“Unemployment is spiralling , house foreclosures are rising, and the notion that the crisis is under control is frankly offensive to many people here.
“Thousands of people took to the streets – including a strong contigent of ‘black flag’ anarchists who, contrary to popular sterotypes, have not smashed a single window nor damaged any property.”
Obama wants the G20 to agree to a new framework that would see countries change how they manage their economies and restrain trade imbalances that many analysts believe contributed to the crisis.
Rob Reynolds, Al Jazeera’s correspondent in Pittsburgh, said that the summit was likely to examine the controversial practice of giving huge bonuses and compensation packages to financial workers, months after banks were bailed out with billions of taxpayers’ dollars.
“Germany and France in particular believe that excessive compensation packages encourage short-term thinking and reckless risk-taking on the part of giant financial institutions and banks, and they want strict limits on [bankers’] bonuses and caps,” Reynolds said.
“The United States and Britain think that kind of situation would be unworkable and would instead prefer to focus on building up the capitalisation [cash reseves] of banks, so that they would be better able to deal with a crisis.
“President Sarkozy of France has already threatened to walk out of the Pittsburgh meeting if firm agreement is not reached on bankers’ bonuses.”
Washington wants G20 nations to commit to boosting consumption in exporting countries, such as China, while encouraging debt-laden nations, including the US, to save more.
China’s private consumption accounts for little more than a third of its economy, while it exceeds 70 per cent in the US or Britain.
|China’s economy is reliant on exports to large consumers such as the United States [EPA]|
By contrast, China’s households saved about 40 per cent of their disposable incomes last year, while the US savings rate was just more than three per cent.
“The situation we have now is that countries like Japan, China and, to a lesser extent, Germany, produce goods and then export them. The US buys them – consumers are always spending and borrowing,” Reynolds said.
“Japan and China hold all that debt that the US has. This is seen as a fundamentally unstable situation. The US has to bring down its massive current account deficit and China and Japan have to do more to bring the system into balance.”
Obama is hoping to bring the Chinese on board with the plan by pushing for Beijing and other emerging economies to get a greater voice at the International Monetary Fund.
However, China has so far appeared reluctant and there seem to be few concrete proposals about how to achieve the massive rebalancing of global consumption.
Axel Weber, the head of the German central bank, voiced optimism that G20 leaders would agree to changes.
“In Pittsburgh, we have to say, there are still fires to be put out, we’ll see later how to do the mopping up”
“I am happy that G20 leaders and regulators have a broad consensus on the issues and on the agenda,” said Weber, a European Central Bank Governing Council member.
The summit is the third since the global economic crisis began, but in recent months there have been signs of recovery as a number of countries have emerged from recession.
The US federeal reserve on Wednesday said that growth had returned to the world’s biggest economy.
But Dominique Strauss-Kahn, the head of the International Monetary Fund (IMF), warned against complacency and urged the G20 leaders to keep their economic stimulus plans in place.
“Once the fire is out, there’s water everywhere, it has to be mopped up,” he told Europe 1 radio.
“In Pittsburgh, we have to say, there are still fires to be put out, we’ll see later how to do the mopping up.”