British Prime Minister Gordon Brown and the weight of the global financial crisis came to the White House Tuesday, as President Obama hosted the man calling for a “grand bargain” to cure the world’s ills.
“One of the things that Prime Minister Brown and I talked about is how can we coordinate so that all the G-20 countries, all the major countries around the world, in a coordinated fashion, are stimulating their economies; how can we make sure that there are a common set of principles, in terms of how we’re approaching banking, so that problems that exist in emerging markets like Hungary or the Ukraine don’t have these enormous ripple effects that wash back onto our shores, and we’re providing them with some help in a coordinated international fashion, as well,” Obama said.
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The two leaders met privately in the Oval Office for more than 30 minutes and then headed to a working lunch with their staffs in the Old Family Dining Room.
In one month, Mr. Brown will host Mr. Obama and leaders from the 18 other nations that make up the Group of 20 at a follow-up meeting to a summit hosted by President Bush last fall. That meeting produced a statement in which each country agreed not to reject global economic cooperation and commerce, and produced targets for the April meeting.
Mr. Brown, who was Britain’s equivalent of Treasury secretary for 10 years before becoming prime minister in 2007, has called for a “grand bargain” of global financial cooperation to solve what he says is at its root a banking crisis.
While there is talk of yet another attempt to stimulate economies through a concerted spending effort, the conversation over how to come out of the current crisis over the long term revolves around restoring confidence to international banking.
Much of this, Mr. Brown has said, could be accomplished through an agreed-upon set of rules for regulating financial institutions that operate in multiple countries.
“If we could have the same standard and the same rules that apply in the United States of America and in Britain to apply to other countries around the world –- the same standards of transparency and of disclosure, of accountability, the same standards of remuneration –- then I think the confidence that is needed in the banking system will be restored,” Mr. Brown said during an interview Tuesday morning on National Public Radio.
Critics say that the unmentioned component of Mr. Brown’s plan is an international body that would have potentially unhealthy control over the economies of sovereign nations.
Mr. Obama’s meeting with Mr. Brown comes as conditions in parts of Eastern Europe are reaching a crisis level, following a weekend summit in Brussels where more established European Union countries refused to help bail out fledgling democratic nations whose economies emerged from communism only within the past two decades.
As a result, Eastern European democracies are tilting on the verge of collapse in some cases.
The “grand bargain” refers to efforts at resolving tension between emerging and developed nations over how to move forward in such a way that keeps all players engaged in an interlinked global economic system. You can read a detailed explanation by the Peterson Institute’s Morris Goldstein here.
Proposals to do this include reforming international institutions such as the International Monetary Fund to give emerging economies more of a partnership stake in them, in exchange for promises from those same economies that they would avoid manipulating their exchange rates to keep their exports currency cheap, which helps them export goods to other countries and makes it harder for other countries to export their goods.
The alternative, economists say, is for countries to start to draw inward, restricting trade and foreign investment and putting up barriers to imports, driven by domestic political pressures and a need to see short-term gains.
Many economists have noted that a round of protectionist moves by nations around the world at the beginning of the Great Depression made that economic downturn worse.
Nonetheless, within days of the initial G-20 meeting last fall, where nations agreed to a statement disavowing protectionism, countries such as India, Indonesia, Russia, Brazil and Argentina all raised barriers to international trade.
The U.S. itself has been denounced by other countries for a “Buy American” provision inserted into the $787 stimulus bill that Mr. Obama pushed to have watered down but which still sent a protectionist signal, according to economists.
— Jon Ward, White House reporter, The Washington Times
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