Financial Reform Watch

Historical Context and the Nuts and Bolts of the G20 Communiqué

In 1961, a young American president made his first trip abroad to confront the major international issue of the day. History has judged that his perceived weakness on that trip led to serious troubles down the road. That chain of events has echoed through the presidencies of each man who has followed John F. Kennedy. It echoes today as President Obama prepares to make his first foreign trip since taking office. While the American press is playing up the G20 as a confrontation between American-style capitalism and a more social-democrat model, the Obama administration seeks to play down the drama by saying there is no need for all G20 leaders to agree on the specifics of recovery policies. However, there may be leaders at the meeting who see an advantage in setting themselves apart from the U.S. approach to recovery, in particular with regard to stimulus. If some seek confrontation, President Obama will be under pressure to push back and be perceived at home as having "stood up" to the world.

The potential for posturing at the G20 is increased by the fact that this is a one-day meeting. There will be no time for venting followed by a cooling off period and then a coming together around common goals. Each leader will walk into the meeting with a plan and the opportunity for adjustment during the day will be limited.

The challenge for Obama is multiplied by the fact that he has scheduled individual meetings with the leaders of Russia and China during his time in London. Each of these sessions by itself would be a major news story in the US and would be viewed as an important test for the new president. When one adds the other items on his itinerary—a NATO meeting in Strasbourg and visits to Prague and Istanbul—it appears there is a White House strategy to ensure G20 is only part of the story of Obama's first overseas visit. The picture they seek to create is of a president who is engaged in high level diplomacy but who is also carrying a message of American re-engagement with the world to an aspiring democracy in the Czech Republic and to a large Muslim country. This should limit the potential that a muddled result from the G20 meeting would be a negative for Obama.

While the Obama Administration is preparing the events of the coming week considering their historical context, the discussions on the substantive outcome of G20 gathered momentum on Sunday evening as the draft G20 communiqué was leaked to the media. The 24 draft conclusions span the broad spectrum of issues that have been the subject of debate over the past months, including matters ranging from regulation of hedge funds to reforms of IMF governance. The draft communiqué, and the massive publicity surrounding the event, suggest that the G20 has the potential of becoming the main vehicle for fleshing out the new balance of global economic power.

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AE Mohr - March 30, 2009 1:17 PM

Given that the American press has begun to treat every issue, including Madonna's latest adoption and this week's American Idol news, with as much breathless anticipation as such matters as the G20 meeting, I dare say that the expectations for this one day show are a tad more realistic across the Atlantic then in the U.S.

While the Obama Admin has made some noises about European stimulus the past week to pacify its home audience, I see no evidence that they fail to realize that Europe's economy is a different type of engine that requires a different booster - and that the steps taken may need future augmentation, but don't necessarily have to be the same size or type that America's unique economic problems require.

Indeed, the Obama Administration has chosen to pump money more into corporations hands than directly into consumers with debatable results. These differences are exemplified by the approach to the respective auto industries.

The use of a direct cash rebate towards older automobile replacement in Germany (and to a lesser extent, France) has been quite successful in boosting car sales (Feb 2009 sales are up 22% in Germany YoY).

Because its success is predicated on buyers having saved enough over the recent past for down payments and or possessing more discretionary income, such a package would be unlikely to help US car sales commensurately - where so many have depended on growing house values to fuel consumption.

Given such experiences, observers on the east side of the Atlantic see this as more of a chance to express common goals and high-level cooperation than trying to force American economic solutions on European governments, or vice versa.

Because, as any auto mechanic knows... it is very hard to repair an American car with a metric tool set and vice versa.

-- AE Mohr
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