of the world economy is expected to contract by up to 1 percent—more in Europe and America.
The Group of 20 summit will probably not finalize many specific, major agreements on remaking global finance, but it is expected to give some momentum to the arduous work of reforming a complicated system almost universally viewed as inadequate to handle the demands of the modern era.
The meeting also marks Barack Obama's debut visit to Europe as president; he will meet with several leaders, including Russia's president, on the sidelines of the London summit. Afterward, Obama will go on to NATO's 60th-anniversary summit, a U.S.-European Union summit, and a much-anticipated two-day stop in Turkey, a U.S. ally and the first majority-Muslim country Obama will visit as president.
The first G-20 economic crisis gathering, last November in Washington, proved that galvanizing such a diverse group of countries to drive an economic rebound is a challenging and slow task, at the very least. In recent weeks, British and other officials seem to be playing down expectations that the London summit will provide clear breakthroughs on global economic problems.
Instead, the summit is likely to endorse something like a doubling of resources for the International Monetary Fund to assist struggling developing economies, as well as a general stamp of support for the stimulus spending packages put forward by Washington and other capitals. Rising economic powers like China, India, and Brazil are expected to wind up with more clout at the IMF. The group may also endorse a plan to come up with common standards for accounting and regulation of banks.
But it is not likely to embrace the earlier European calls for a supranational financial regulator to curb abuses in securities involving the high-risk assets that helped set the system reeling last year. Instead, as the Obama administration favors, the emphasis will be on national efforts to beef up oversight and set standards for hedge funds, private equity funds, and other financial vehicles that are now under intense criticism. Says Klaus Scharioth, Germany's ambassador to the United States, "There should be no actor in the financial markets without oversight."
Both U.S. and European officials have also been playing down differences over Washington's hope for even greater stimulus spending from Europe than what they have already approved. U.S. Treasury Secretary Timothy Geithner said the G-20 partners "are fundamentally with us" but are also warning that in past downturns, governments "put the brakes on too soon."
Key European countries, including Germany and France, have resisted further widening their budget deficits in part because they fear it could touch off inflation and not trigger more economic activity quickly enough. Czech Prime Minister Mirek Topolanek, whose country holds the rotating EU presidency, charged last week that the U.S. steps "are the road to hell."
But Scharioth says that the talk of U.S.-European discord is "exaggerated" and that "there is consensus that we need both" greater financial regulation and stimulus.
One area where the G-20 leaders are likely to come together—at least symbolically—is on a strong statement against protectionist measures amid mounting political pressures to shelter workers and companies from the economic downturn. European officials are on edge for signs that their counterparts in other nations are giving in to protectionist impulses, and some were upset by the "Buy American" provision inserted by U.S. lawmakers in Washington's recent stimulus package.