- Associated Press
Friday, June 25, 2010

TORONTO (AP) — As world leaders gathered to deal with the aftermath of the global financial crisis, President Obama boasted about a congressional compromise on overhauling the U.S. banking system and called for an international effort to prevent future economic meltdowns.

But Mr. Obama was still facing major obstacles in convincing a balky Congress to provide more money to fight high unemployment and many countries were resisting Mr. Obama’s appeals for continued stimulus spending to support the global economy. They were moving in the opposite direction to raise taxes and cut government programs out of fears of a Greek-style debt crisis.

After meeting through the night in Washington, congressional negotiators cleared the financial overhaul proposal with the help of an administration-brokered compromise on derivatives trading.

The agreement was certain to be a major discussion point as Mr. Obama and other leaders of the Group of 20 major economies gathered for three days of talks in Canada. Those discussions were beginning Friday with a session at a resort three hours north of Toronto in Canada’s Muskoka lakes region.

“We need to act in concert for a simple reason: This crisis proved and events continue to affirm that our national economies are inextricably linked,” Mr. Obama said on the White House lawn before leaving for Canada. “At the G-20 summit this weekend, I’ll work with other nations not only to coordinate our financial reform efforts but to promote global economic growth.”

Leaders of the Group of Eight major industrial nations — the United States, Japan, Germany, France, Britain, Italy, Canada and Russia — were meeting Friday to discuss a range of initiatives to alleviate global poverty.

Those discussions were to move back to Toronto on Saturday and Sunday for talks with the larger G-20 group which includes the rich countries and major developing nations such as China, Brazil and India.

The G-20 group represents 85 percent of the global economy and the United States wants this group to endorse the outlines for global financial reform to eliminate the threat that banks facing tougher regulations in one jurisdiction will move their operations to countries with more lax rules.

The G-20 countries have been trying for months to overcome differences on financial overhaul centered around setting tougher global standards for the amount of capital the major international banks must have to cushion against losses. Massive losses that began with subprime mortgages in the United States triggered a global meltdown starting in the fall of 2008.

Even before the summit began, the leaders engaged in a series of dueling letters and interviews that exposed their conflicts.

A key discussion point for the G-8 was a proposal being promoted by Canadian Prime Minister Stephen Harper, the summit host, to bolster support for maternal and child health care in poor nations. The G-8 was also holding an outreach session with leaders of seven African nations.

The G-8 was also scheduled to spend time over dinner Friday night exchanging views on hot-button issues, such as Iran’s nuclear program and possible sanctions on North Korea following the sinking of a South Korean warship.

The House-Senate conference committee agreement on financial overhaul, which the administration hopes can be passed by Congress and on Mr. Obama’s desk by July 4, represented a welcome triumph for a White House that has had a tough two months dealing with the worst offshore oil spill in U.S. history and a Congress increasingly worried about soaring U.S. deficits.

On Thursday, solid Republican opposition caused the defeat of legislation that would have provided billions of dollars for job creation and extended benefits for unemployed people.

Other G-20 leaders have not signaled much support for Obama’s warnings that countries should not pull back their stimulus efforts too quickly.

Britain, Germany, France and Japan have all unveiled deficit-cutting plans. Canada’s Harper was urging the countries to agree to concrete deficit-reduction goals as a way of restoring investor confidence following the turmoil caused by the Greek debt crisis.

Asked about the disputes over stimulus spending versus deficit reductions, Canadian Finance Minister Jim Flaherty said, “One size doesn’t fit all.”

Toronto was braced for the potential of disruptive protests that so far have not materialized.

Toronto’s downtown core resembled a fortress with a big steel and concrete fence erected over several blocks to protect the summit site. Canadian police patrolled the Lake Ontario waterfront from boats and jet skis. The number of security forces protecting the summit meetings was estimated to total 19,000, drawn from all over Canada.

The G-20 leaders’ summits began in the fall of 2008 in response to the global economic crisis that struck with fury after the collapse of Lehman Brothers, a major U.S. investment bank.

At that time, the leaders joined to assemble multibillion-dollar support packages to restart economic growth and financial rescue efforts to rescue a froze global banking system.

But now that the banks are back from the brink and the world’s economies are growing again, unity is proving more elusive.

Mr. Obama sent a letter last week warning that removing the massive government stimulus spending too quickly could represent a repeat of the disastrous mistakes of the 1930s that prolonged the Great Depression.

But Mr. Harper sent out his own letter urging establishment of firm deficit reduction goals.

Some leaders didn’t appreciate being lectured by Mr. Obama on the need for countries running trade surpluses, which would include China, Germany and Japan, to do more to boost domestic spending to help the global economy while U.S. consumers, long the driver of global growth, begin to save more.

“German export successes reflect the high competitiveness and innovation strength of our companies,” German Chancellor Angela Merkel said in an interview published in the Wall Street Journal. “Artificially reducing Germany’s competitiveness would be of no use to anyone.”

It will be the first appearance at the G-20 table for British Prime Minister David Cameron and Japanese Prime Minister Naoto Kan. And both were bearing deficit-cutting messages.

Mr. Cameron comes after his Conservative government unveiled an emergency budget Tuesday that contained higher taxes and the toughest cuts in public spending in decades. And Mr. Kan said this week that deficit reduction would be his top agenda item at the Canadian meetings and that Japan would soon start debating a possible sales tax increase to rein in the nation’s bulging deficits.

Talking to reporters on the flight from London, Mr. Cameron sought to play down any differences with the United States.

“This weekend isn’t about a row over fiscal policy. We all agree about the need for fiscal consolidation,” he said. “This is about putting the world economy on an irreversible path to recovery.”

Aversa reported from Washington. Associated Press writers Rob Gillies, Darlene Superville, Jane Wardell and Tom Raum contributed from Toronto.

Copyright © 2023 The Washington Times, LLC.