World leaders gather for crisis talks over financial meltdown

WASHINGTON // World leaders will convene here this weekend for a two-day Group of 20 summit to discuss a co-ordinated response to the world's deepening financial crisis. The emergency session, called for last month by George W Bush, the outgoing US president, will bring heads of the world's wealthiest nations together with leaders from the most powerful developing countries, a sign of the increased influence of emerging economies on the global economic stage. Among those in attendance will be members of Group of Eight industrial powers - the United States, United Kingdom, Japan, Germany, France, Russia, Canada and Italy - as well as increasingly important, players, such as China, India, Brazil and Saudi Arabia, the lone representative of the Gulf region. Mr Bush called for the 20-nation sit-down at the urging of Nicolas Sarkozy, the French president who currently holds the rotating presidency of the European Union and who has pushed, in concert with other European leaders, for tighter restrictions on international lending and investment. "We want to change the rules of the game in the financial world," Mr Sarkozy said of the G-20 meeting last week, after conferring with EU leaders in Brussels. In a joint statement last week, the 27 EU heads of state outlined their immediate goals for the summit, which include measures to strengthen the International Monetary Fund, increase surveillance on credit rating agencies, and provide tougher oversight on international finance. That agenda could conflict, however, with the wishes of Mr Bush, who used a radio address last month to urge world leaders "recommit to the fundamentals of long-term economic growth - free markets, free enterprise and free trade". Daniel Price, Mr Bush's assistant for international economic affairs, told reporters on Wednesday his boss is ready to embrace some new regulations, but that he also would warn his counterparts against too much regulation and protectionism. "Protectionist rhetoric about walling off markets or companies does not help stabilise markets, but in fact leads to greater uncertainty," said Mr Price, who also tried to temper expectations of a major breakthrough this weekend. "The effort to reform the world's financial markets is not the work of a single summit." That Mr Bush has even convened the G-20, a meeting usually reserved for finance ministers - not heads of state - shows the increasing need to rethink traditional economic alliances, said John Kirton, the director of the G-8 Research Group at the University of Toronto. "It means the president recognises the reality of a much changed 21st-century world in which America alone? or America with a small group of its established friends, the Group of 7 or the Group of 8, no longer has the power to cope with the crises we now face," he said. The heads of the major industrial democracies have held meetings since 1975 to co-ordinate policy and respond to shared economic crises. But more than three decades later, only eight countries have managed to gain a seat at the negotiating table. The G-20 was established in 1999 as a way to include such rapidly expanding industrial nations as China, the fastest growing economy in the world. Mr Kirton said the new economic crisis, which began with the burst of the US housing bubble in 2006 and has rapidly spread overseas, has empowered the G-20 alliance. "To put it most bluntly, America caused the problem and China has the money needed to help solve it," he said. Mr Kirton said he believes the leaders will focus on three broad areas: trade, investment and energy. He added that world leaders likely will call for renewing the World Trade Organisation's Doha Development Round negotiations, which began in Qatar in 2001 and are meant to free up trade for developing countries. The talks broke down in the summer and are not scheduled to resume until next year. John Williamson, a senior fellow at the Washington-based Peterson Institute for International Economics, said he expected summit leaders to focus on "common fiscal expansion", or a plan of co-ordinated, increased spending that may lead to larger budget deficits in the short term but could end with higher revenues down the line. "Having a joint stimulus will mean joint benefits," he said. China, he pointed out, has already injected money into its economy with its newly fashioned US$586 billion (Dh2.1 trillion) stimulus package, which includes a broad programme of tax cuts and increased public spending. The United States is also considering a massive programme of new spending, which would follow the $700bn rescue plan for the financial sector approved last month by Congress. Barack Obama, the president-elect, said this week that a stimulus package will be his top priority in January, if such a measure fails to pass in the lame-duck session of Congress expected to convene next week. But Mr Obama will be conspicuously absent from the meetings this weekend. He reportedly turned down an invitation from Mr Bush, prompting some to criticise the man who will control US economic policy for the foreseeable future. Mr Kirton of the University of Toronto, however, said Mr Obama has few other options. "This is Bush's summit to deal with Bush's problem," he said. "Obama, by his presence, would take ownership of both the problem and the process when he's not in control in any of the levers of the US government. "At best, he would be another adviser to George Bush." Instead, Mr Obama has employed some high-level advisers of his own: he is sending Madeleine Albright, the former secretary of state under Bill Clinton, and Jim Leach, a former Republican congressman from Iowa, to meet foreign delegations on his behalf. "We have one president at a time," John Podesta, Mr Obama's transition chief, told reporters this week. "It's important that the president can speak for the United States at the summit." sstanek@thenational.ae