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FINANCIAL CRISIS

G-8 summit is expected to be a test of Obama's leadership

Heads of the other major economies are all but certain to resist any major new steps to stimulate global economic activity.

July 08, 2009|Don Lee

WASHINGTON — As President Obama heads for his second economic summit in three months, lingering skepticism about U.S. leadership threatens to produce a policy stalemate that could undercut prospects for recovery at home and abroad.

Behind a veil of traditional diplomatic courtesy, leaders of the other wealthy economies are all but certain to resist any major new steps to stimulate global economic activity. That reality is reflected in Obama's announced intention to emphasize initiatives on food security instead of more crucial issues like stimulus spending or jobs.

And the president will have to work hard behind the scenes to bolster confidence in the dollar and American corporations as safe places to invest. China and other countries hold huge quantities of Treasury notes and other dollar investments; any hint that they might begin cashing out those holdings could have devastating consequences from Main Street to Wall Street.

"It's a tricky and dangerous time in the sense that institutions haven't caught up with global realities," said Steven Schrage, an international business expert at the Center for Strategic and International Studies, a nonpartisan think tank in Washington.

Fresh from a trip to Russia, the president will travel to central Italy today to meet with leaders of the Group of 8 wealthy nations.

"I think he goes to the G-8 in an extremely strong position," said Richard Gowan, associate director of the Center on International Cooperation at New York University. "They will be looking to him for leadership," he said of the other heads of the G-8: Britain, Germany, France, Italy, Canada, Japan and Russia, as well as the U.S.

Translating that strength into a unified effort to keep pushing for economic recovery is the challenge -- both in Italy and beyond. And it remains to be seen how forcefully the president will push his leadership.

At Obama's first economic summit in London in April, he won praise for deftly engaging other leaders on divisive issues, but faced none-too-subtle demands for U.S. action on a financial crisis that most foreign leaders looked at as primarily "made in America."

This time, Obama can point to passage of a massive domestic stimulus package, a potentially far-reaching proposal for tighter regulation of the American financial system, a climate change bill and other steps toward putting the nation's house in order.

In addition, the sense of panic that gripped the global economy a few months ago has eased amid signs of stabilizing -- a point that G-8 leaders are expected to highlight despite growing job losses and declining consumer spending that suggest the world is not yet free of problems.

So far as this G-8 summit is concerned, officials have downplayed expectations of any major initiatives being announced after the three days of talks in the Italian mountain town of L'Aquila. What counts more than the public announcements is the backstage negotiations -- and how strongly Obama asserts his leadership.

One test will come on trade. G-8 leaders want to revive the so-called Doha Round of negotiations by the World Trade Organization, which is aimed at lowering trade barriers around the globe. It's been in limbo, especially because of differences between developing countries such as China and India and industrialized nations, including the U.S., over farm subsidies and industrial tariffs.

"The Obama administration has given shifting responses on trade," said Schrage, the international business expert, noting that during the presidential campaign Obama talked warily of free trade but recently has made positive statements on it.

Schrage is skeptical that G-8 leaders will set a time frame or other specific action plan to get the Doha Round going again. He noted that despite statements from nations on no new protectionism after the financial crisis flared last year, by the time of the London Group of 20 summit in April, 17 of the member nations had enacted new protectionist measures.

On this issue, Obama must deal not only with foreign leaders but also with members of his own Democratic base, especially unions and their congressional allies who blame trade pacts for the loss of hundreds of thousands of jobs.

In recent years the G-8, launched in 1975 after the oil crisis and global recession, has been criticized as a club of the rich that doesn't have much muscle and excludes the concerns of developing nations, such as China and India, that are increasingly crucial to world affairs. As a result, the Group of 20 has taken on added importance.

This G-8 summit, in which some 30 other nations have been invited to participate, is seen by some as preparation for the G-20 meeting in September in Pittsburgh, where substantive steps are more likely to be adopted before Obama's domestic audience.

Still, the Obama administration has worked behind the scenes to make the G-8 summit more relevant. His aides say Obama invited 16 other countries to join in a forum there to add impetus to negotiations on global warming and hopes of reaching an agreement in Copenhagen in December.

Europe has long criticized Washington for its lack of leadership on the issue, and despite the House of Representatives' having passed a sweeping energy and climate-control bill that would cut greenhouse gas emissions from 2005 levels by more than 80% by 2050, European leaders are seeking more stringent targets for 2020 and 2050.

--

don.lee@latimes.com

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