At G-8, Obama faces hard sell on public stimulus spending to boost recovery

As world leaders gather to discuss the global economy, demonstrators want their message heard.
By Scott Wilson
Saturday, June 26, 2010

TORONTO -- President Obama arrived for a meeting of world economic powers Friday with a number of achievements already in hand. But he will have a far more difficult time persuading European leaders to follow his wish on an issue he believes is essential to the economic recovery: the need for public stimulus spending.

In the days leading up to the meeting, Obama secured a change in China's currency policy that could benefit U.S. exports, a European commitment to improve bank transparency rules and an agreement on financial regulatory overhaul legislation that gives him leverage in encouraging other leaders here to take similar steps.

But as he meets with the Group of 8 in a rural resort town north of here, Obama is appealing to European leaders not to trim back public spending in the midst of a growing debt crisis on the continent. His message has been complicated by Congress, which is blocking his requests for new deficit spending to stimulate the economy.

Obama holds a far less optimistic view than his European counterparts over the state of the global economy, less sure that it has improved sufficiently since the group's London meeting last year to justify a broad government pullback except from those countries suffering a crush of debt.

Whether he succeeds in persuading European leaders to continue drawing on their strained public treasuries at the G-8, which will be followed over the weekend by the broader Group of 20 summit here, could help determine whether the staggering recovery gains momentum in the coming months or dips back into the doldrums.

"There is a fundamental issue going into the meeting over the size and shape of the global recovery," said Edwin M. Truman, a senior fellow at the Peter G. Peterson Institute for International Economics and a former assistant treasury secretary for international affairs. "And it's fair to say that the administration's position is not the same as those of many other countries."

Obama's message places him at odds with such allies as French President Nicolas Sarkozy and German Chancellor Angela Merkel, both of whom have announced austerity measures in recent weeks.

At home, though, Obama is having a hard time putting his money where his message is.

Facing a difficult midterm election season, Congress has approved only about a quarter of the $266 billion in "temporary recovery measures" that the president asked for in his February budget request.

On Thursday, the Senate blocked a jobs bill that would have extended unemployment benefits and provided aid to cash-starved states, with Republicans saying the $33 billion it would have added to the deficit was too much. The White House condemned "Republican obstruction at a time of great economic challenge for our nation's families."

"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," Obama said Friday before departing for Canada. "I'll work with other nations not only to coordinate our financial reform efforts, but to promote global economic growth while ensuring that each nation can pursue a path that is sustainable for its own public finances."

In his letter last week to G-20 leaders, Obama outlined his more pessimistic view of the economic recovery. He wrote that "significant weaknesses exist across G-20 economies" and warned that after working "exceptionally hard to restore growth we cannot let it falter or lose strength now."

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