JEFFREY BROWN: It’s a gathering of the world’s wealthiest nations that together account for than 85 percent of global economic activity. There’s a lot at stake and some clear differences of views about how best to go forward.
We look at it now with Thomas Kleine-Brockhoff, a veteran German journalist and now senior director for policy programs at the German Marshall Fund; Minxin Pei, senior associate in the China program at the Carnegie Endowment for International Peace; and Martin Wolf, associate editor and chief economics commentator at the Financial Times.
Well, Thomas Kleine-Brockhoff, the loudest, perhaps the most public war of words in recent days has been between the U.S. and Europe, centered in Germany, over the idea of a stimulus package, something President Obama wants very much. What’s the resistance from — how do you explain the resistance from Germany?
THOMAS KLEINE-BROCKHOFF, The German Marshall Fund: Angela Merkel, the chancellor, is going to London to be the iron lady of continental Europe. She’ll be a fiscal conservative. She’ll oppose any new fiscal stimulus.
And the reason for that is multiple. First of all, continental Europeans believe they’ve already done something. They’ve done…
JEFFREY BROWN: In terms of a fiscal stimulus?
THOMAS KLEINE-BROCKHOFF: They have spent considerably, especially the Germans, the biggest package. The Brussels think-tank Bruegel has estimated that those European stimulus packages amount to about half of what the U.S. stimulus package is. When you then add the automatic stabilizers, basically, the welfare system in Europe, it comes close, although it doesn’t make up the difference, but it’s very close.
Secondly, they think a new stimulus will cause inflation, as they believe the U.S. stimulus will cause inflation. And that triggers the memory, especially of Germans. It’s not depression and deflation that the collective memory recalls; it’s inflation that led to Adolf Hitler.
So if you have the old lady on the street being asked about Obama’s stimulus package, she’ll probably ask, “Isn’t he printing money?” So that’s what Chancellor Merkel alludes to.
China's concerns over U.S. debt
JEFFREY BROWN: All right.
Minxin Pei, let's talk about what happens with China here. In recent weeks, Chinese leaders have raised questions about U.S. fiscal policy, as well, and its impact on the dollar. What are they bringing here, what concerns?
MINXIN PEI, Carnegie Endowment for International Peace: Well, by comparison, China looks pretty good. China has put into place a very large stimulus package. China's financial system itself is relatively healthy. At the summit, China wants to look not presidential, but look like a true world leader, and they want to...
JEFFREY BROWN: Like they belong at this table in a big way?
MINXIN PEI: ... and wants to show that it's responsive, it's responsible, and it has a concrete plan. But, of course, longer term, China is deeply, deeply concerned about U.S. fiscal situation, because China is the biggest creditor of the United States, holding something like $1.2 trillion, $1.3 trillion U.S. dollars in debt.
So if the U.S. keeps printing money to solve this crisis, then, over the long run, China will find its own interests hurt. So at this summit, China will raise that issue, as well.
JEFFREY BROWN: So, Martin Wolf, we heard in our earlier piece Gordon Brown say that this meeting must provide, quote, "the oxygen of confidence." So what is possible to achieve? What are you looking for?
MARTIN WOLF, Financial Times: Well, it's going to be very difficult to provide very much confidence, given the intense disagreements that have already been indicated, particularly between the United States and Germany.
By the way, these have a very long precedent. There's been a consistent pattern of these disputes. But this time it is far more serious than ever before because we are, without any doubt, in a huge global recession.
In the advanced countries, the OECD has just announced the economies will shrink by about 4.2 percent this year. We've seen nothing like this since the 1930s.
My own personal view is what the continental Europeans and the Chinese even are proposing to do is quite inadequate against this. The recession will be very, very deep. And that is going to create very big problems in 2010 and thereafter.
So it is going to be difficult to generate really serious confidence after this meeting, particularly if, as I expect, there are obviously -- behind the communique and there will be a communique -- a lot of disagreement.
Conflicts of interest
JEFFREY BROWN: Staying with you, is it fair to say that Gordon Brown himself is more on board or on a similar agenda as President Obama at this point? And how much power does he have at this table, as the chair of the table, so to speak?
MARTIN WOLF: Well, as I've constantly argued, there's a fundamental conflict of interest between two groups of countries, surplus countries on the one hand, countries with very large current-account surpluses, and deficit countries.
The U.S. and U.K. are both large deficit countries. They're the countries where the financial crisis has emerged. In my view, that's related to the deficits. And now they're struggling to replace the lost private-sector demand with higher government spending.
Now, the surplus countries like Germany don't really need to do that quite so much, because they can rely on importing demand with their exports. So there is this fundamental conflict of interest. And that's why Brown will always go with Obama and why the Germans are going to be on the other side on these issues.
JEFFREY BROWN: Mr. Kleine-Brockhoff, a fundamental conflict, do you agree with that?
THOMAS KLEINE-BROCKHOFF: Martin Wolf has said it. It's historic in the dimension of the dispute. It's always been the case since the founding of the federal republic, and this conflict plays out on the global stage now in the question of whether Germany will take on global responsibility to infuse a stimulus.
JEFFREY BROWN: When we talk about regulation, though, is there not some common ground there, because that is, of course, a major issue here, as well?
THOMAS KLEINE-BROCKHOFF: That's the place where they'll find agreement. Since Timothy Geithner has announced the American plans, it's more clear to Europeans that the U.S. will be on board with far-reaching regulatory change, which they have called for during the last meeting in Washington and weren't sure whether the U.S. would deliver on that. So that relates to the rating agencies, tax havens, minimum capital requirements.
There is, however, one dispute on whether there should be a global systemic risk regulator or whether nation-states should do that. Geithner wants that nation-states should do it, especially the French, or for the global solution.
China's role in mediating conflicts
JEFFREY BROWN: Minxin Pei, what role does China carve out amid what we're hearing about these historic disputes between the U.S. and Europe?
MINXIN PEI: Well, China's interests, as Martin said, are in conflict with those of the U.S., because China is a surplus country. But on the other hand, China does not want to appear to take the lead in opposing the American position.
So China will probably play some kind of a balancer role, working as a country that will be the go-to country either for the U.S. and for Germany or for continental Europe, because if China's position shifts even rhetorically, that will mean a huge perception of the shifting of power at the conference.
JEFFREY BROWN: We heard that even recently, right, when the Chinese leader spoke out about the dollar, and...
MINXIN PEI: Oh, yes.
JEFFREY BROWN: ... that raised a lot of hackles.
MINXIN PEI: Even though they were saying something so blatantly obvious.
JEFFREY BROWN: Do you sense a -- to the extent that President Obama, this is his first moment on the big stage here, is there resentment of the U.S. in China as the cause of all of this? Or is the U.S. still looked to as the one who must lead us, lead everyone out of this?
MINXIN PEI: Well, there's both resentment and disappointment, disappointment in the sense that the U.S. let us down. I mean, China as been aspiring to be another America for the last 20, 30 years. Now their model has collapsed, their intellectual model has collapsed.
There's resentment in the sense that China is now, along with the rest of the world, suffering the consequences of American policy mistakes.
Criticism of the United States
JEFFREY BROWN: Mr. Wolf, what do you make -- who is the leader now? Is there one leader? Is it multiple leaders? Is that a problem right now?
MARTIN WOLF: Well, I think it is quite clear there is no leader. The U.S. is still the dominant voice, and it will put its view very strongly, but I think it's absolutely clear that on very important issues there are countries that are going to say no.
Now, this isn't really new. Again, as we've already said, particularly with Germany, there's been a history of such conflicts, but given the immensity of what is at stake, I think we will see very important countries in the world basically saying to the Americans, "First, you are to blame," which I think is significantly exaggerated, but it's what they will say. "You're entirely to blame, and now you're proposing really irresponsible solutions. So we're not going to do what you want."
And President Obama has to confront the reality that in this area, at least, American power is significantly circumscribed, even though, of course, there is no one other country that can hope to take its place in the foreseeable future.
JEFFREY BROWN: So is there real value in a meeting like this, Mr. Wolf, staying with you?
MARTIN WOLF: Yes, provided it doesn't break down and we don't have Mr. Sarkozy...
JEFFREY BROWN: It sounds like a big proviso...
MARTIN WOLF: If we don't have Mr. Sarkozy walking out or anything upset, we will have a communique, I'm absolutely sure. There will be some very good things in this communique, perfectly sensible things. It will paper over these cracks.
Surely that's much better than people never talking to one another, never trying to understand how each of them looks at the world, and never even trying to attempt to fix these huge global problems.
So I tend to think very strongly that, even if these meetings do not solve the problems of the world -- and they cannot and will not -- they are much, much better than the alternative of not having them at all.
JEFFREY BROWN: Where do you come down on that?
THOMAS KLEINE-BROCKHOFF: I agree that having the meeting is better than not having the meeting. And capital requirements, liquidity, reserves, all of the things that they'll be agreeing upon will be hugely important.
But to the power question that was mentioned by Mr. Wolf, to me, it's very unclear, even though the U.S. power is circumscribed, as he says, where we come out of this crisis in terms of power relations.
Lots of people assume now that this is the final hand-off of power of the United States. But when you look at the situation in which the BRIC countries find themselves, it's anything but clear that they will come out ahead in this.
When you look at Russia, there was a lot of finger-pointing at the U.S., the schadenfreude at U.S. decline. Well, now the Russians have come a long way to understand that they're affected, that the depth of the crisis in Russia is even deeper than in Europe or the U.S., and that they need the U.S. to get out of this.
JEFFREY BROWN: Have time for a brief response on that.
MINXIN PEI: I think it's a great occasion. President Obama has inspired the Americans; now it's time for him to inspire the rest of the world.
JEFFREY BROWN: All right, we will leave it there. Martin Wolf, Minxin Pei, and Thomas Kleine-Brockhoff, thank you all three very much.