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The G20 and Obama’s Failure

April 4, 2009

Geopolitical Diary: A Summit Without Guarantees
April 3, 2009
Related Special Topic Page
A World Redefined: The Global Summits
The G-20 summit of world leaders in London concluded on Thursday with immense fanfare and self-congratulation. The threats of walking out, widespread sniping and expressions of pessimism by leaders on Wednesday, prior to the summit, were replaced by enthusiasm, optimism and back-patting. French President Nicolas Sarkozy praised U.S. President Barack Obama’s consensus-building efforts, despite prior threats to walk out of the meeting if “concrete” measures on global financial regulation were not agreed upon.

Sarkozy’s praise for Obama and British Prime Minister Gordon Brown was strange, since a consensus was not reached on firm changes to global financial regulation. The recommendations coming out of the G-20 communiqué Thursday called for the establishment of a new set of global regulations, but ones that would be implemented by financial regulatory institutions on the domestic level at their own discretion. This is not what Germany and France were hoping to see come out of the G-20.

The only international institution that the G-20 agreed to bolster is a reformed Financial Stability Forum, which will become the Financial Stability Board — a body that would have limited monitoring capacity, and that is merely a collection of central banks, regulatory authorities and finance ministers to begin with. As such, it is more of a forum in which various domestic institutions can deliberate standards; by no means is it a supranational regulatory oversight body. Furthermore, the actual — initial — proposals on regulations will not be made until November 2009, when the G-20 finance ministers meet in Scotland. At that point, the world may on its way to recovery and the window of opportunity for Berlin and Paris to hamstring the “Anglo-Saxon” financial cabal may very well be closed.

Agreement was reached at the G-20 on the recapitalization of the International Monetary Fund, which had been one of Germany’s key demands. The extra $250 billion in immediate funds made available for loans to developing countries seems to be a win for Berlin, as this money can be used to bail out the struggling economies of Central Europe and the Balkans. Though a significant portion of this money probably will go to European states, the G-20 was noncommittal on how the money will be distributed — a fact that is sure to miff Berlin to some extent.

Overall, the G-20 concluded with no guarantees that another financial crisis will not strike again. Berlin had wanted to forge that guarantee with strong global financial regulations. Therefore, despite the generally satisfied tone of public statements as the summit wrapped up, French and German officials will be leaving London for the NATO summit in Baden-Baden, Germany, thinking that it is time to return the favor (or lack thereof).

Specifically, this will mean that the Americans are not going to find an accommodating Europe — and certainly not an accommodating Germany — when it comes to the efforts in Afghanistan, nor a unified NATO ready to take on a resurgent Russia. The Obama administration is hoping to find enough takers at the summit for an extra 4,000 troops for operations in Afghanistan, but that is unlikely — especially from France and Germany. France may offer to send some police trainers to Afghanistan, but even that may be predicated on allowing them to operate under an EU flag.

The United States probably will find little support on countering Russia’s resurgence — particularly since the most controversial question, concerning NATO membership for Ukraine and Georgia, was removed from the agenda at Germany’s request. It is in fact highly likely that the only committed allies Obama will find ready to stand up to the Russians will be the Central Europeans — who can’t count on a financial rescue coming from Germany. The German delegation might agree at the summit to condemn Russia’s recognition of independence for Abkhazia and South Ossetia, the breakaway Georgian provinces, but Obama should not expect more.

Germany’s decision to stand aloof from the United States at the NATO summit is not based purely on the lack of success at the G-20. There are larger issues at play, ranging from disagreements over strategy in Afghanistan and Germany’s economic dependence on Russian energy exports, to the general fact that Germany does not want to be caught in the middle of a U.S.-Russia confrontation (again). That said, the G-20 did not help to smooth things over between Germany and the United States, or to encourage Berlin to be accommodating at the NATO summit.

We can look forward to another summit that ends with European and U.S. leaders proclaiming satisfaction at the outcome and congratulating each other publicly over a job well done. Beneath the rhetoric, however the United States and “Old Europe” will have grown even further apart.

And that, just ahead of the EU-U.S. summit in Prague on April 5 and 6.

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