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Obama and Europe are having their first spat, over money

Leaders balk at his call that EU countries boost public spending as the U.S. has. They're more concerned with toughening oversight of the financial sector -- and say America shouldn't throw stones.

March 12, 2009|Sebastian Rotella

PARIS — Barack Obama may have captivated the European imagination with his unexpected rise to the presidency and a softer-than-Bush foreign policy, but his political magnetism is showing its limits just two months into the job, as many European leaders balk at his call to match his administration's attempt to spend its way out of recession.

With finance ministers from the leading industrial and developing nations -- members of the Group of 20 -- preparing to address the global economic crisis at a summit this weekend in London, signs are emerging that the United States and Europe have different ideas about what constitutes the best tonic.

President Obama on Wednesday again urged other countries to boost public spending as he is doing, in hope of encouraging demand that will get their economies rolling.

But many European leaders say they have stimulated their economies enough. What the world needs now, they say, are tougher, globally enforced regulations on financial markets to avoid a repeat of the mistakes that led to the current troubles.

This week, they pushed back against Obama's plan.

"We are not ready to increase the packages we have established for the current situation," said Jean-Claude Juncker, prime minister and finance minister of Luxembourg and head of a European economic commission that met Tuesday in Brussels.

"The Americans should be more modest about giving lessons, because the crisis comes from them," Patrick Devedjian, France's minister for recovery, said in a TV interview.

The tough talk has added to the sense of cooling between Europeans and the politician they greeted with almost rapturous affection during his visit to the continent last year. "Disagreement between Obama and the Europeans over the recovery," the respected French daily Le Figaro proclaimed on its front page Wednesday.

The divisions over economic stimulation represent a role reversal from the conventional U.S. and European positions. Europe is known for being comfortable with using government to try to fix economic problems. The Reagan revolution left Americans skeptical of that approach.

Of course, the panorama of European opinion turns out to be more complicated and nuanced than it might seem. For one thing, the Obama administration shares the belief that the time has come to restrain the excesses of the financial sector. For another, the European Union's hopes for a common economic policy must overcome a web of internal divisions: The French don't always see eye to eye with the Germans, and the aggressive measures taken by British Prime Minister Gordon Brown put him closer to Washington than to Brussels.

Nor are European leaders ready to break with the still widely admired Obama.

"Until now, President Obama's response to the crisis has been flawless," French Agriculture Minister Michel Barnier, a former foreign minister who has worked closely with U.S. officials, said in an interview Wednesday. "It has been flawless in the face of an economic crisis whose gravity he himself could not have foreseen."

Barnier reiterated France's priorities for the upcoming summit: major reforms and expansion of the international regulatory structure.

"President Sarkozy has said he expects concrete results from the G-20: action on fiscal paradises, hedge funds," Barnier said. "Control of the artificial economy and a return to the real economy, with regulation and transparency. To confront this crisis, we must fight against hyper-speculation, which is scandalous."

Despite U.S. urging, the countries of the EU have kept their recovery spending relatively modest -- an average of 3.3% of gross national product, about half the American outlay. Meanwhile, the United States and Britain may not be ready to go as far as some Europeans want on the regulatory front, analysts say.

"The Anglo-Saxon world gives priority to emergency stimulus measures, remains prudent in the area of regulation because of the weight of the financial industry in the national wealth, and retains a hostile vigilance toward multilateral institutions that would replace or control national authorities," said Nicolas Baverez, an economist, lawyer and occasional advisor to Sarkozy.

Baverez, who believes the European approach to spending in this case is too timid, warned that the G-20 may have gotten off to a bad start before its summit even begins. But he also thinks the Sarkozy administration, which has inherited the French taste for muscular government, welcomes Obama's overall approach.

"They think Obama is right," Baverez said. "You have to strike fast, strike hard, use all the instruments available and achieve strong international coordination. Of course there will be wasteful spending with such a large stimulus package. But the alternative is a 1930s do-nothing approach. That is the tragic dilemma of the moment."

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rotella@latimes.com

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