- The Washington Times - Friday, September 25, 2009

PITTSBURGH | Leaders of China, Germany and Brazil were cool to President Obama’s proposal to seek more balanced world growth as leaders from around the world gathered here for this year’s third meeting of the Group of 20 economic powers.

German Chancellor Angela Merkel suggested Thursday that the plan to rein in trade surpluses in countries such as Germany and China while curbing chronic deficits in the United States was a distraction from the summit’s main purpose: to radically reform the global financial system to prevent a repeat of last year’s financial crisis.

“I have made clear we should not look for other topics and forget about financial market regulation,” she said. “Imbalances are an issue. We must have imbalances and all the possible causes on the agenda. Exchange rates are a part of that.”

Chinese officials were more guarded in downplaying the need to address excessive trade surpluses and deficits. They suggested the summit should focus instead on curbing growing protectionism, a label they have used to describe Mr. Obama’s decision this month to impose stiff tariffs on Chinese tire imports.

Brazilian Finance Minister Guido Mantega called the White House proposal “obscure” and said that, rather than try to impose trade restrictions to force down imbalances, nations should let them fall away through natural market processes.

Brazil, China and Germany are among the world’s most successful exporters. While the United States is also a big exporter, the volume of its exports is overwhelmed by the huge inflow of imports from nearly every other nation, leading to lopsided deficits.

While the U.S. trade deficit has come down dramatically in the past year as a result of the crisis, Mr. Obama would like to ensure that trend continues by securing commitments from other countries to more balanced growth in the future.

Like Mrs. Merkel, the Brazilian minister said the summit should concentrate instead on beefing up financial regulation. Brazil, China and Germany all have maintained that inadequate oversight of financial markets, particularly on Wall Street and Fleet Street in London, was the cause of the financial crisis.

“We have to consolidate financial regulation to bring more confidence to markets and prevent future crises,” Mr. Mantega said, suggesting that the summit, among other things, should move aggressively to impose capital and reserve requirements on derivatives activities.

The White House insisted that its balanced growth proposal was not intended to distract the summit from its focus on financial reform.

White House press secretary Robert Gibbs, in fact, said that the single most important thing coming out of the summit would be new constraints on financial firms, including limits on executive compensation and higher capital reserve requirements at firms that pursue the riskiest strategies.

“We know that unless we all have greater rules for the road, money can fly and transfer anywhere,” he said.

The differences between leaders of the U.S. and other countries over the need to curb trade imbalances mirrors differences that have surfaced previously over how far to crack down on lavish bonuses and other issues.

Meanwhile, a U.S. administration official told the Associated Press on Thursday that the G-20 would assume the role of a permanent council on global economic cooperation.

The official, who spoke on the condition of anonymity before the official announcement, said the Group of Eight major industrial nations would continue to meet on matters of common importance such as national security, but the historic function of a group that serves as a board of directors for the global economy will be taken over by the larger G-20. The official said Mr. Obama initiated the move and that it would be announced Friday.

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