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European woes will take G-20 spotlight off Obama

Sarkozy, Merkel to grab star roles

In a rare global summit where the U.S. leader is not the center of attention, President Obama leaves Wednesday evening for the Group of 20 summit in Cannes, France, with a diminished international presence and an economic-growth message being drowned out by the scramble to deal with Europe's unresolved debt crisis.

French President Nicolas Sarkozy and German Chancellor Angela Merkel, not the American president, will be the focus at the meeting of the 20 leading rich and developing nations, and European leaders have been looking in recent days to Beijing, not Washington, as a source of capital.

The summit will begin a week after European leaders agreed on a second bailout plan for Greece and a $1.4 trillion fund to prevent the debt turmoil from spreading to countries such as Italy, Portugal and Spain, though even that plan seems increasingly in jeopardy.

Mr. Obama, grappling with his own unresolved domestic debt issues, has been sending mixed messages from the sidelines, saying he is confident that the European Union has the resources to solve the problem while asserting that the crisis is "scaring the world" because of a lack of decisive action by European leaders.

"There's certainly concern about U.S. leadership," said Heather Conley, senior fellow of the Europe program at the Center for Strategic and International Studies in Washington. "European finance ministers have not been fully appreciative of U.S. advice and counsel on how to deal with the crisis because of U.S. domestic challenges. We're seeing finger-pointing."

Mr. Obama is making the trip as European Union leaders and world markets confronted a fresh crisis over the Greek government's surprise announcement that it will hold a popular referendum on the new bailout package.

Markets around the world, including on Wall Street, fell sharply Tuesday amid fears that the proposed vote could scuttle the rescue plan.

White House press secretary Jay Carney said Tuesday that Mr. Obama is still looking to European leaders "to provide a conclusive resolution."

"It is a European problem that has to be addressed," Mr. Carney said.

European Union leaders are looking for cash from countries like China and Japan to finance the EU's bailout fund.

Obama administration officials are discouraging a rescue by China, saying Beijing ought to focus instead on domestic economic policies such as easing the manipulation of its currency.

"Europe has the resources and the capacity to overcome these risks," said Lael Brainard, undersecretary of the Treasury for international affairs.

She said China and other "emerging economies" would do better to focus on domestic policy, in part, because Europe likely won't be a source of strong growth.

"It's very much in China's own interest, as they know and as you see in their own policies, to shift to domestic consumption-led growth, rather than relying on an outdated growth model based on net exports to advanced economies where demand is likely to be weak for some time," Ms. Brainard said.

"And the [currency] exchange rate plays the most powerful potential near-term role as a lever in helping that shift."

Senate Democrats, spurred by allies in Big Labor, last month passed legislation that calls for tariffs on Chinese goods to offset an artificially cheap Chinese yuan, reflecting concern that a trade imbalance with China is causing the loss of U.S. jobs.

House Speaker John A. Boehner, Ohio Republican, called the legislation "dangerous policy" but urged Mr. Obama to take a stand on China's currency.

Mr. Obama has stopped short of supporting the Senate legislation but has said he thinks China is "gaming" international trade by holding down the value of the yuan. The issue could gain prominence in the 2012 presidential race.

Former Massachusetts Gov. Mitt Romney, a leading contender for the GOP nomination, has said he would label China as a currency manipulator and take the case to the World Trade Organization.

China is already the largest holder of U.S. debt, with more than $1.1 trillion as of August. A bailout of Europe by the Chinese would expand their influence in America's biggest market.

Ms. Conley said while European leaders "want to have the rescue, they're also quite concerned about what is the policy quid pro quo for this." China has long sought full market-economy status from the EU, which would boost its trade advantages.

"Will they see demands by China, for example, for the EU to grant market economy status?" she asked. "Will they see pressure to change their position on the EU arms embargo? There's multiple levels of concern."

Chinese Prime Minster Wen Jiabao has said that gaining market-economy status would "contribute to our friendship."

Ms. Conley also said the Chinese might be "relieved" that the European debt crisis is likely to deflect questions about their currency valuation at the G-20.

Colin Bradford, a senior fellow at the Brookings Institution and the Center for International Governance and Innovation, said the G-20 is the proper place for the U.S. to confront questions of China's expanding influence in Europe.

"Get used to it," Mr. Bradford said.

"They're going to be at the table or in your face. You want to be in the room with people with whom you differ the most."

The two-day G-20 summit will include the heads of the leading industrial nations as well as rising developing powers such as China, India and Brazil.

The European Union is the United States' biggest trading partner, and Mr. Obama wants to prevent any more of the economic "head winds" coming out of Europe from rattling the fragile U.S. economy.

Some observers doubt whether Mr. Obama brings the debt-reduction credibility, or the leverage, to make much of an impact on the European crisis.

"He can tell the Europeans to take care of their own problems, and he can say that all he wants," said Irene Kyriakopoulos, a scholar on Europe and economics at the Woodrow Wilson International Center in Washington.

"The U.S. can't do much about this crisis. It is totally a European problem."

On Thursday, Mr. Obama will meet separately with Mrs. Merkel and Mr. Sarkozy. He also will take part in a meeting with international labor leaders.

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