This week, President Obama found out how much harder it is to sell economic stimulus packages in Europe than it is in Washington.
Obama went to the Group of 20 summit in London hoping to persuade leaders of the world's biggest economies to boost government spending to counteract the global downturn. Backed by Japan and Britain, the administration argued that restoring growth around the world required a stronger fiscal push from other developed nations. Besides, getting more money into the hands of foreign consumers would help them buy goods from the United States, just as the $787-billion stimulus package Congress passed in February should help buttress the demand for imported products here.
Echoing Obama's Republican critics, though, some European leaders said their governments couldn't afford to go more deeply into debt. The borrowing binge could prove counterproductive too, making it harder for businesses to obtain the capital they need to operate and expand. The G-20 settled on vaguely worded promises to keep trying to restore growth and to keep interest rates low. The most tangible commitment was a pledge to provide $1.1 trillion more in financial support, mainly for developing nations. Still, that funding -- a portion of which will come from the U.S. -- could help this country's economy by enabling poorer nations to buy more goods.
The other main point of contention in London was how much regulation to impose on the financial system. Leaders of France and Germany were particularly eager to clamp down on hedge funds, which have come to symbolize dangerous excess -- even though they had little to do with the housing bubble that caused the economy to collapse. The G-20, though, stuck largely to the plan for more comprehensive regulation that finance ministers had already outlined, including a new focus on systemic risks (including those posed by hedge funds), bigger capital buffers and more cooperation among the various countries' regulators. If Europe was hoping for the power to rein in Wall Street, it didn't appear to get it.
For all the discussion about regulation, the G-20's agreement does not address some of the fundamental problems in the financial system, such as the incentives for firms to become too big and intertwined, and the failure to measure and adequately price risk. It will be up to lawmakers and regulators around the globe to address those issues individually, and that's as it should be. Coordinating rules across borders makes sense, given the global nature of the financial industry, but a one-size-fits-all approach to regulating the vastly different financial systems in each country does not.