As President Obama and other world leaders arrive Saturday in Brisbane, Australia, for the annual G-20 summit, they will face a daunting challenge: steering a global economy that has seen most of its major players slowing down.
One notable exception is the U.S., which has picked up speed since early this year and is now the main engine for the world economy.
While that may seem like a big advantage for Obama, he and others in Washington have expressed mounting concerns that the economic problems overseas are threatening gains in momentum in the American job market and broader economy.
“How long can the U.S. be an island of growth?” said Clyde Prestowitz, a former trade negotiator in the Reagan administration and author of several books on the global economy.
The big question at the summit will be whether Obama and other leaders in the Group of 20 major economies will do anything about it.
Concerned that some countries will try to break out of their doldrums by ramping up exports to the huge American market, Obama is likely to press other member-nations to step up their game, making tough structural reforms, refraining from budget cuts, and increasing spending and investment to boost global demand.
Ahead of Obama’s major policy speech and individual meetings planned for the weekend, Treasury Secretary Jacob J. Lew this week said emphatically that the world should not count on the U.S. to be the sole driver of growth.
“The global economy cannot prosper broadly relying on the United States to be the importer of first and last resort,” Lew said in Seattle as he prepared to leave for Brisbane.
Lew had particularly pointed words for Europe, offering a list of prescriptions that included an overhaul of labor regulations and other impediments to growth in France and Italy and greater infrastructure spending by stronger nations such as Germany.
“The world cannot afford a European ‘lost decade,’” he said in a reference to the decades-long deflation and stagnation that Japan is still battling, most recently by flooding the financial system with central bank-purchased bonds.
Australian Prime Minister Tony Abbott, as host and leader of this year’s G-20, has had each member-nation provide a growth plan that would collectively aim to raise world economic output by 2 percentage points within the next five years.
Though the target is lofty and each plan is getting scrutiny from a respected international organization, the decision to follow through will depend on each country.
As with past G-20 commitments, there is no enforcement mechanism or penalties. Instead, to the extent that the group applies pressure, it will be mainly through peer review and outside monitoring groups.
Even then, the G-20 has been reluctant to cast a strong spotlight on any individual member country, not wanting to embarrass a leader or government publicly.
The upshot is that some pledges have been kept, but others were largely forgotten.
The G-20 Pittsburgh summit in 2009 committed to reducing imbalances between economies with large current-account surpluses and those with large deficits. Benchmarks and outcome studies were commissioned, but some of the biggest imbalances, such as Germany’s large surplus, remain.
“The G-20 can adopt [targets], but when it comes down to the implementation by individual members, it will be according to national circumstances, which basically allows each member to do whatever they feel like doing,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics.
Obama, of course, will have private talks during meals and formal sessions in which he will try to prod others to his way of thinking. But the president’s standing was weakened by the Senate’s loss of the Democratic majority in the midterm election.
It also will be hard to make a convincing case that leaders should take a comprehensive approach to lift growth — something that Lew stressed in his remarks — when the U.S. recovery has relied so heavily on the Federal Reserve’s easy-money policies.
Since the roughly $800-billion Recovery Act spending package was approved in 2009, Obama has been unable to push through additional fiscal stimulus in the face of stiff opposition from Republican lawmakers. With the GOP soon to control both chambers of Congress, prospects for major economic actions in his last two years in office are not good, apart from a couple of areas of agreement, such as free trade.
Obama’s leverage also has been undercut by protracted delays in fulfilling a pledge he and other world leaders made at the Seoul summit in 2010 to revamp the governance structure of the International Monetary Fund to give more voice to developing countries such as China and India.
A year earlier, Obama had led the push to elevate the G-20 as the premier global economic forum, replacing the old Western-centric Group of 8. The change in the IMF voting quotas was supposed to enhance the role and responsibilities of developing nations on the international stage.
Although the IMF revisions would not require additional funding by the U.S., congressional Republicans have refused to ratify what they see as Obama’s legacy, said Domenico Lombardi, who follows the G-20 and the IMF as director of the Global Economy program at the Centre for International Governance Innovation in Ontario, Canada.
At the same time, he said, Obama shares blame for not making good on his commitment by waiting too long to present legislation to Congress and not negotiating energetically to pass the measure.
In the view of many analysts and foreign officials, the American delay in implementing the IMF reforms has been significant. It has given Europeans an excuse to avoid consolidating their leadership in the IMF and other international bodies.
And it may be giving the Chinese cover to undertake globally ambitious financial activities with Beijing at the controls, whether it be a free-trade deal in Asia separate from the American-led Trans-Pacific Partnership or an Asian infrastructure lending bank that some see as rivaling the World Bank, another institution dominated by the U.S. and Europe.
“It gives very strong talking points to other countries like China that are proposing architectural reforms of their own,” said C. Fred Bergsten, founding director of the Peterson Institute. “China is now starting to compete partly on the ground that the U.S. is not playing its leadership role very well.”