WASHINGTON/LONDON (Reuters) - The United States and Britain on Wednesday called on leading economies to ramp up spending to break a global recession to complement efforts to revamp regulations to prevent future financial crises.
The emphasis on economic stimulus has already been met coolly by many European nations, raising questions whether a gathering of finance chiefs from the Group of 20 rich and developing economies near London this weekend will make much headway battling a deepening downturn.
In Washington, Treasury Secretary Timothy Geithner argued the world economy is in dire straits and requires a long-haul effort to return to health.
“What we’re seeing happen around the world now is without recent precedent,” Geithner said, adding he wants the G20 to “put in place the kind of substantial, sustained commitment to stimulus necessary to lay the foundation for recovery.”
He voiced support for a massive expansion, by as much as $500 billion, in the International Monetary Fund’s lending capacity to buttress the global lender at a time when a growing number of developing nations are turning to it for help.
Britain’s finance minister, Alistair Darling, sounded the same line as Geithner on the need for spending and said the two “see very much eye-to-eye” on policy.
“We need a commitment to boost demand using all the levers available to us, including monetary loosening; fiscal stimulus, which has now been widely agreed, but now needs to be implemented, and measures to stabilize the financial system and restore bank lending,” Darling said.
Geithner said the United States views regulatory reform — the favored summit topic for many European leaders — as a “complementary objective” and pledged “very strong support for an ambitious set of reforms globally.”
President Barack Obama, at a White House ceremony with Geithner, tried to add political impetus to the G20 talks, which will lay the groundwork for a summit of leaders on April 20, by saying the United States is making progress in stabilizing its financial system and underlining that participants should keep two objectives in mind.
“The first is to make sure that there is concerted action around the globe to jump-start the economy. The second goal is to make sure that we are moving forward on a regulatory reform agenda,” Obama said.
Geithner said the United States was committed to removing troubled assets from banks that are “gumming up the system” by contributing to uncertainty over the depth of bank losses. He is expected to unveil more details in the coming weeks on how the United States plans to accomplish that goal.
Darling called for “far greater urgency in dealing with the banks’ problems. If we don’t fix the banks, we won’t fix economies.”
A rising tide of bad debts has saddled banks with heavy losses and led them to cut back on lending, undercutting support for economies around the globe.
The G20 takes in the Group of Seven richest industrial nations and also includes key emerging markets like China, India, South Korea and Brazil. Its prominence as a global forum is rising as countries like China become richer and seek a larger role in deciding how international financial institutions are run.
Geithner said he wanted to see expanded membership in organizations like the Financial Stability Forum, a group of financial regulators from around the globe, to give a greater voice to fast-emerging economies and to try to apply a more unified set of rules to the global financial system.
“We need to bring together a much stronger framework of oversight over the core institutions that are critical to markets and over those critical markets, like in derivatives and elsewhere,” Geithner said, adding the forum could help win a broad consensus for stiffer global standards.
In response to questions, Geithner said he would like to work through global institutions like the World Bank on a financing initiative to expand world trade that would benefit hard-pressed emerging markets.
“There’s a lot of things you can do bilaterally but there’s some things that are best done multilaterally,” he said. Geithner said he could not yet put a dollar figure on the size of the support, which he said was needed at a time global trade flows were contracting.
Additional reporting by David Lawder, Corbett B. Daley, Alister Bull and Tim Ahmann, Editing by Chizu Nomiyama and Leslie Adler