President as global shepherd
From The Statesman
Reflecting on the G-20 meeting in London, it would appear that world leaders of the most powerful economies had succeeded in realising that concerted action was needed to halt the precipitous global economic slide and begin taking concrete steps to effect global recovery, regardless of the primary source of the trouble; which of course everyone knows started with the United States banking system’s disastrous financial innovations like sub-prime lending, credit default swaps, liar’s loans, et cetera.
Although the time for finger pointing and mutual recriminations, as some Asian and European leaders had been doing earlier, seemed to be over, the contentious issue was what would work the best to lift all boats, for example, whether to inject fiscal stimulus to let credit flow again and kick start the recovery or to erect regulatory frame work to control Wall Street’s rapacious capitalism. That was the great Atlantic divide the G-20 communiqué tried to bridge with rhetorical flourishes such as “The era of banking secrecy is over.” Much credit is being given to President Barack Obama for parlaying his well-honed campaign-style charm offensive into global diplomacy, which certainly is true.
Wherever Mr Obama and his graceful lovely wife Michelle Obama went, they won people’s hearts and minds. Through their grand symbolic gestures, eloquent speeches and transparent smiles, America seemed to be refurbishing its image sullied by the Iraq war and the Guantanamo Bay prison camp.
But no less could be said of other leaders also including the powerful European duo, President Nicolas Sarkozy of France and Chancellor Markel Angela of Germany, who asserted that the Anglo-Saxon form of unbridled marketplace capitalism is dangerous for the new world order, especially now when the global economy has become so integrated that a single Wall Street investment bank failure could cause worldwide financial tsunami. The world just cannot leave the United States to its own financial devices, however innovative they may be.
With Prime Minister Gordon Brown, like his predecessor Tony Blaire, being secure in the American safe haven of “special relationship,” the new Europe is essentially a Franco-German Europe. And in the ultimate analysis, French and German leaders prevailed in their views that mandatory stimulus spending by individual countries as the US and the UK have been insisting, would not work without a global regulatory structure.
Although China and Russia, prior to the Summit, made lot of noise about creating a new global currency under the tutelage of the IMF, they had no takers. As Nobel economist Paul Krugman said in his New York column, China is in a dollar trap. The IMF’s Special Drawing Rights (SDR) is a convertible mechanism based on a basket of currencies including the dollar, pound, euro and Japanese yen. Nothing should worry China more than the value of the dollar, whose collapse will wipe out China’s massive, rather frightening, foreign exchange reserves.
China and other developing countries have to determine the optimum level of foreign exchange reserves beyond which the accumulation becomes more of a liability than an asset. China’s excessive dependence upon exports and obscene accumulation of foreign exchange reserves is as much responsible for global financial crisis as the US fraudulent and criminal lending practices.
China and the United States have let down the world, but Mr Obama would not say so much so bluntly. Measured as he is always in his public utterances, Mr Obama said in his post-Summit radio-Internet address: “Ultimately, the only way out of a recession that is global in scope is with a response that is global in coordination.” In broad terms, there was an agreement that banks need to start lending again in order to stimulate growth and generate jobs, but Europeans were unsure about the wisdom of infusing their economies with massive multi-billion dollar stimulus packages, the kind of seemingly bold steps that the Obama administration has announced, for example, to buy toxic bank assets and shore up their finances so that they start lending again.
European leaders see the global crisis primarily as a consequence of lack of financial controls and most of the G-20 communiqué is about establishing the regulatory framework, including the closure of tax havens (Switzerland, Hong Kong, Macao, Mauritius, for example) and close supervision of hedge funds and private equity firms. But it was the eye-catching amount of $1.1 trillion through the IMF and World Bank in loans and guarantees to help developing countries, who have been badly affected by economic downturn, that answered the question, Where is the beef? “The whole world has been touched by this devastating downturn, and today, the world’s leaders have responded with an unprecedented set of comprehensive and coordinated actions,” said Mr Obama, calling the agreement “a turning point in our pursuit of global economic recovery.” The market responded to his optimism with a surge and the Dow closed over 8,000 in spite of the increasing US unemployment figures. Looking from a glass half-full half-empty perspective, the Obama stimulus package for the global economy through domestic spending, which was rejected by the Europeans, might be seen as being funneled though the International Monetary Fund ~ in spite of the IMF’s dubious reputation of being an organisation whose actions in the past, some believe, have caused more harm than good to the recipients of its loans. But beggars have no choice.
Although Mr Obama’s all embracing inclusive diplomacy shepherded the G-20 Summit superbly, it was essentially an European theatrical performance. The so-called BRIC countries were seen but not heard much.
(ND Batra teaches communications and diplomacy at Norwich University)