Obama Faces First Global Test at Group of 20 Meeting

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Obama Faces First Global Test at Group of 20 Meeting

Barack Obama will make his debut as president on the world stage next week with calls for global economies to use government spending to jumpstart growth and work on a reshaping of the chaotic financial system.
The U.S. president's popularity will likely elicit a warm greeting Europeans when he travels to London for the summit of the Group of 20 major economies on April 2. His remedies for fixing the world economy could face a chillier reception.
European leaders have made clear they will not heed the U.S. call for deficit spending and may prod the United States to move further and more quickly to tighten financial rules.
China has talked of a possible alternative to the U.S. dollar's status as a global reserve currency, in a signal of weakening confidence in America's economic leadership.
"The United States has been the champion of the open free-market global system and that is now under threat from various directions," said Reginald Dale, a scholar at the Center for Strategic and International Studies.
"So it's really up to President Obama to step in and confirm that the United States is still the guardian of the global system," Dale said.
The Obama administration is touting its $787 billion economic stimulus plan as a model for what other countries could do. The global economy is expected to shrink this year for the first time since World War II.
"No one can deny the urgency of action," Obama said this week in an opinion piece published in several newspapers abroad.
Obama urged "bold, comprehensive and coordinated action" among G20 countries to reignite growth but also said that countries should work together on regulatory reforms to ensure that they prevent a repeat of the financial catastrophe.
Britain, among the nations hardest hit by the crisis, has joined the U.S. calls for aggressive economic stimulus steps.
A Push for Oversight
French President Nicolas Sarkozy and German Chancellor Angela Merkel have said more spending would not rescue the world economy and could create unsustainable deficits. They have urged an emphasis on tightening regulations, blaming lax oversight for the financial crisis.
One area where the leaders are likely to find common ground is bolstering the International Monetary Fund.
Analysts said the Obama administration is worried that imbalances in the world economy may be reinforced if the stimulus succeeds in reviving U.S. growth but economic activity overseas continues to sink. Such a scenario could spur lopsided consumer demand in the United States.
Still, experts said the G20 leaders were likely to play down their differences on issues like economic stimulus.
Obama is well regarded in much of Europe due to his left-leaning policies and rise as the first African-American U.S. president. It would seem unwise politically for European leaders to allow tensions to bubble to the surface.
Simon Johnson, a former IMF chief economist, said the summit was unlikely to bridge differences on the issue of fiscal stimulus.
"All of the stuff is so choreographed in advance that if they were going to have any agreement on something like that, you would see it coming," Johnson said.
But he said there could be agreement on regulatory issues, "not, I think, real substance or immediate changes but on the rhetorical level."
"The Americans have become more pro-regulation, even quite recently," Johnson said.
Treasury Secretary Timothy Geithner this week unveiled proposals for new oversight of hedge funds, private equity funds and venture capital funds with assets above a certain level. Such funds are loosely regulated in the United States.
The move is in line with an anticipated European Union proposal.
Geithner has also called for a more systematic government approach to problems at financial institutions, including insurance companies such as American International Group [AIG  1.04     -0.06  (-5.45%)    ] , which are so large they can threaten the stability of the economy.