US VIEW:DECLARING HE was in London to listen, not to lecture, US president Barack Obama made clear yesterday that he had no appetite for a confrontation with other G20 leaders over efforts to boost economic growth.
Confident that the summit’s communique would identify measures adding up to $2 trillion in global stimulus, he played down tensions with European governments, notably Germany’s, over who should do what.
It was, the president stressed, for each country to determine how big its fiscal stimulus should be, what form it should take and how soon it should be implemented.
Amid US fears that continental Europeans are preparing for a free ride on the back of Washington’s huge public spending plans, however, he warned that the world could no longer rely on the American consumer to lift global demand.
“In some ways the world has become accustomed to the United States being a voracious consumer market and the engine that drives a lot of economic growth worldwide,” he said.
“And I think that in the wake of this crisis, even as we’re doing stimulus, we have to take into account our own deficits. We’re going to have to take into account a whole host of factors that can increase our savings rate and start dealing with our long-term fiscal position, as well as our current account deficits.
“Those are all issues that we have to deal with internally, which means that if there’s going to be renewed growth, it can’t just be the United States as the engine. Everybody is going to have to pick up the pace.”
US policymakers acknowledge that more generous European welfare systems make some of the steps taken by the Obama administration, such as extending unemployment benefit, unnecessary in countries such as Germany and France.
They also know that no European government can borrow as freely as the US Treasury is doing to fund massive deficit spending.
Mr Obama’s advisers believe, however, that the full impact of the economic downturn will not hit Europe until about six months after the US and that European governments will soon recognise the need for more public spending to boost growth.
“Despite the back-and-forth in the press, nobody at any point had any expectation that countries would come to this meeting tomorrow and say, I’m going to do another point of stimulus or I’m going to do another two points of stimulus. That’s not what these summits are about. This isn’t a pledging conference,” said White House deputy security adviser Mike Froman this week.
“There is vigorous debate in Europe as to whether more stimulus is necessary or prudent. And in our point of view, countries have done stimulus. Those stimulus plans are still being implemented. And all that’s necessary from our perspective is, down the road, if growth is not restored, how will countries react in that instance.”
Mr Obama yesterday trumpeted his administration’s proposals to improve regulation of the financial services industry but many of those plans are too vague or too timid for his European partners. Treasury secretary Timothy Geithner said last week that hedge funds and other financial institutions must be brought within the regulatory framework but they would not be regulated as strictly as banks, as European Union officials would like.
Washington has also been slow to rein in the major ratings agencies, such as Moody’s and Standard Poor, which gave high ratings to many of the toxic assets that triggered the financial crisis.
