Criticisms Await Obama At G-20 Summit
ROBERT SIEGEL, host:
President Obama's Asia trip takes him to South Korea later this week for a G-20 summit. Leaders of the world's 20 biggest economies will talk about the state of economic recovery, about economic imbalances and about how monetary and trade policies might improve things.
This particular G-20 summit has been preceded by some unusual criticism. Germany's finance minister was very disapproving of the Federal Reserve's plan to stimulate the U.S. economy by buying $600 billion more of long-term Treasury bonds. Wolfgang Schauble said, I seriously doubt that it makes sense to pump unlimited amounts of money into the markets. As for the ballooning U.S. trade imbalance with Germany, the finance minister told the German news magazine Der Spiegel the U.S. has only itself to blame.
For more on this and other issues likely to figure at the Seoul summit, we've called upon Professor Kenneth Rogoff of Harvard University. Welcome once again.
Professor KENNETH ROGOFF (Harvard University): Thank you.
SIEGEL: Do those criticisms from finance minister Schauble indicate some serious rift at the G-20 or just a little pre-summit politics? What would you say?
Prof. ROGOFF: No, it's a really deep rift, differences in philosophy that have been playing out for a couple of years. We've been lecturing the Germans, telling them they should do big deficits like us. We've been lecturing the European Central Bank they should have hyper-stimulative monetary policy like us. They haven't quite followed the script we've written. They think they're doing fine. They think they're doing better than us. And they view this as payback time.
SIEGEL: Now, when the U.S. criticizes China for undervaluing its currency, it's saying, you're not playing by the rules and you're getting an advantage by not playing by the rules. Is Washington accusing the Germans of not playing by some rules when they sell a lot more to us than we sell to them?
Prof. ROGOFF: Well, it's a little trickier with Germany because Germany's part of the group of countries that uses the euro, and as a whole, they're not running such a big surplus. But it's true that the Germans tend to look at the countries that are running deficits and saying, you're being bad. And yet, that's the mirror image of the surpluses that they're running.
SIEGEL: Are the Germans, in effect, accusing us of gaining an advantage by not playing by the rules when the Fed puts that extra $600 billion into the economy?
Prof. ROGOFF: Well, you know, at the end of the day, the U.S. is borrowing a lot. We're still running a big deficit. Germany and China are running a big surplus. And President Obama is going to the G-20 basically saying, look fellas, there are two ways this can go. You can buy more of our stuff or we can buy less of your stuff. And we think it's obvious they should want to buy more of our stuff. They think it's obvious we should want to buy less of their stuff. And that's a very deep rift across the countries.
SIEGEL: And can a G-20 summit actually produce an answer to a question like that - which will it be?
Prof. ROGOFF: They can't. But it's an explosive situation. The real danger underlying this is that it breaks out into a trade war, that the U.S. Congress might slap, say, a tariff on goods from China that leads to a wider trade war. That may have seemed like something that was just impossible a few years ago. It's not. The U.S. is hurting. We have 15 million people unemployed. Fiscal policy has reached its limits. Monetary policy is testing its limits. And the political system is going to be fishing around for something else.
And I think President Obama is sending a message to the other leaders - help us export more, we're hurting or I can't promise you how this is going to play out.
SIEGEL: But as you've said, President Obama will arrive in Seoul in a politically different position than he was at at the last G-20 conference. He has to share power with fiscally conservative Republicans, many of whom look admiringly now at, say, the British austerity program, with its very deep cuts in public spending and think we should do something like that. Does that influence the dynamic at a G-20 summit?
Prof. ROGOFF: Well, I think a little bit, but the fact is that there isn't so much the U.S. can do to turn around its situation quickly. And there's a lot of uncertainty about what policy's going to be going forward. These deeper debates have been going on for a while, but I think it's really coming to a head here at this summit.
It's not that things are all going to break loose here. But if they don't find a way forward, something concrete, I think it really could spell trouble in the years ahead, especially as the presidential election comes up. I think the U.S. is like a wounded lion. It's going to be very dangerous and unpredictable.
SIEGEL: That's Professor Kenneth Rogoff of Harvard University. Ken Rogoff, thanks for talking with us once again.
Prof. ROGOFF: My pleasure.