LONDON — President Barack Obama and the leaders of the world’s largest economies Thursday declared their intention to create a new era of financial oversight and government investment as they scrambled to shore up the collapsing global economy.
Setting aside differences in philosophy and national character, at least for now, the leaders agreed to make available more than $1 trillion in new lending to spur international growth. While leaving it to individual nations to enact, they promised tough new regulations aimed at banks and other financial institutions whose free-wheeling activities sparked the crisis. And they vowed renewed support for trade and new help for the globe’s poorest countries.
“The world’s leaders have responded today with an unprecedented set of comprehensive and coordinated actions,” Obama said, seizing the global spotlight on his first overseas trip as president. “Faced with similar global economic challenges in the past, the world was slow to act, and people paid an enormous price. … Today, we have learned the lessons of history.”
The consensus was remarkable given the discord that preceded Thursday’s meeting. For weeks, European leaders had balked at what they perceived as Obama’s insistence that they increase spending and his resistance to tougher worldwide regulation.
The effort to rescue the global economy envisions an indirect infusion of cash for rich and poor countries as a way to boost liquidity for individuals and businesses and spur them to spend again.
The Dow Jones industrial average shot higher, rising 2.8 percent and 216 points, after news of the agreement.
Having crossed the Atlantic to demand action from his counterparts at the G20 summit, Obama nonetheless conceded that “in life, there are no guarantees. And in economics, there are no guarantees. The people who thought they could provide guarantees, many of them worked at AIG, and it didn’t work out so well.”
IMF money to be tripled
The product of weeks of negotiations endorsed by the 20 heads of state produced a series of sometimes vague directives and broad principles that will require quick action by individual governments if they are to stave off a deepening recession. The prescriptions do not contain punitive measure for countries that fail to implement them.
But Obama and other leaders who gathered here expressed optimism that commitments they called unprecedented in modern history will arrest the financial free-fall and begin to rebuild a new international economy less vulnerable to disaster.
The agreement, a nine-page “Leaders’ Statement” on the global economic crisis, includes steps to regulate hedge funds, increase transparency for offshore tax havens and dramatically boost the cash available to hard-hit developing countries.
Leaders pledged to triple the amount of money available to the International Monetary Fund to $750 billion.
The agreement, however, stopped short of calls for additional injections of government spending and tax cuts to help boost deflated global demand. Though the United States, Britain and Japan called for more stimulus spending, Germany and France remained firm that the $5 trillion already being committed by major nations over the next 18 months was enough.
Leaders agreed to craft tighter controls over hedge funds and establish stricter regulations to prevent the buildup of toxic assets that poisoned the U.S. financial system in the and spread overseas.
They also agreed to exert pressure on countries known as “tax havens” where banks operate largely in secret.
Avoiding protectionism
The summit of the Group of 20 nations, an emergency forum bringing together leaders from the wealthy nations of Europe, the United States and Japan along with emerging giants such as China and India, committed the members to avoiding the kind of protectionism that sparked a global trade war during the Great Depression.
“We are anxious to do everything we can to resist protectionist tendencies,” Brown said.
Speaking to reporters for almost an hour Thursday evening, Obama echoed his British colleague, saying protectionism “could deepen this crisis.”
“History tells us that turning inward can help turn a downturn into a depression,” Obama said.
