If ever there was a time for bold US leadership, this is it. The bursting of the housing and credit bubbles has sent the world economy into steep decline. Unless the major
economies can rally around a common strategy for recovery, we could all descend into a deep and prolonged recession, if not a second Great Depression, with far-reaching consequences for political stability throughout the world. That is why Barack Obama’s first foreign policy trip–to the G-20 meeting in London and then to the NATO and US-European Union summits–may be one of the most important of his presidency. No doubt the formal results of these meetings will be disappointing, making it even more important that the president use them to build support for a bolder international plan.
Despite his considerable popularity, Obama will face obstacles as he strives to shape an international agenda. The president will have to overcome a legacy of resentment over not just the reckless and irresponsible policies of the Bush administration but also the Clinton administration’s arrogant proselytizing about the virtues of neoliberalism. Many Asian and Latin American leaders remember all too well Larry Summers and Timothy Geithner lecturing them to tighten their belts and close down troubled banks during the 1997-98 financial crisis.
The president will also have to deal with deep divisions among the major economies. It’s no secret that Germany and France are highly skeptical of more fiscal stimulus, that Japan’s leadership is in disarray and that China is pushing the idea of an international reserve currency in part to deflect attention from its practice of increasing exports at the expense of other economies. Finding common ground will not be easy.
But perhaps the greatest obstacle is the administration’s muddled message and unclear priorities. At times it seems to be torn between a Keynesian reform agenda in the mold of FDR and a neo-Rubinite plan to preserve the dominance of Wall Street-led capitalism (albeit with a bit more regulation). The administration seems just as divided when it comes to its international priorities–between the overriding need to focus on global economic recovery and what it perceives as the equally important need to pursue the “war on terror” and prevent Russia from reasserting its power.
The administration did little to clarify its philosophical approach or its goals in advance of the G-20 meetings. In a March 24 op-ed that ran in thirty newspapers worldwide, President Obama struck many of the right notes with his call for bold action to jump-start the global economy. But a day earlier Treasury Secretary Geithner took a different tack when he unveiled a bank bailout plan that seems more concerned with saving Wall Street’s proprietary trading than with ensuring that American businesses and homeowners have access to credit and capital.