Obama Tells G-20 to ‘Strengthen’ Economic Recovery (Update4)
By Simon Kennedy and Roger Runningen
June 18 (Bloomberg) -- President Barack Obama urged the Group of 20 nations to “safeguard and strengthen” the global economic recovery with continued stimulus, setting up a possible split at next week’s leaders’ summit as European governments push to cut budget deficits.
“We worked exceptionally hard to restore growth; we cannot let it falter or lose strength now,” Obama said in a letter to his G-20 counterparts dated June 16 and released by the White House today. “This means that we should reaffirm our unity of purpose to provide the policy support necessary to keep economic growth strong.”
Obama leaves Washington for the three-day summit on June 25. He first attends a one-day meeting in the resort region of Muskoka, Ontario, of G-8 leaders -- which include Japan, Canada, Britain, France, Italy, Germany and Russia -- before the G-20 meeting that begins June 26 in Toronto.
While Obama endorsed restoring order to public finances in the “medium-term,” his focus on growth is at odds with that of German Chancellor Angela Merkel’s preference for budget cuts amid Europe’s debt crisis. Each strategy carries risks. Continued stimulus risks bondholder revolt over rising debt burdens, while spending cutbacks could tip the global economy back into recession.
Germany’s Deficit
“It is essential that we have a self-sustaining recovery that creates the good jobs that our people need,” Obama said. “In fact, should confidence in the strength of our recoveries diminish, we should be prepared to respond again as quickly and as forcefully as needed to avert a slowdown in economic activity.”
Merkel, the head of Europe’s largest economy, said June 11 she expects to have a “hard time” at the summit and that she will respond that “there is no alternative” to cutting the fiscal deficit.
The G-20 countries are showing increased signs of friction, said Dan Price, who served as an assistant to former President George W. Bush for international economic affairs and who organized the G-20 summit in Washington in 2008.
Obama’s appeal for collective action on the economy “reaffirms the impression that unity of the G-20 is beginning to fray,” Price said in an e-mail. He said the call for a unified regulatory agenda contrasts with “countries increasingly going their own way on financial regulation as they face distinct domestic political pressures.”
Consensus, he said, “may be fragmenting.”
European Actions
Germany’s Cabinet this month backed budget cuts worth more than 80 billion euros through 2014, while French President Nicolas Sarkozy this week raised the retirement age and increased taxes. The governments of the U.K. and Japan will unveil fiscal consolidation plans next week.
Obama is urging the U.S. Congress to act on measures to boost lending and give tax breaks to small businesses to encourage employment.
The White House is pushing an election-year, $55 billion jobs bill in the Senate, adding to last year’s $862 billion stimulus package and reflecting the president’s position that “policy support is necessary” to maintain a path toward U.S. and global economic recovery.
“This is not the time to take our foot off the accelerator here,” Vice President Joe Biden said at the White House yesterday, as the administration continued searching for votes for the jobs bill amid rising Senate concern over a record U.S. deficit of almost $1.6 trillion projected this year.
‘Growth-Friendly Plans’
“I am committed to the restoration of fiscal sustainability in the United States and believe that all G-20 countries should put in place credible and growth-friendly plans to restore sustainable public finances,” Obama said. “We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession.”
The International Monetary Fund calculates the G-20 nations’ budget shortfalls will average 6.8 percent of gross domestic product this year, up from 0.9 percent in 2007. At the same time, unemployment in the U.S. remains near 10 percent after last year’s recession.
Nobel laureate Paul Krugman said today in his New York Times column that Europe’s focus on fiscal discipline signals “economic policy around the world has taken a major wrong turn, and that the odds of a prolonged slump are rising by the day.”
Harper’s Stance
Canadian Prime Minister Stephen Harper, who is hosting the G-20 summit, said world leaders need to be ensuring they “stay the course” with stimulus plans, while being mindful of rising deficits, according to an essay written for the Toronto-based G- 8 Research Group that was published today.
Obama said he is concerned by “significant weaknesses” across the G-20 economies, which amount to about 85 percent of global gross domestic product. Without singling out countries, he said some nations remain “heavily” reliant on exports for power and, in a swipe at China, he called market-determined exchange rates “essential to global economic vitality.”
China’s Currency
Chinese officials said in Beijing today that they plan to use the Toronto talks to discuss responses to Europe’s sovereign debt turmoil while keeping the yuan’s value off the agenda. The yuan has been held at about 6.83 yuan to one U.S. dollar since mid-2008 to help protect China’s exporters, drawing threats of tariffs from among U.S. lawmakers.
Obama is facing domestic pressure from his own party to lean on China to raise the value of its currency. Lawmakers such as House Ways and Means Committee Chairman Sander Levin of Michigan and Senator Charles Schumer of New York, both Democrats, say a weak currency gives Chinese exporters an unfair advantage over their U.S. competitors and costs U.S. jobs.
Levin said yesterday that the value must be increased by the end of the summit. After the G-20 meeting, “if China does not act and the administration does not respond promptly thereafter, the Congress will act,” Levin said at a hearing.
Treasury Secretary Timothy Geithner in April delayed a legally-required report to Congress that assesses whether China or any country is illegally manipulating its exchange rate.
White House spokesman Bill Burton today told reporters traveling with Obama on Air Force One that the administration would “have an update on the status of the currency report” after the summit concludes. Obama traveled to Columbus, Ohio, to spotlight jobs created by the stimulus package Congress passed in February 2009.
Summit Agenda
At next week’s summit, governments will also focus on plans to increase the quality and quantity of capital at banks, increase oversight of derivatives markets and create a framework for winding down large global firms, Obama said.
“To support the recovery and strengthen the ability of our financial systems to deliver needed credit, we must maintain the momentum of financial repair,” he said.
Obama said world leaders can’t lose sight of the need to make sure our financial institutions have the capital needed to “withstand future stresses,” and that tougher regulation of derivatives markets is needed to “mitigate the potential for systemic risk and market abuse.”
The G-20 is formed of Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., U.K. and EU.
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