The Obama administration has set out on what could be an economic policy collision course with some of its closest allies. Treasury Secretary Timothy Geithner is heading to a weekend meeting of Group of 20 finance ministers and central bank governors with this message: The United States thinks other governments should be spending more on economic stimulus programs.
The message may not go down well with European leaders, however, many of whom have different ideas about what needs to be done to get the world economy back on track.
The Treasury Department announced Wednesday that Geithner will urge the G-20 governments to implement stimulus-spending programs worth at least 2 percent of their gross domestic products this year and next.
"We need to bring the world together to put in place a very substantial, sustained program of support for recovery and growth," Geithner said after a White House meeting with President Obama.
According to data compiled by the International Monetary Fund, the United States and China are the only large countries committed to spending 2 percent of their GDP on stimulus programs over the next two years.
For the Obama administration, the G-20 meeting this weekend is an early opportunity to assert some global leadership in economic policy.
"We can do a really good job here at home with a whole host of policies, but if you continue to see deterioration in the world economy, that's going to set us back," Obama said Wednesday at the White House. "And I think it's very important for the American people to understand that as aggressive as the actions we are taking have been so far, it's very important to make sure that other countries are moving in the same direction because the global economy is all tied together."
Some Europeans Bristle
The U.S. stimulus-spending challenge has been welcomed by Britain, which is hosting the G-20 meeting, but it could meet some resistance from other European governments. The prime minister of Luxembourg, Jean-Claude Juncker, speaking on behalf of those countries that use the euro as their currency, said earlier this week that U.S. statements urging more stimulus spending in Europe "were not to our liking."
Many Europeans say a U.S. failure to oversee and regulate its financial system more carefully was the factor that led to the global economic crisis, and they now bristle at being told what policies their governments should follow.
"Basically policymakers on both sides of the Atlantic are proceeding on their own domestic agendas," says Daniel Gros, director of the Center for European Policy Studies in Brussels. "Neither takes much notice of what the other is doing, and the agendas are different."
For that reason, Gros says, the G-20 meeting in Horsham, England, is unlikely to produce any concrete actions.
For the Europeans, the top priority for this weekend's meeting is to agree on the need for new rules to govern the international financial system and prevent future banking crises.
Arvind Subramanian of the Peterson Institute for International Economics in Washington says European leaders focus on more regulation rather than more stimulus spending because the banking sector occupies a bigger role in their economies, and because they think U.S. free-market ideology needs to be reconsidered.
"They've always been a bit dismissive of the Anglo-Saxon model of financial capitalism," Subramanian says.
Obama said Wednesday that the U.S. agrees a goal for the G-20 meetings is "to make sure that we are moving forward on a regulatory reform agenda that ensures that we don't see these same kinds of systemic risks and the potential for this kind of crisis again in the future." But he said the first goal is "to make sure that there is concerted action around the globe to jump-start the economy."
Helping Needy Governments
The G-20 finance ministers are likely to agree on the need to help countries in Eastern Europe, Africa, Latin America and Asia. The United States is urging the group to help the IMF increase the amount of money it can loan needy governments, boosting the total to as much as $500 billion.
Kevin Nealer of the Scowcroft Group in Washington says a big down payment on that program has already come from Japan, which desperately wants to help its export markets.
"We've now got some pretty strong indications that Saudi Arabia, China and the Europeans are going to make up the rest of the difference," Nealer said. "That kind of a vote of confidence in the fund and in putting a floor underneath risk for emerging markets could be the most important artifact of these meetings."
While this weekend's meeting will bring together only the G-20 finance ministers and central bank governors, it will be followed three weeks later by a G-20 summit, where Obama will make his debut on the world stage.