- The Washington Times - Thursday, March 12, 2009

The White House on Wednesday proposed sweeping measures to combat the world financial crisis, calling on other countries to enact big stimulus packages and greatly increase assistance to foundering European countries through the International Monetary Fund.

The Obama administration’s prescription to stop the spread of the global contagion comes as reports show the world economy and trade are shrinking for the first time in decades amid a collapse of credit and banking systems.

As with his domestic agenda, President Obama did not shy away from offering grandiose solutions to the historic crisis, but his call for European countries to enact stimulus plans about half the size of his own is not likely to receive a warm welcome at an April summit of the Group of 20 nations in London.

Though their economies have fallen into steep recessions, the leaders of Germany, France and Japan have said they want to avoid going deeply into debt with giant spending packages and instead would like to focus on fixing the broken financial system.

The strongest sources of support for the Obama plan are Britain, which is hosting the G-20 summit, and the International Monetary Fund. Both are calling for large worldwide stimulus measures to combat what the IMF has labeled the “Great Recession.” The IMF was the first to lay down the goal of enacting stimulus packages amounting to 2 percent of economic output this year and next. Many private economists support the plan.

Mr. Obama and Treasury Secretary Timothy F. Geithner stressed that they share the goal of reforming the broken banking system, but the most immediate need is to “jump-start” the world economy and halt the worldwide hemorrhaging of jobs.

“We’ve got two goals,” the president said.

But the chairman of the euro zone’s committee of finance ministers, Jean-Claude Juncker of Luxembourg, quickly rejected U.S. calls for more pump-priming Wednesday, telling Agence France-Presse “they do not suit us.” Many European countries, as well as Japan, already are saddled with enormous debts and are reluctant to add more.

Western European ministers also have resisted providing greatly increased assistance to Eastern European nations in crisis, several of which already have received loans from the IMF. The Obama administration is calling for a tenfold increase in IMF lending resources to $500 billion from $50 billion.

While the nations that have fallen on hard times thus far are relatively small, including Ukraine and Iceland, analysts worry that much larger economies like Greece and Ireland may eventually need assistance, and that would require greatly expanded IMF reserves. The Treasury is proposing to raise additional money for the IMF in part by using the IMF’s gold reserves.

“I think the EU countries will resist, but that U.S. proposal is correct and will eventually be accepted,” said C. Fred Bergsten, head of the Peterson Institute, an international economic think tank based in Washington.

Pierre Briancon, analyst at Breakingviews.com, a British think tank, said the rift between the United States and Europe has been exaggerated.

“There are certainly differences of position and perspective,” he said. “But in reality, the two sides aren’t that far apart. … Everyone is trying out the same basic remedies: aggressive monetary and fiscal policies, support for the financial system, and a few doses of populism.”

Mr. Briancon said he hopes the G-20 leaders will recognize they have much common ground and avoid using the meeting to “score political points.”

“Adversarial rhetoric is risky, especially in a crisis,” he said.

A major reason why the Obama administration did not push harder on banking reforms in its first set of proposals Wednesday is they are not yet complete.

Mr. Geithner, who disappointed financial markets last month with only a vague plan to dispose of toxic bank assets, said the administration will announce fully fleshed-out proposals to address the banking crisis before the April summit.

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