Treasury Secretary Timothy Geithner greets Japan's Finance Minister Hirohisa Fujii before a bilateral meeting during the G-20 summit, Thursday, Sept. 24, 2009 in Pittsburgh.
But the increasing talk of recovery could stall or even doom the forum’s efforts to overhaul regulation of the financial markets.
The crisis atmosphere that prevailed when the same group met in London in April has dissipated, and with it also has gone some of the urgency about putting in place new systems to prevent complex financial instruments and multifaceted financial services companies from triggering another economic crash.
At a briefing for reporters here, Treasury Secretary Timothy Geithner said diplomats and finance ministers involved in pre-summit talks are acutely aware of the changed dynamic.
“I think we all recognize that we need to act before the memory of the crisis fades and before the impetus for reform fades,” Geithner said. “We are not going to walk away from the greatest financial crisis since the Great Depression and leave unchecked—leave unchanged the standards that caused these crises.”
However, Geithner’s comments came amid a series of indications both at home and abroad of disagreement over the chief focus for the summit, as well as the scope and key details of regulatory reform.
Geithner said the U.S.’s top priority for the talks was an effort at “rebalancing” the global economy so the West is less dependent on imports and countries like China and India rely more on internal demand and less on exports.
“We must not search for substitute topics and, beyond that, forget financial market regulation," Merkel said in Berlin before departing for Pittsburgh. “Every financial market product, every financial location and every financial institution must be regulated – worldwide.”
European countries are seeking caps on pay and bonuses for all bank employees, but the U.S. has resisted that effort. U.S. officials favor less-stringent measures that they say would remove incentives for excessive risk-taking.
"Politicians must have the courage to do something that will not be immediately welcomed by all banks,” Merkel said.
Geithner insisted that the G-20 countries had reached a “strong consensus on the basic frameworks of objectives,” as well as timetables for implementing regulatory changes.
The Treasury Secretary also claimed that the U.S. was making good progress towards regulatory changes at home, even though Obama’s financial regulatory reform package has been slow in making its way through Congress.
“We’re I think much further along than any other country in laying out a comprehensive framework of reforms,” Geithner said. “I think we’re in a very good position to lead by example.”
Geithner’s claims of progress came on the same day that the chair of Obama’s Economic Recovery Advisory Board, former Federal Reserve chief Paul Volcker, gave Congress testimony critical of the administration’s own proposal to make large financial firms subject to regulation by the Fed. He said such an arrangement would send the message that those firms would be bailed out by the government if they got into trouble.
Meanwhile, the chairman of the Senate Banking Committee, Sen. Chris Dodd (D-Conn.) has signaled his preference for a central regulator of all banks, an approach the Obama Administration considered but abandoned earlier in the year.
“There’s a massive split developing between the legislature and the executive branch,” said Jeffrey Garten, a Yale professor specializing in international trade and finance. “The basic principles are at odds with each other and reconciliation is likely not only to take a long time, but in the process of arguing it out there’s a risk that nothing’s going to happen.”
Geithner indicated that such assessments were too pessimistic and that the key House and Senate chairmen have agreed to move bills quickly. “This is a complicated process and we want to get it right,” he said.
Geithner said the leaders were likely to agree to “a strong set of rules” on regulatory reform, suggesting that the mechanics of implementation would be left to individual states, at least at the outset. He said the issues about rebalancing supply and demand in the world economy were actually “a harder thing to do.”
On the environment, the G-20 leaders are also expected to announce an agreement to phase out carbon fuel subsidies. U.S. officials say such a ban could put a major dent in greenhouse gas emissions.
The G-20 summit kicked off Thursday night with a working dinner hosted by the president and first lady Michelle Obama, who has a full day of activities with other presidential spouses Friday. The main G-20 sessions are scheduled to take place during the day Friday, with the Obamas and most of the other leaders departing by nightfall. The attendees include the leaders of the world’s largest 19 economies as well as the European Union.