Discord on Economies In a World Of Trouble
Sunday, November 2, 2008
Presidents and prime ministers from major countries around the world will gather in Washington in two weeks to begin heated negotiations over the shape of global financial regulation as they scramble to avoid a deep worldwide recession and restore confidence in markets.
Key European allies are pushing for broad new roles for international organizations, empowering them to monitor everything from the global derivatives trade to the way major banks are regulated across borders. But the Bush administration has signaled reluctance to go that far. In the past, it has resisted similar proposals as potentially co-opting the independence of the U.S. financial system or compromising free markets.
Some economists and policymakers say the summit could launch important reforms. But others predict it could turn into an economic tower of Babel, with weak political leaders promoting solutions fundamentally at odds with one another. And if leaders cannot bridge their differences, they could risk another bout of financial disarray.
There are also differences of opinion on the issue of timing. French President Nicolas Sarkozy, who pressed for the 20-nation summit, says it must produce concrete and immediate results. But the host, President Bush, is a lame duck who says the meeting will be "the first in a series" and should focus on principles even though "the specific solutions pursued by every country may not be the same." Emerging proposals to sharpen existing regulatory tools appear to conflict with plans to create entirely new ones.
What is clear is that expectations for the summit among many observers are high.
"At the moment, I don't think it would be acceptable for the major leaders to come back from this conference and to go to their respective parliaments or whatever and say, 'Yes, we rearranged the deck chairs a little bit.' Because this is genuinely a Titanic crash," said Howard Davies, director of the London School of Economics and former head of Britain's financial regulator, the Financial Services Authority.
The summit does have a precedent, one reaching back more than six decades. At the 1944 Bretton Woods conference, world leaders gathered to design the current international financial architecture, laying the groundwork for the International Monetary Fund and the World Bank. The Nov. 15 summit has been popularly referred to as Bretton Woods II.
But this time is different. Two years of preparation went into the 1944 summit. And whereas the United States and Britain largely shaped the postwar financial system, financial regulation and coordination will now require the participation of a broader and more unwieldy group, including emerging economies, many of them loaded with foreign exchange reserves, foreign debts and influence over global financial markets.
Those emerging economies, far from being "decoupled" from traditional industrial powers as many analysts believed just a few months ago, have found that they and more developed nations need one another.
One unknown factor, for now at least, is the U.S. president-elect. Both Sen. Barack Obama (D-Ill.) and Sen. John McCain (R-Ariz.) have said little about their views on the summit. The White House has said it does not expect the winner of Tuesday's election to attend, but to have input to some extent.
Bush, meanwhile, has been reserved. "We need to proceed with caution and care but also with all due speed," White House press secretary Dana Perino said recently. "The president is concerned about moving too far too fast and wanting to avoid unintended consequences."
Locking In Allies
World leaders are already maneuvering for position. Sarkozy, in particular, has methodically sought allies.