Presidents Obama and Sarkozy Volunteer to Lead

Following a cautiously, positive welcome of the Obama Administration’s “toxic asset” plan to revive banking activity earlier in the week, the U.S. President yesterday evening delivered a speech that included comments on the G20 preparations. A few hours earlier, the French President Sarkozy had delivered a keynote speech with some striking similarities but also with a few, noticeable, differences.

President Sarkozy re-emphasized his statements from September 2008, which some observers at the time regarded as exaggerated, that the financial crisis is unprecedented in its scope, that nobody knows when or how it will end, but that the world will look different once it is over. He went on to underline that the crisis, in his government’s view, is both an intellectual and a moral one and that a more “moral” capitalism will have to emerge as result. Sarkozy, unsurprisingly, put government action and intervention at the center of the required policy response, which is not inconsistent with the Obama administration’s policy response.

It appears the Obama approach to the G20 will be to say the United States is seeking to lead by example—not by rhetorical flourish. At his press conference last night, the president said,

“What I've suggested is, is that all of us are going to have to take steps in order to lift the economy. We don't want a situation in which some countries are making extraordinary efforts and other countries aren't with the hope that somehow the countries that are making those important steps lift everybody up. And so somebody's got to take leadership.”

We anticipate the White House to begin its "messaging" about the G20 summit in the next few days. This effort will be designed to create and manage expectation amongst the American people, on Wall Street, and on Capitol Hill. We look for the White House to indicate that it hopes to come away from the G20 with broad agreement that all three areas in which the United States has been working—relieving banks of toxic assets, implementing the stimulus program, and preparing a new framework for financial market regulation— need attention at the G20 level. This will be a subtle prod to European leaders to step up their stimulus efforts.

The trans-Atlantic divide concerning whether emphasis should be put on globally coordinated stimulus or whether priority should be given to re-regulating, and thus re-legitimizing, the financial sector, however, may not be easily resolved. British Prime Minister Gordon Brown relentlessly continues to try to bridge the pro-fiscal vs. pro-regulatory divide through intense diplomacy, yesterday by giving a major speech before the European Parliament. However, Brown today faced an unexpected voice of disapproval delivered by the Governor of the Bank of England, Mervyn King. King made an unusual foray into politics by suggesting that there should be no more tax cuts or spending increases, a statement that will influence the UK’s mix of policy responses going forward.

Adding more drama to the mix, the Czech EU Presidency was dealt a mortal blow after Prime Minister Mirek Topolánek's minority center-right government lost a confidence vote in parliament yesterday. The EU Treaty has no provision or procedure to replace EU Presidencies that are unable to fulfill their functions. With the EU effectively on autopilot, the EU states will have to scramble to make the best of a situation that already was complex.


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