US legislation could help Obama at G-8 talks
TORONTO — President Obama came to the summit table this weekend with a strong hand to press his case to foreign leaders for tougher financial regulations, after Congress agreed to a far-reaching overhaul of the American regulatory system. The opposite is true for his effort to persuade other governments to keep stimulating their economies rather than attacking deficits.
While Congress allowed Obama to pack the big victory on banking regulation as he left for the Group of 20 summit, the Senate separately dealt him a significant setback that no doubt resonated with the foreign leaders here pushing fiscal austerity: Democratic leaders shelved an economic stimulus package of aid for the long-term unemployed and financially squeezed states, along with assorted tax cuts.
The setback underscored the difficulty Obama has had in making the case for stimulus. At home as abroad, Obama is confronting the limits of the consensus that took hold after the economic crisis began in 2008, which favored bigger deficits to spur job creation. At stake, as the administration sees it, is continued global recovery or a relapse into another recession.
Treasury Secretary Timothy F. Geithner reemphasized that point again yesterday as he arrived here for the beginning of the G-20 talks. Speaking to reporters, he said that for all the progress the G-20 countries had made since late 2008, “the scars of this crisis are still with us.’’
“So this summit must be fundamentally about growth,’’ he said. “And our challenge, as the G-20, is to act together to strengthen the prospects for growth. This will require different strategies in different countries. We are coming out of the crisis at different speeds.’’
Yet even within Obama’s administration, there are fault lines on how much additional stimulus is desirable. Some news reports in recent days suggested that Peter R. Orszag, the budget director who recently announced that he would be leaving in late July, was resigning partly out of frustration that he had lost the argument that the country must cut projected deficits — and sooner rather than later. Advisers and associates of Orszag insist that is not so, however, and Orszag addressed the issue late Friday in his blog on the website of the Office of Management and Budget.
Orszag has complained to associates that the debate over job creation versus deficit reduction is a false one; the only disagreement is over timing. Before the G-20, two other administration officials — Geithner, who is closer in his thinking to Orszag, and Lawrence H. Summers, the director of the White House National Economic Council, and a proponent of more short-term stimulus measures — co-wrote an oped column in The Wall Street Journal to project a united front on the issue.
“We must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth,’’ they wrote. “Without growth now, deficits will rise further and undermine future growth.’’
In Europe especially, leaders are moving to raise taxes and cut spending, led by Germany’s chancellor, Angela Merkel, and by Britain’s new prime minister, David Cameron, who arrived in Canada fresh from proposing the biggest austerity package in his country in a half-century.
Cameron and Obama discussed their fiscal policy views yesterday afternoon in their first meeting since Cameron, the leader of his country’s Conservative Party, became prime minister.