Obama flies into protests and discord on first trip to Europe

LONDON — It won't be a love fest when Barack Obama sits down with other world leaders for talks on the world economic crisis at his European debut as president of the United States this week, and meanwhile, on the streets of London, throngs of protesters are planning to vent their outrage at bankers, government bailouts and fat bonuses paid to top financial executives.

The continuing economic crisis has raised the stakes high for Obama, as for every other leader of the so-called G-20 nations, whom he'll meet at a summit Wednesday night and Thursday, following a State visit to Britain.

Effects of the downturn are rippling around the world, hitting Europe in some ways harder than the United States. Britain's economic outlook is even bleaker than America's despite its own massive government stimulus.

At the same time, Britons and Europeans will welcome the first African-American president and want to know how he plans to address the crisis and restore America's world leadership role after the eight years of tense and often bitter relations with his predecessor, George Bush.

His host, Prime Minister Gordon Brown, hopes a bit of the Obama stardust will rub off to revive his sinking popularity at home. And other leaders, while they may take issue with some of Obama's remedies, also will seek to burnish their credentials before critical voters.

The unique problem that Obama and Brown face is that a great many politicians and average citizens abroad blame unchecked "Anglo-Saxon" capitalism and lax financial regulation for the economic crisis. They may not go so far as Brazil's President Luiz Inacio Lula da Silva, who charged last week that "this is a crisis that was caused by white people with blue eyes" who "before the crisis they looked as if they knew everything about economics."

An estimated 35,000 protestors turned out for a kickoff march through central London Saturday, three times the number organizers had expected. The weekend event was largely peaceful, though some protestors chanted "burn the bankers."

Police say their greatest concern is at mid-week, when protest organizers plan a crescendo of events around the city, using Twitter to launch last-minute disruptions. Police said they fear that demonstrations could turn "very violent." Some British banks that received taxpayer bailouts in recent months plan to close their doors at the height of demonstrations on Wednesday and Thursday.

Obama's main concern will center on disagreements inside the meeting halls at the ExCel Center. Leaders of 19 leading countries and the European Union will gather in London's former docklands area to address the current economic downturn and discuss how to prevent future meltdowns.

The G20 group of industrialized and developing countries together account for about 90% of global economic output, and there are clear differences among them about causes of the current crisis and priorities for action.

Repeated calls from Washington and London for other countries to follow their leads and radically step up government spending to allay the current crisis have evoked sharp retorts from other world leaders, making substantive agreement at the summit look less likely. Under pressure from Germany and France, Obama preemptively introduced his own broad plan Thursday to overhaul financial regulation, particularly of institutions like insurance giant AIG, whose collapse could bring down the entire system.

"There's a slightly pessimistic mood at the moment" for hopes of decisive action at the summit, said Philip Whyte, an economist at the Center for European Reform, a London research center.

Over the weekend German Chancellor Angela Merkel rejected appeals to spend more public money as part of coordinated stimulus approach. "I will not let anyone tell me that we must spend more money," Merkel said. Spain's Finance Minister Pedro Solbes voiced similar reservations.

Australian Prime Minister Kevin Rudd, noting that G20 leaders had agreed to a $2 trillion stimulus in November, said Sunday another summit will be needed before a new package of national tax cuts and spending increases could be finalized.

Whyte said the resistance in some countries to stimulus spending stems from their very different economic and political situations, as well as philosophical differences about the effectiveness of stimulus programs.

The skepticism that meaningful steps will be taken at the summit stems in part from the political realities of managing in a crisis unlike any seen since World War II. When the G20 leaders met in Washington November, leaders broadly agreed to limit protectionism. But according to a World Bank analysis, 17 of their countries have since introduced a total of 46 protectionist measures as the economic slump worsened. Newly elected but not yet in office, Obama did not attend the November G20 gathering.

Brown has said he will ask G20 leaders to agree on a $100 billion fund to boost world trade, which has fallen dramatically in recent months.

Britain's cut in value-added tax last fall appears to have had a notably negative effect on tax revenues while giving very little boost to consumer spending. Even the Governor of the Bank of England, Britain's central bank chief, warned recently that his country cannot afford further stimulus.

In addition, structural economic differences between Europe and America - such as a higher debt-to-GDP ratio in European countries such as Italy and Greece -- mean they cannot afford more public spending. The existence of generous welfare states also means that a form of "automatic fiscal stimulus" already kicks in for many Europeans when they lose their jobs, Whyte noted.

There is also a political debate within the countries that belong to the euro currency zone, with some big countries worried about a free-rider effect, meaning if they increase government spending at home the benefits will be enjoyed by other European countries. Germany, which will hold a national election in the fall and contributes the largest single share of the European Union budget, is particularly concerned about poorer neighbors like Greece benefiting from its payouts.


Few countries other than the United States and Britain have taken any responsibility for the crisis. China, for example, insists that the roots of the current crisis lie in the West. "They believe they played no role at all in precipitating the crisis," said Whyte. But he noted that China has played a big role in creating global macroeconomic imbalances through its massive purchases of U.S. government debt.

Whyte said it is not clear that reform of financial regulation will alleviate the current global problems, and said it "could even deter the world economy from being lifted out of its current mess".

It was also unclear how the new U.S. plans to rein in banks and other financial firms, which Treasury Secretary Timothy Geithner unveiled Thursday, will be received by other G20 members. "We will work with the Europeans, we cannot move alone," he told Congress. But, he added, the United States has to look after its own interests and cannot wait forever for international cooperation. "We cannot wait for consensus with the rest of the world," he said.

(Sell is a McClatchy special correspondent. Kevin Hall contributed from Washington)


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