U.S. pushes regulation to G20 forefront
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TORONTO (Reuters) - President Barack Obama urged world leaders to follow his lead on regulatory reform on Friday while other countries touted their swifter progress in tackling debt mountains that threaten the global recovery.
Fresh off of an early morning victory when U.S. lawmakers reached a deal on regulatory reform, Obama prodded his Group of 20 colleagues to make good on their own promises to clamp down on the risky behavior by banks blamed for unleashing the worst financial crisis in 80 years.
"This weekend in Toronto I hope we can build on this progress by coordinating our efforts to promote economic growth, pursue financial reform, and to strengthen the global economy," he said shortly before leaving Washington for Canada.
"We need to act in concert for a simple reason: this crisis proved and events continue to affirm that our national economies are inextricably linked."
The G20 club of rich and emerging economies banded together at the height of the financial crisis and committed trillions of dollars to fight a deep recession. Its united front is widely credited with averting an even deeper downturn.
But as economies slowly heal, disagreements are piling up over the next steps and G20 unity is fraying, unsettling investors who fear splintering could undermine the recovery.
"The cohesion generally evident among policymakers in dealing with the global crisis is in danger of giving way to a more divisive debate about how to manage the recovery," Credit Agricole analysts said in a note to clients.
While Obama can claim leadership on regulatory reform, the United States lags behind Germany, Britain and other countries in putting forward spending cuts to curb deficits. Other G20 conflict zones include trade and China's yuan currency.
British Prime Minister David Cameron downplayed the transatlantic divisions but said smoothing out imbalances between export-rich countries and debt-laden consumer economies would require belt-tightening by America, too.
"Part of dealing with the imbalances is for the worst deficit countries to roll up their sleeves, get on with the job and make sure they are living within their means," he said.
The G20 pledged last year to coordinate a string of reforms by the end of 2012 and Obama can boast he has met the bulk of those commitments with the United States a model to follow.
Europe has yet to come up with comprehensive rules.
"We are just not working in tandem and it's not good enough," said Peter Skinner, a British center-left member of the European Parliament which approves EU financial reforms. "This may ruffle a few feathers at the G20 this weekend."
Countries such as Canada and Japan, whose banks fared better during the financial crisis, have objected to some G20 reform proposals that they say unfairly punish banks that did not contribute to the upheaval.
Japanese Prime Minister Naoto Kan, in talks with German Chancellor Angela Merkel, said the reform debate should take into consideration each country's situation.
SECURING RECOVERY
The G20, which includes two-thirds of the world's population, meets in Toronto on Saturday and Sunday. The G8 -- Britain, Canada, France, Germany, Italy, Japan, Russia and the nited States -- meets on Friday and Saturday.
Brazilian President Luiz Inacio Lula da Silva was a last-minute G20 cancellation as he opted to stay home to deal with the aftermath of deadly flooding.
The G8 agenda focuses largely on development and aid for poor countries, although the overarching economic issues cannot be ignored.
As G20 delegations arrived, thousands of protesters organized daily marches tied to themes such as women's reproductive rights and poverty reduction.
A Canadian judge handed protesters a small victory on Friday, restricting the use of a controversial sound cannon used for crowd control.
Since the last G20 meeting in Pittsburgh last September, the global economy has strengthened but Greece's debt troubles have put a spotlight on the poor state of government finances among rich countries.
Germany and Britain have pushed ahead with plans to curb government spending. They argue that with fiscal health comes confidence, and that breeds growth.
The United States, whose own deficits have soared to the highest level since World War Two, has pushed for patience, warning that the recovery may not be robust enough to withstand a simultaneous drawdown in public support.
A U.S. official said Washington was not telling any country what to do, but wanted to make clear that the world can no longer rely on voracious U.S. consumers for their growth.
Recent economic data has cast doubt on the strength of the recovery. Figures released on Friday showed U.S. economic growth in the first three months of the year was more tepid than first thought.
The United States, Europe and Asia are all banking on exports to try to make up for sluggish demand at home, setting up conflicts over trade and currency exchange rates.
Washington wants countries with trade surpluses, like China, Germany and Japan, to buy more at home, but those countries are also counting on exports to lift growth.
China seemed to defuse some of the G20 trade tension last weekend when it unexpectedly said it would ease its grip on the tightly managed yuan currency. But some economists have questioned whether the move was anything more than symbolic.
"In short, they're playing games," Nobel-winning economist Paul Krugman wrote in the New York Times. "China needs to stop giving us the runaround and deliver real change. And if it refuses, it's time to talk about trade sanctions."
Should the G20 need a moment of levity, it may turn to the soccer World Cup in South Africa, although even that was laced with tension.
When asked on Friday who he is rooting for at the tournament, Canadian Finance Minister Jim Flaherty declined comment, saying he didn't want to offend any of his G20 colleagues. "It's sensitive enough," he said.
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