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Obama, G20 may find common ground on regulation

WASHINGTON (Reuters) - U.S. President-elect Barack Obama stayed away from the weekend’s global economic summit but had he attended, he would have found common ground with many participants who see lax regulation as a main culprit behind the deepening financial crisis.

President George W. Bush said the Washington gathering of world leaders he hosted was an “important first step” toward shoring up the ailing financial system and reviving market confidence.

The Group of 20 leaders from major developed and emerging economies pledged such short-term measures as fiscal stimulus to try to keep the global economy from falling into a deep slump and promised to look at ways to tighten regulations to prevent future crises.

But the summit put off the debate on bigger questions, such as how far the world should go in reshaping the financial system established at the end of World War II at the 1944 Bretton Woods conference.

Obama, a Democrat who will succeed the Republican Bush on January 20, opted not to attend the G20 summit, invoking the principle that the United States has one president at a time.

The next G20 gathering scheduled for the end of April -- when Obama will be in office -- could be more significant for charting a new course for the financial system.

OBAMA, EUROPEANS AGREE MORE

Obama is more aligned than Bush is with European leaders who believe the upheaval in global markets might have been avoided or at least tempered had there been better oversight and better global coordination on markets.

Analysts said Obama’s differences with Bush might have created some diplomatic awkwardness at the summit and that is one of many reasons he likely chose not to attend.

“Obama was pushing during his campaign this idea that a failure of regulation was a major factor in the ongoing crisis,” said Morris Goldstein, a senior fellow at the Peterson Institute for International Economics.

“There is some distance between Obama and the Europeans on regulation but their gap with Bush is much greater,” he said.

While not rejecting all calls for tighter regulation, Bush gave a speech on the eve of the summit warning against moving too far away from free markets and insisting the crisis did not stem from a failure of capitalism.

“It’s true this crisis included failures -- by lenders and borrowers and by financial firms and by governments and independent regulators,” the president said in a speech in New York on Thursday. “But the crisis was not a failure of the free market system. And the answer is not to try to reinvent that system.”

By contrast, some European leaders arrived at the summit intent on highlighting what they viewed as lapses in oversight by the United States that set the stage for recklessness in the subprime housing market.

SYSTEM OVERHAUL

In a speech in March of this year, Obama urged an overhaul of the financial system and offered some broad principles such as a call for greater global coordination.

Two Obama advisers, former Secretary of State Madeleine Albright and former congressman Jim Leach, met visiting dignitaries on the sidelines of the summit. In a statement, they praised the effort toward global coordination and said Obama was ready to work with the G20 when he takes office.

Goldstein said Obama might be wary of embracing some ideas floated at the summit, such as the call for a single global regulator.

At the summit, the G20 avoided a clash on regulatory issues by instructing finance ministers to review topics such as the role of credit-rating agencies, accounting standards and executive pay packages. The group supported the idea of a “college of supervisors” to review the activities of major banks.

Obama’s emphasis in his foreign policy approach on multilateralism was welcomed by summit participants, including European Commission President Jose Manuel Barroso.

But trade may arise as a difficult issue for Obama, whose rhetoric during the campaign took a protectionist bent.

The G20 communique on Saturday included a call to reject protectionism and to try to reinvigorate the Doha round of global trade talks.

Additional reporting by William Schomberg, David Lawder and Paul Eckert, editing by Jackie Frank

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