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G20 leaders gather in London to review economic crisis

Desperate but divided on ways to lift their nations from economic misery, world leaders converged for an emergency summit holding scant hopes of finding a magic-bullet solution for the financial crisis that brought them hurrying to London. The stakes are high, especially for US President Barack Obama, stepping onto the world stage for the first time to deal with the economic crisis and to meet face-to-face with many other leaders.

business Updated: Apr 01, 2009 15:41 IST

Desperate but divided on ways to lift their nations from economic misery, world leaders converged for an emergency summit holding scant hopes of finding a magic-bullet solution for the crisis that brought them hurrying to London.

Even as President Barack Obama and the others were arriving on Tuesday, the US acknowledged its allies would not go along with a massive burst of stimulus spending, while Europe was forced to backpedal from hopes for tighter financial regulation. Instead, leaders are trumpeting the limited common ground they could reach, including more money for the International Monetary Fund and closer scrutiny of hedge funds and tax havens. As for the broader issues, they're hoping for the best, or at least that they will do no harm.

With turbulent world markets watching closely, the stakes are high, especially for America's new president, stepping onto the world stage for the first time to deal with the economic crisis and to meet face-to-face with many other leaders.

One global change is being acknowledged: The forum for grappling with world economic problems has grown beyond the established eight post-war economies that dominated previous economic summits, the US, Britain, Germany France, Japan, Canada, Italy and more recently Russia. Now, 20 nations are coming together in London, with fast-growing developing economies such as China, India, Brazil and Saudi Arabia, important players in any effort to coordinate economic policy, sitting as full negotiating partners. "For the first time, there's a recognition that major emerging markets and developing countries have a critical role at the table," said Mike Froman, a White House international economic adviser.

But will that mean action to stop a global downward spiral? Froman acknowledged that there have been few examples of international gains in times of crisis. "The Depression was made 'great' by the lack of cooperation," he said, noting that nations like to keep control over their own fiscal and monetary policies. And global leaders were quarreling up to the last minute before the summit.

Adding to the pressure, French President Nicolas Sarkozy said on Tuesday that the leaders cannot afford to let the week pass without making substantial progress in fixing the world's economy. "We have to obtain results, there is no choice, the crisis is too serious to allow us to have a summit for nothing," he said.

European countries are pushing for a tougher regulatory system for global finance, while the US is emphasising more spending, an idea that holds little interest for Europeans wary about debt. Obama planned a round of meetings with leaders on Wednesday, including Queen Elizabeth II, summit host British Prime Minister Gordon Brown and the presidents of Russia and China.

The world economy is in far worse shape than when the group of rich and developing countries last met in November and set lofty goals for international cooperation.

Trade is deteriorating, protectionism is on the march and joblessness is rising. Street demonstrations have increased, and widespread protests are expected in London this week. Brown, the host, had initially trumpeted the gathering as "a new Bretton Woods, a new financial architecture for the years ahead." But the meeting was shaping up as bearing little similarity to the 1944 conference in the US state of New Hampshire where the winners of World War II gathered to set the postwar global monetary and financial order.

Brown's spokesman said the prime minister had spoken briefly by telephone on Tuesday with Obama, who was on Air Force One en route to Europe.

"It's an opportunity for both of them to take stock of where we were," Brown's spokesman Michael Ellam said.

World Bank President Robert Zoellick called for the G20 to back a $50 billion liquidity fund to keep global trade moving. In rich countries, he said, "people talk of bonuses or no bonuses. In parts of Africa, South Asia and Latin America, the struggle is for food or no food."

London does not have a good history for successful economic summits. One held in London at the height of the Great Depression in 1933, attended by more than 1,000 world leaders and financial officials _ although not US President Franklin D Roosevelt, met for six weeks and then gave up.

Still, most leaders were upbeat on Tuesday as they headed to London. "It is important and necessary for the summit to take credible decisions which will help to halt and reverse the current slowdown and to instill a sense of confidence in the global economy," said Prime Minister Manmohan Singh.

Summit partners will meet for dinner on Wednesday evening, then hold a business meeting on Thursday.

A draft of the communique circulating ahead of the meeting suggested that global leaders will embrace stimulus spending totaling about $2 trillion. But that includes a number of measures already announced.

Leaders of European countries, led by German Chancellor Angela Merkel, continued to resist calls for more stimulus and for printing money as the US Federal Reserve and the Bank of England have done to try to jump-start a recovery.

Memories of the hyperinflation in the 1920s in Germany that gave way to the rise of Adolf Hitler's Nazi party still haunt modern-day Germany.

On Wednesday, Obama will have separate meetings with Brown, Russian President Dmitry Medvedev, and with Chinese President Hu Jintao.

With Moscow, the agenda will include disputes over energy, Russia's continued opposition to US missile defense sites in Eastern Europe and warhead cutbacks. Obama has indicated less enthusiasm for the missile system than his predecessor George W Bush, raising hopeful expectations in Moscow. But Russian leaders have engaged in tough talk lately in terms of regaining their own status in the world, posing an early test for Obama.

Obama's meeting with Hu is likely to touch on recent Chinese concern about the safety of its vast holdings in US Treasury bonds, given dollar-eroding US stimulus programs.

China surpassed Japan last year as the largest holder of US debt, and any Chinese flight away from those investments would rock global markets. On the way to Europe, Obama aides made clear that expectations have been lowered.

Instead of focusing on the additional stimulus spending the US had sought, White House press secretary Robert Gibbs emphasized what already has been accomplished.

G20 nations have spent so far an amount equal to 1.8 per cent of their collective gross domestic product, he said, calling that "a significant commitment." Gibbs also said he expects a joint pledge that the leaders will act further if developments warrant, and he said that commitment satisfies Obama. He also touted new regulatory proposals and the intention to boost contributions to the IMF.