As crisis goes global, is US reaching out?November 15th, 2008 - 11:11 am ICT by IANS
Washington, Nov 15 (DPA) A summit of leaders of the world’s 20 largest economies, which will Saturday begin the process of rebuilding the global financial system, comes at the invitation of a humbled global superpower.Chastened by a global meltdown that began in the US mortgage market, the Washington summit of the Group of 20 nations represents an acknowledgement by the US that it cannot resolve the financial crisis on its own.
Though the crisis may have started in the US, an overhaul of the global financial regulatory system will require all key players, including emerging economies, to have a seat at the negotiating table.
President George W. Bush, with prodding from France and Britain in particular, called for the G20 meeting partly in recognition that “opposing multilateral initiatives gets you into more problems than it’s worth,” said Sebastian Mallaby, a fellow of the International Economics Council on Foreign Relations.
The Washington summit marks the first-ever gathering of leaders of the G20, which includes a mix of wealthy nations and emerging economies like China, India and Brazil. The urgent topic is how to rescue the global financial system from collapse and prevent a global recession.
But the meeting comes amid sharp criticisms levelled at the US - the world’s financial capital and largest economy - for sparking the crisis in the first place, and prompted calls in some quarters for an end to US-style capitalism.
The global economy has been brought to its knees largely by the excessive risks taken by US financial institutions, which created new securities that allowed mortgages to be issued to homeowners who could not afford them.
A downturn in US home prices has sparked more than three million foreclosures since 2006 and led to more than $500 billion in bank losses to date. Wall Street “greed” has been roundly condemned in the US and abroad as a result.
“Clearly there is going to be an effort to use this forum and succeeding forums to restructure the global financial architecture in ways that reduces ‘US dominance’,” said Charles Freeman, who specializes in China at the Centre for Strategic and International Studies.
The US government has recognised the need for an overhaul of financial regulation, acknowledging its own failures of oversight and promising more international coordination as the credit crisis quickly spread to all corners of the globe.
“We in the US are well aware and humbled by our own failings and recognize our special responsibility to the global economy,” US Treasury Secretary Henry Paulson said Wednesday.
The US was committed to reforms “so that the world does not have to suffer something like this ever again,” he said.
Saturday’s G20 meeting will likely be the first of many - the next could come as early as February - and is expected to lay the foundations for overhauling regulation and oversight of the financial sector.
European leaders originally spoke of the summit as a Bretton Woods-style gathering - a 1944 summit that refounded the post-World War II international financial system - though they have since toned down their rhetoric.
US officials by contrast had long been cautious about raising expectations from an emergency summit only convened last month, instead talking of “principles” for reform that would be agreed, rather than concrete actions.
Dan Price, assistant to the president on international economic affairs, said that any reforms must be based around a “common commitment to free-market principles” but insisted there was plenty of common ground between countries.
Much of that common ground will likely come on a joint call for fiscal stimulus measures to boost the global economy, which the International Monetary Fund last week said was headed toward recession in 2009.
In the long term, the US is looking at boosting transparency in the financial sector, strengthening the role of international financial institutions, reducing the complexity of financial products and improving oversight of credit-rating agencies, which failed to warn of flaws in mortgage-backed securities.
The prospects for an immediate deal on concrete reforms remain slim. The Bush administration will have limited clout ahead of the Jan 20 inauguration of Obama.
Tags: council on foreign relations, financial regulatory system, global financial system, global meltdown, global recession, multilateral initiatives, president george w bush, sebastian mallaby, wall street greed, washington summit