Obama pushes global stimulus effort

Washington: Even as it spends hundreds of billions of dollars to revive the US economy, the Obama administration is opening a second front - pressing European and other large nations to launch bigger efforts to stimulate their own economies.

The campaign, coming to the forefront this weekend at an international conference of finance ministers in London, is designed to attack the worldwide recession with a coordinated global stimulus effort. The message from US officials is clear - we can't do it alone.

Stagnant economies need corresponding shots in the arms to create demand for products and services, government officials believe. The world is more intertwined than ever, and injecting money into financial systems everywhere will make it less onerous on any one country, they said.

China, for example, is pumping the equivalent of billions of dollars into its economy, but the efforts of Japan, Britain, France, Germany and other major nations are falling short, according to the International Monetary Fund.

"If the rest of the world will get their demand growing more rapidly, that will boost US exports, which will boost employment and demand in the United States," said Michael Mussa, senior fellow at the Peterson Institute for International Economics.

As Mussa and many others see it, what happens to the world economy has a major effect on the well-being of the United States, where a sharp drop in exports in the last quarter helped fuel the most dramatic retrenchment of the US economy since 1982.

If the world economy doesn't revive soon, the deep US recession would last much longer, they said.

But in Europe, especially, where national economies and cross-border trade are much more integrated, a fear of one country's tax dollars boosting another country's fortunes has led to a kind of paralysis.

"If you are a small country like the Netherlands or Denmark, then a large part of your stimulus will not stimulate your economy but other countries' economies," said Jakob von Weizsacker, a resident scholar at Bruegel, a Brussels, Belgium, think tank. "If you do it on a global level, then you can capture all the cross-border spillover."

The $787 billion (Dh2.89 trillion) stimulus package that President Barack Obama signed into law last month is a drop in the bucket of a world economy that produces $78 trillion in goods and services each year.

And that global economy, infected by the financial crisis that began with the collapse of the US housing market, has begun to stagger: A new World Bank projection says the global economy will shrink this year for the first time since the Second World War.

Many European countries also are reluctant to embrace the bigger budget deficits and higher national debts that come with the increased tax cuts and spending of a large stimulus package.

Lawrence Summers, Obama's chief economic adviser, told the Financial Times last week that the group of 20 leading and developing nations, known as G20, need to stimulate more economic demand. The message appeared targeted directly at Europe.

Spain is the only European nation whose stimulus efforts this year meet the International Monetary Fund's target of at least two per cent of the country's total economic output. The only other advanced economies meeting that goal are the United States, China, Australia and Saudi Arabia.

Jean-Claude Juncker, chairman of the 16 European nations that use the common euro currency, dismissed the Obama administration's push, telling reporters that finance ministers from those countries were not prepared to do more stimulus at this point.

He added that "recent American appeals insisting Europeans make an added budgetary effort were not to our liking".

White House press secretary Robert Gibbs said that addressing such concerns was "why we have summits". Obama will push for stimulus and regulatory reform when he attends a meeting of the G20 leaders next month.

"Whether it's regulation or stimulus, if many nations work collectively in concert, the impact to the global economy will only be sharper and stronger," Gibbs said.

More economic stimulus also would share the burden of halting what the head of the IMF on Tuesday called "a Great Recession".

"There's something to be said for everyone being in this together, so somebody's not living off everybody else's stimulus rather than contributing their own," Mussa said.

Part of the Obama administration's problem is that the downturn that began in the United States only recently has hit hard elsewhere, delaying policy responses.

Some major European nations, such as France, want to focus first on reforming the regulatory system that allowed the financial crisis to begin in the first place.