Over the next week, Pres. Barack Obama will attend three major summits — of the G20 industrial countries, NATO, and the European Union — hold bilateral meetings with the leaders of Russia, China, India, and the main European nations, and visit Turkey for discussions with the leaders of the growing Muslim nation that straddles Europe, Asia, and the Middle East. He does so at a time of immense upheaval, even chaos, in world affairs.
A relatively stable post–Cold War international order dominated by the U.S. is breaking up before our eyes. Its foundations have been undermined by the international financial crisis, by the rise of China and India, by the aggressive ambitions of a nationalist Russia, and by the continuing impact of jihadism on the Muslim world and on Muslim-Western relations. What will the post–post–Cold War order look like? Will it continue to be dominated by the U.S.? And how should Obama seek to shape it?
These issues are interrelated, but each summit deals with different aspects of the overall systemic crisis. The London G20 summit is principally concerned with solving or at least ameliorating the financial crisis and its accompanying economic recession. As almost every commentator has now argued, the U.S. favors an additional fiscal stimulus to lift Western economies out of recession, whereas most Europeans prefer to concentrate on stricter global regulation of financial instruments and capital movements.
Both are wrong. Europe and America have already injected massive demand into their economies. They are close to exhausting their potential for borrowing — a British government debt issue was not fully subscribed last week — and now risk seriously higher inflation down the road. German leaders are right to argue that further deficit spending may actually erode the consumer confidence that we need if people are to start spending again. We should pause to see the effects of earlier injections of demand before piling on more at a time when the U.S. and European economies might be starting to recover. And from a purely American standpoint, if higher U.S. deficits are financed in ways that spur future inflation and a weaker dollar, then Chinese and Russian calls for a new international reserve currency to replace the greenback will gain wider and more serious support.
On the other hand, Pres. Nicolas Sarkozy’s call for a new global financial regulator is nonsense on stilts (which, as it happens, is not a bad description of Sarkozy himself). Previous attempts to build an “international financial architecture” arguably made the current crisis worse. (We would have been better off with different national standards for rating and provisioning against the risks of mortgage-based securities, would we not?) Some national-regulatory failures resulted from the capture of the regulators by the industry they were supposed to be overseeing. But such systemic failures are more likely in global institutions that are remote from public opinion in any one country and, like U.N. institutions generally, exempt from any real democratic accountability. Sarkozy’s passion for them is inspired by his hostility to “les Anglo-Saxons” and their brand of liberal economics, which fosters centers of power independent of the Colbertian state. Though Obama is ideologically sympathetic to tighter regulation, he is unlikely to support a version that would subject Wall Street to controls administered by the U.N. secretariat on behalf of Paris and Frankfurt.
Nothing good can be expected from the G20 summit, therefore. The best we can hope for is that Europe and the United States will each succeed in restraining the other’s pet solution. Fortunately, it has been leaked that a coordinated world stimulus will apparently be postponed to a G20 summit at a later date–we suggest the Greek kalends. And the president should bargain so that any pact on global regulation is sufficiently trivial to ensure a dramatic walkout by Sarkozy, ideally one in which he would trip on the mat.
We will return to the Brussels, Prague, and Ankara summits in due course. Meanwhile, that would be a happy start to a momentous week.