Obama Adviser Invokes Great Depression in Warning of Need for Nations to Cooperate

By Caitlin Taylor

Mar 31, 2009 2:25pm

LONDON — "The stakes for this summit are very high," said Mike Froman, the deputy national security adviser for international economic affairs today in an OFF CAMERA briefing for reporters. "They are magnified by the fact that much as happened since the G-20 summit in November. The last summit focused largely and importantly on a number of regulatory issues. But the economy has declined, and in November and December the crisis has spread and the countries of the G-20 have been focused on restoring demand and restoring growth."

Invoking the Great Depression — and the failure back then of the world’s industrialized nations to cooperate — Froman said it was critical that the challenges of the summit be met.

"If you look back at the history of summits," he said, "there have been very few examples of summits that have achieved significant gains in terms of international cooperation during times of crisis." During the Great Depression, "there was a global economic summit here in London in 1933. …The U.S. president did not attend and the summit failed to provide what at the time was seen as good direction to try and get out of the Depression at the time."

"Most people agree that the Depression was made ‘Great’ by lack of cooperation," Froman said.

The Obama administration has two goals for the summit. One is to restore economic growth: This includes encouraging the G-20 nations — which control 85 percent of the world’s wealth — to dedicate at least 2 percent of the combined GDP toward stimulus; right now the figure committed is closer to 1.8 percent. Here the president is getting much resistance from Germany and other countries, but the Obama administration is choosing to accentuate the positive.

“It is important to know what’s already been done since November when the economy declined. The G-20, and I believe all G-20 countries, have adopted or are in the process of adopting significant stimulus plans," Froman said. "By some estimates, that reflects 1.8 percent of GDP this year, over 2.5 trillion over 2009 and 2010.”

But German Finance Minister Peer Steinbrueck today said it makes no sense to pump more and more money in our economy whenever we haven’t restored the confidence in the financial markets." Restoring confidence in the financial markets "is a presumption or precondition to launch successfully these stimulus packages," Steinbrueck said.

The president will also be promoting ways to encourage international trade, to unfreeze the credit markets, taking steps to minimize the spread of the crisis to emerging markets and developing countries by making sure there are the resources and tools available and the international financial institutions, and lastly, avoiding protectionism.

“I think all of the G-20 seized with the importance of avoiding steps that would further reduce or destroy trade," Froman said. "The sense is there will be a reaffirmation of that commitment" in the G-20 communiqué.

Two, President Obama will be pushing deep regulatory and institutional reform. The G-20 nations aspire to agree on an expansion on the scope of regulation to any institution, market or product that is systemically important to the international system, including hedge funds. There’s an effort to encourage offshore financial centers or tax havens to sign onto and implement a number of standards of international behavior and bring them into the regulatory environment. President Obama wants the G-20 communiqué to express a commitment that financial institutions will make sure that capital requirements prevent a crisis like this from developing again.

Regulatory reform is a big issue for French President Nicolas Sarkozy, who is said to think American and British regulatory ideas don’t go far enough. Sarkozy was quoted in Le Figaro as saying on the sidelines of a March 18 cabinet meeting, "If there’s no progress in London, there’ll be an empty chair. I’ll get up and leave."

“I haven’t seen specific comments from Sarkozy," Froman said today. "All I can say is we’re working closely with all of the G-20 on a robust regulatory reform agenda. The president has been personally involved in this.”

Additionally, there will be a recognition that the major emerging markets in developing countries have a critical role at the table in helping to manage the international financial system, and there will be a move to give them a greater voice and vote.

“The U.S. comes here obviously prepared to lead but also to lead by example," Froman said. "The U.S. comes here well positioned to talk about what we’ve done, to talk to other countries about what they are doing. And to fulfill really a remarkable agenda for international cooperation at a critical time.”

“The G-20 is looking to a number different approaches to that when I say incentives for offshore financial centers to adopt and implement these rules, there are a number of things in the tool box that might be available and that’s part of what is being discussed this week.”

– Jake Tapper and Sunlen Miller

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