Obama yields to ‘collective action’

LONDON | President Obama proclaimed Thursday that the era of the United States attempting to dominate world affairs is over, saying he is committed to “collective action” by the 20 biggest economies to end the worst financial crisis in 80 years.

Giving substance to his rhetoric, the president signed on to a radical revamping of the world’s major financial institutions that surrenders the traditional right of the United States and Europe to lead them.

The Group of 20 nations announced a surprisingly large $1.1 trillion in funding to help the organizations combat a collapse in world trade and assist nations in crisis, although it failed to agree on additional stimulus measures, which had been a U.S. priority.

The extra aid will come from Japan, the European Union, China and other cash-rich nations, which in turn will gain greater voting power in the International Monetary Fund (IMF).

“Ultimately, the challenges of the 21st century can’t be met without collective action,” said Mr. Obama, who appeared eager to offer a contrast with what was seen in much of the world as a penchant for unilateral action by the George W. Bush administration.

“I am committed to respecting different points of view, and to forging a consensus instead of dictating our terms. That’s how we made progress in the last few days. And that’s how we will advance and uphold our ideals in the months and years to come.”

The G-20 also agreed to abandon a decades-old tradition that governs how the heads of the international financial institutions are chosen.

The IMF director will no longer automatically be a European, and the World Bank director will no longer necessarily be an American. The heads of the organizations will be chosen “based on merit,” the summit communique said.

The unexpectedly large financing package, accompanied by a commitment to reform the flaws in the global financial system that led to the crisis, sparked a strong rally in global markets, spurring gains of more than 4 percent in European stocks and contributing to a 216-point gain in the Dow Jones Industrial Average.

In the United States, the market gain was helped by a change in accounting rules that permits financial institutions to assign a higher value to some of their troubled assets.

Mr. Obama, while promising continued U.S. leadership in line with America’s role as the world’s largest economy, said the days when U.S. and British leaders Franklin D. Roosevelt and Winston Churchill could sit alone in a room “with a brandy” and decide the fate of the world were gone.

“That’s not the world we live in,” Mr. Obama said. “And it’s not the world we should live in.”

China has risen in less than a decade to the world’s third-largest economy, and could within a few more decades surpass the United States. Other major developing nations such as Russia, Brazil and India also have made big economic strides, yet they currently have little say in the IMF and other world financial organizations.

The G-20 summit was called in recognition of their growing economic power. World leaders agreed Thursday to take further concrete steps to formalize that power.

Story Continues →