Washington: As world leaders headed to Washington for a weekend summit on the global financial crisis, the United States made a pitch for modest reforms instead of the stiffer regulation that some European countries favor.
“The crisis was not a failure of the free market system,” President George W. Bush told a New York audience on Thursday ahead of a Friday night dinner and meeting on Saturday of the heads of the Group of 20 developed and emerging nations.
The greater threat to prosperity is “not too little government involvement, it is too much government involvement in the market,” Bush said.
The message may ring hollow with some G20 countries that say under-regulated US financial industries effectively exported to the global economy a crisis that originated in reckless US mortgage lending.
Brazilian President Luiz Inacio Lula da Silva said last weekend in Sao Paulo, where G20 finance ministers met, that the world economic order “collapsed like a house of cards” because of a “dogmatic faith in non-intervention in markets.”
Brazil, which holds this year’s G20 chairmanship, is one of the key emerging-market nations joining leaders from the old-line Group of Seven rich nations for talks that implicitly acknowledge the rapidly growing emerging powers now deserve a bigger say in how global finance operates.
Others include China, India, South Africa and South Korea.
New growth engines
As leading G7 economies like the United States and Germany sink into recession, emerging markets are seen as potential sources of growth that may bring a recovery, though not soon.
“We are going to have to face up to a very difficult and long-lasting economic crisis,” Germany’s deputy economy minister, Walther Otremba, told Reuters. Germany’s economy, Europe’s largest, shrank by 0.5% in the third quarter to put Germany in recession for the first time in five years.
The G20 meeting, coming with only two months left for the Bush administration, has not generated high expectations.
But participants said the devastation wrought on household wealth, corporate balance sheets and government budgets by the financial crisis made it urgent to at least begin charting a course for avoiding similar disasters in future.
A French official who declined to be named said a statement to be issued by the leaders at the end of their talks on Saturday would offer “a precise timetable” for action.
“Be prepared for a read that gives you a headache. The words and ideas are very technical. ... It is concrete and substantial,” the official said.
British Prime Minister Gordon Brown claimed on Wednesday that there was growing support for measures to tap government budgets around the world to help economies weather the crisis, and he indicated he might press that theme at the summit.
Also up for discussion is how to step up the role of global institutions, especially the International Monetary Fund, as monitors of financial system activity and lenders to troubled nations.
Skeptics on IMF
But countries from Asia to Latin American have some bitter memories of past instances in which the IMF imposed stiff conditions on offers of help. It is unclear whether the rich countries that have large shares in IMF governance will yield to let emerging powers play a bigger role.
French President Nicolas Sarkozy on Thursday indicated he sees the summit as a chance to begin a fundamental reordering of global financial power. It is to be the first in a series of such meetings, with the next in the first quarter of 2009 after US President-elect Barack Obama is inaugurated.
Sarkozy said the US dollar, the linchpin of the global economic system since 1944, shouldn’t have the dominance it once did and said he will make that point, although a French official said a closing statement will not make any reference to currencies.
“I am leaving for Washington to explain that the dollar, which after the Second World War was the only currency in the world, can no longer claim to be the only currency in the world,” he said. “What was true in 1945 cannot be true today.”