By Michael D. Shear and Anthony Faiola
Washington Post Staff Writers
Friday, April 3, 2009
LONDON, April 2 -- President Obama and the leaders of the world's largest economies on Thursday declared their intention to create a new era of worldwide financial oversight and government investment in a move to shore up the collapsing global economy.
Setting aside differences in philosophy and national character, at least for now, the leaders agreed to make available more than $1 trillion in new lending to spur international growth. While leaving it to individual nations to enact, they promised tough new regulations aimed at banks and other financial institutions whose freewheeling activities sparked the crisis. And they vowed renewed support for trade and more help for the globe's poorest countries.
"The world's leaders have responded today with an unprecedented set of comprehensive and coordinated actions," Obama said, in the spotlight on his first overseas trip as president. "Faced with similar global economic challenges in the past, the world was slow to act, and people paid an enormous price. . . . Today, we have learned the lessons of history."
The consensus was remarkable given the discord that preceded Thursday's meeting. For weeks, European leaders balked at what they perceived as Obama's insistence that they increase spending and his resistance to tougher worldwide regulation.
The effort to rescue the global economy relies on an indirect infusion of cash for rich and poor countries as a way to boost liquidity for individuals and businesses and spur spending. After news of the agreement, the Dow Jones industrial average shot up, rising 2.8 percent and 216 points to land at 7978.
Having crossed the Atlantic to press his counterparts to action at the G-20 summit, Obama nonetheless conceded that "in life, there are no guarantees. And in economics, there are no guarantees. The people who thought they could provide guarantees, many of them worked at AIG, and it didn't work out so well."
Obama met privately with Saudi Arabia's King Abdullah and South Korean President Lee Myung-bak. Obama leaves Friday morning for Strasbourg, France, as he shifts his focus to security issues and the future of the NATO alliance. On Saturday, he is scheduled to give a major address on nuclear proliferation from a public square in Prague.
Weeks of negotiations endorsed by the 20 heads of state produced a series of sometimes vague directives and broad principles that will require quick action by individual governments if they are to stave off a deepening recession. The prescriptions are not backed up by any punitive measures for countries that fail to implement them.
But Obama and other leaders expressed optimism that commitments they called unprecedented in modern history will arrest the financial free-fall and begin to rebuild a new international economy less vulnerable to disaster.
"This was the day the world came together to fight back against global recession," British Prime Minister Gordon Brown said as the summit concluded.
Along with declarations of optimism came the recognition of at least a temporary shift in attitude away from two decades of intense reliance on free trade, deregulation and market-knows-best policies that fueled stunning growth across the planet.
Brown -- the leader of a country closely associated with that philosophy -- declared "the Washington Consensus" over, using a term that recognizes the American roots of an economic system seen by many in the world as unfair and unhealthy.
Even Obama, while affirming his support for the economic marketplace, said that without proper oversight by government "it goes off the rail sometimes . . . that it can end up in a very bad place."
The agreement, a nine-page "Leaders' Statement" on the global economic crisis, includes steps to regulate hedge funds, increase transparency for offshore tax havens and dramatically boost the cash available to hard-hit developing countries.
Leaders pledged to triple the amount of money available to the International Monetary Fund to $750 billion, in line with calls from the United States to build up a larger supply of cash to help the IMF bail out a growing number of struggling nations. Europeans had initially called for a smaller figure that would have doubled the funds.
The agreement, however, stopped short of calls for additional injections of government spending and tax cuts to help boost deflated global demand. Although the United States, Britain and Japan called for more stimulus spending, Germany and France remained firm that the $5 trillion already being committed by major nations over the next 18 months was enough.
Leaders agreed to craft tighter controls over hedge funds and establish more rigorous regulations to prevent the buildup of toxic assets that poisoned the U.S. financial system in and spread overseas. They also agreed to exert pressure on countries that are tax havens, where banks operate largely in secret.
The leaders of France and Germany in particular had sought to portray the summit as a chance to reconstruct the world's financial regulatory system, rather than focus on spending to boost growth. They declared the emphasis on regulation a victory.
"Honestly, we never thought we would we have such an agreement," said French President Nicolas Sarkozy. "Even our Anglo-Saxon friends are now convinced that we must have reasonable rules."
Senior U.S. officials who attended the closed-door talks Thursday said Sarkozy's insistence on publishing a list of tax-haven countries briefly held up the final agreement because of opposition from China's president, Hu Jintao, and other leaders.
The officials, who spoke on condition of anonymity, said a personal intervention by Obama -- speaking quietly in a corner first with Sarkozy, then with Hu and then with both of them together -- produced compromise language that both sides could accept.
An initial list of countries, published late Thursday by a separate organization that represents developed nations, directed the public's attention to Panama and Monaco among a list of close to three dozen countries.
The leaders agreed to set benchmarks for executive pay and make accounting standards more uniform across borders. Most would be drafted by a new Financial Stability Board, where central bankers, regulators and finance ministers from the more than 20 nations represented at the summit will eventually hash out the details.
Credit agencies -- whose top-notch ratings of instruments linked to bad U.S. subprime mortgages gave false indications of their relatively safety -- would be subjected to new oversight and regulations. But there was no call for a global regulator that could overrule decisions made by individual countries.
At the summit of the Group of 20 nations, an emergency forum bringing together leaders from the wealthy nations of Europe, the United States and Japan along with emerging giants such as China and India, the members committed to avoiding the kind of protectionism that sparked a global trade war during the Great Depression.
"We are anxious to do everything we can to resist protectionist tendencies," Brown said.
Speaking to reporters for almost an hour Thursday evening, Obama echoed his British colleague, saying protectionism "could deepen this crisis."
"History tells us that turning inward can help turn a downturn into a depression," Obama said.