This exchange took place today at an Obama administration briefing on the G20 meetings in London. It’s not quite a mea culpa for the financial crisis. More of a Bushea Culpa…
Question: Could you talk about the sense in some parts of Europe that the United States is to blame for this economic crisis, and how that dynamic could play out over the next couple of days?
Deputy National Security Advisor, Mike Froman: First of all, I think President Obama has been fairly — very open in sort of saying what he believes the causes of this crisis are and that some of them rest in the weakness of the regulatory environment in our own country, our gaps in regulation. He talks about the era of irresponsibility. So I don’t think we are at all averse to having an open dialogue about the causes of this crisis. The causes are many, they’re not limited to the U.S. But we — we’re not here to be defensive or to shirk any responsibility.
Full transcript of briefing below.
March 31, 2009
BY DEPUTY NATIONAL SECURITY ADVISOR MIKE FROMAN
ON THE G20
Press Filing Center
Thistle Marble Arch Hotel
3:16 P.M. (Local)
MS. PSAKI: As promised, Mike Froman is here to run through just some basics on the G20 for the next two days. He’ll talk about what our plans are, what we’ve done so far, and take some questions. If you can sort of focus on the next two days while he’s here, that would be helpful. And I can help manage some of the Q&A at the end if there are a lot of hands raised. Thanks so much.
And this is on the record, pen and pad, so no cameras.
MR. FROMAN: Thank you, Jen.
I know some of you are deep experts in the G20 and I imagine some of you are just getting into the issues for the first time, so why don’t I give some context. And then we can go as far or as deep as you like.
It’s no surprise to anybody that we’re gathering the G20 at a time of the most severe economic and financial crisis in generations. These 20-plus countries represent about 85 percent of the global economy and they come together at a time when incomes are falling, unemployment is on the rise, trade has collapsed and financial markets are strained in all of their countries.
To put this a bit in historical context, international cooperation at times of crises is very important. Most people agree that the Depression was made great by the lack of cooperation, that the Latin American debt crisis of the ’80s lasted a decade in part because there was difficulty in formulating a common approach. But historically, it’s proven difficult to cooperate around international crises because nations controlled their own fiscal policies, their monetary policies were dependent on independent central banks, and their regulatory policies were shaped by their own culture and national traditions. And if you look back at the history of summits, there have been very few examples of summits that have achieved significant gains in terms of international cooperation during times of crisis.
This has become all the most important now because of the interconnectedness of the economy now, of markets now, and of this crisis — in particular, financial problems in one country spread quickly to others, and exports to all countries are dependent on the ability of demand in each country to rebound.
There was a global economic summit here in London in 1933. The U.S. President did not attend and the summit failed to provide what at the time was seen as good direction to try and get out of the Depression at the time.
The stakes for this summit are very high. They are magnified by the fact that much has happened since the last G20 summit in November. The last summit focused largely — and importantly — on a number of regulatory issues. But the economy has declined in November and December, the crisis has spread, and the countries of the G20 have been focused on restoring demand and restoring growth.
And that really is the agenda here. It’s really two tracks: restoring growth, on one hand, and engaging in broad and deep regulatory and institutional reform on the other.
On the restoring growth side, it’s really a four-part program: putting in place significant stimulus, fiscal and monetary; fixing the financial system to get lending going again; avoiding protectionism; and taking steps to minimize the spread of the crisis to emerging markets and developing countries by making sure that there are both the resources and the tools available at the international financial institutions.
That’s the first track, the restoring growth track. The second track, which is equally important, equally urgent, is regulatory reform. And here there will be a number — there are a number of areas that have been worked on since November and a number of accomplishments that will be announced at the summit. There is agreement, for example, to expand the scope of regulation to any institution, market, or product that’s systemically important to the international financial system, and that could include hedge funds.
Secondly, there’s an effort to encourage offshore financial centers or tax havens, to sign on to and implement a number of standards of international behavior and bring them into the regulatory environment.
Third, there will be work done on capital, and capital for financial institutions to make sure the capital requirements prevent crises like this from developing again, and once they do develop, don’t make them worse.
Fourth, there will be a number of changes, as I mentioned, on the institutional front to encourage supervisors to work together from different countries to deal with cross-border issues and institutions that operate globally. Also on the institutional side there will be the expansion of the Financial Stability Forum. This is a group that had been largely — well, it was largely the G7 before and it will now incorporate all of the G20. And for the first time — and this is really quite significant — for the first time there’s a recognition that the major emerging markets in developing countries have a critical role at the table in helping to manage the international financial system.
Related to that, there will be a big push for the reform of the international financial institutions, including giving greater voice and vote to emerging markets in developing countries and have those institutions reflect the reality of the current global economy.
Even before the leaders gather here on — tomorrow night, it is important to note what’s already been done. Since November, as the economy declined in November and December, the G20 — and I believe it’s all G20 countries — have either adopted or are in the process of adopting significant stimulus plans. By some estimate, it reflects about 1.8 percent of GDP for this year. It’s about $2 trillion over — $2.5 trillion over 2009 and 2010.
Each country has done so in their own way, but that coming together, that concerted action among the countries representing 85 percent of the global economy to adopt proactively stimulus measures is a remarkable development in international financial cooperation.
Secondly, as you know, in November they agreed to resist efforts to — resist protectionism and resist the erection of new trade barriers. And while the record is not perfect, the general assessment is that since November, whatever barriers or whatever measures have been taken have not had a significant impact on global trade, and that countries are very much trying to comply with the spirit of that pledge.
Third, on the regulatory reform side, much progress has been made on the agenda I laid out — as I mentioned, the Financial Stability Forum being expanded to all the G20 members. And if you look at our own country, in the United States, on all these major elements of the program, the United States comes here obviously prepared to listen, but also to lead, and to lead by example.
On stimulus, the President and Congress have adopted the Recovery Act. On fixing the financial system, the Treasury Department has announced significant pieces of a financial stability plan. On regulatory reform, Secretary Geithner laid out last week his proposals regarding systemic risk oversight. And on protectionism, the President has stood firm in a number of instances about the importance of avoiding actions that would reduce trade.
So the U.S. comes here well positioned to talk about what we’ve done, to talk with the other countries about what they are doing, and to fulfill what is really a remarkable agenda for international cooperation at a critical time.
It reflects a number of changes in the international system — the fact that there’s an agreement that the IMF should play a role on evaluating what’s needed to restore growth in the international economy and to monitor what the countries are doing in that regard, and whether the G20 is doing enough to restore growth.
There’s an element of accountability in every element of this program. The IMF will be asked to monitor the stimulus efforts. The WTO and others will be asked to monitor the anti-protectionism effort. The Financial Stability Forum and others will be asked to monitor efforts to fix the financial systems in each of the countries. So it is both a series of commitments, a series of actions, many of which have already been taken, and a series of steps looking forward to monitor what’s going on and to be prepared and come back and take further action if necessary.
Let me just mention a last point. At the meeting of the G20 — you’re all aware that in addition to the leaders meeting there’s an ongoing process of G20 finance ministers and central bank governors who meet regularly. The most recent meeting was three weeks ago, I think, in Horsham, UK, where they issued a statement committing that they will all do what is necessary to restore growth; they will do it over a sustained effort — they will have a sustained effort over a period of time in order to restore growth; and that they will agree to have the IMF monitor what’s needed to restore growth in what each of them are doing.
And it’s that three-part commitment that gives us comfort that while all countries are taking action now and implementing their plans, there’s an eye towards the future towards doing whatever is necessary until global growth is restored.
Why don’t I stop there and am happy to take questions.
Q On the offshore tax havens — and you mentioned this on Saturday, there’s going to be a communiqué to encourage compliance with international standards. Why not — are there any tools in the toolbox to actually force compliance? And does the G20 have anything available that they can clamp down on that?
MR. FROMAN: The G20 is looking at a number of different approaches to that. When I say incentives for offshore financial centers to adopt and implement these rules, there are a number of things in the toolbox that might be available, and that’s part of what’s being discussed this week.
Q — incentives, carrots and sticks, or —
MR. FROMAN: Well, incentives. I’d just leave it at that, that there are ways of encouraging countries to adopt these standards.
MS. PSAKI: Major.
Q Mike, is the communiqué going to try to do anything more than was done in November on trade? Obviously, you say the nations are living up to the spirit, but the WTO counts 17 of the G20 doing something that’s protectionist — 47 different instances of it. Is this communiqué going to try to be more robust in discouraging future acts of protectionism, considering the global scope of exports and how they’ve declined and how that’s hurting every member of the G20?
MR. FROMAN: Right. I think every — I think all of the G20 are seized with the importance of avoiding steps that would further reduce or distort trade. My sense is there will be a reaffirmation and perhaps an extension of that commitment, and perhaps a bolstering of the role of the WTO in monitoring the implementation of that commitment.
MS. PSAKI: Mike.
Q Two things. Mike, could you talk about what French President Sarkozy said apparently today about being upset that the regulatory efforts that were going to come out of this were not strong enough? And second, could you talk about the sense in some parts of Europe that the United States is to blame for this economic crisis, and how that dynamic could play out over the next couple of days?
MR. FROMAN: I haven’t seen a specific comment from President Sarkozy, so I won’t comment directly on it. All I can say is we’re working closely with all of the G20 on a robust regulatory reform agenda. The President, by the way, has been personally involved in this. In terms of the G20 preparation going back to the transition, when he first met with President Calderon, his meetings with Prime Minister Harper, with Prime Minister Aso, Lula, and then phone calls that he has had even in the last week with President Sarkozy, Chancellor Merkel, Prime Minister Brown all around these issues. And our impression from those phone calls and other interaction we’ve had is that there’s a great deal of consensus and agreement among the leaders and their teams on what’s necessary.
And I’m sorry — your second question was about the U.S. blame? First of all, I think President Obama has been fairly — very open in sort of saying what he believes the causes of this crisis are and that some of them rest in the weakness of the regulatory environment in our own country, our gaps in regulation. He talks about the era of irresponsibility. So I don’t think we are at all averse to having an open dialogue about the causes of this crisis. The causes are many, they’re not limited to the U.S. But we — we’re not here to be defensive or to shirk any responsibility.
My sense is, is that the focus of this dialogue is much less around the causes of this crisis as it is about lessons to be learned from this crisis and how to prevent future crises — how to manage this crisis and mitigate its impact on one hand, and how to prevent future crises like this from developing in the future.
MS. PSAKI: Tom.
Q Are you expecting more progress this time than you thought you would have in November? And how much sensitivity is there among the leaders to the fact that if the markets think you haven’t accomplished much, there could be a complete tumble?
MR. FROMAN: I wasn’t here in November so it’s hard for me to answer that first part. I would just say that there was a robust work program that was launched in November, and progress has been made on a number of those items. What’s changed since then is that the crisis has — the crisis over the course of November and December — significantly deteriorated. And so it has required a new and more proactive approach to managing the particular elements of this crisis, and that adds another dimension to the summit, which I think makes it a broader and deeper agenda.
In terms of the market reaction, I think the leaders will do their best to come up with what they think are the most sensible approaches on all of these issues. And my sense is that it will be a credible and legitimate package of steps both on the restoring-growth side and on the regulatory-reform side, and how the market reacts to that remains to be seen.
MS. PSAKI: Ann.
Q It would appear that the G20, which is relatively new, because of the breadth of its membership, has really kind of now replaced the G8 as the major economic forum. Is that a fair assessment?
MR. FROMAN: I think there are different roles for different groupings of countries. And the G20 at the leaders level is a new — is a relatively new innovation. It existed at the finance ministers and central bank level, I think, going back to the ’90s, and has been useful since as a forum for international cooperation. I think every G has its value and — (laughter) — one can spend a lot of time debating what we affectionately called “Geometry,” but I think at this point there’s a role for the G8, there’s a role —
Q But for this crisis you need the 20 at the table. It’s not enough just to have the Western democracies, but for a crisis of this — this breadth, you need all 20 of those countries.
MR. FROMAN: Yes, I think for the financial — economic and financial crisis of this nature, having the major emerging markets and developing countries at the table is critical.
MS. PSAKI: Jonathan.
Q Mike, could you talk a little bit about the bilateral meeting tomorrow with the Chinese and the Russian heads, and how much will — how much OF that will be about economics and how much will be the much broader agenda?
MR. FROMAN: Let me say this — I am less involved in those bilaterals than others who are not here. This will be the first meeting between the President and each of those leaders, first face-to-face meeting. And our sense is that it will be a very broad agenda touching any number of issues — economic, political, strategic, et cetera.
Q Could you just elaborate on what you think that — I mean, I know it’s not your issue — but what do you think the stakes are in both of those meetings?
MR. FROMAN: I think I’d rather not. I mean, if you’re able to get Mike McFaul or Jeff Bader or somebody tomorrow around those, they’re better —
MS. PSAKI: You’ll get many of those people to preview of what’s to come.
MR. FROMAN: There you go.
MS. PSAKI: Ed, did you have a question?
Q I was going to ask about Russia, so I’ll pass.
MS. PSAKI: Rich.
Q How much of the communiqué is still sort of up for grabs? I mean, is there anything that you — since November you’ve been working on this. I’m just wondering, is there anything that would surprise you, or are there any elements on protectionism or anything else that really do come down to the discussions on Thursday, as opposed to fait accompli?
MR. FROMAN: I think there is broad consensus on the principal planks of what will ultimately be reflected in the communiqué. But it’s a evolving process; 48 hours is a long time in this environment. And of course when you get 20-plus leaders in a room, there’s — there is opportunity for additional dialogue that could have an effect, as well. So it’s not locked down, but I think there is broad agreement and consensus around the basic parameters.
Q Could you — just following on from Andrew’s question, really, could you just explain how you think the G20 format has measured up, whether it’s measured up to some of the expectations which were around a couple of months ago, whether they can approve — where you are right now?
MR. FROMAN: I’m wondering if that’s a better question to ask after the summit.
Q Well, sure, but —
MR. FROMAN: I just think it’s too early to tell. We’ll have to see how the summit goes.
Q Yes, but do you think it — some people have said it’s a very unwieldly format. Have you felt it to be unwieldy?
MR. FROMAN: We have a — there are various channels of dialogue — the finance ministers, there are deputies, the central bank governors, there are sherpas — so there’s a lot of dialogue between the 20 countries or 20-plus countries to prepare for this meeting.
I wouldn’t necessarily say it’s cumbersome, but it is 20-plus countries, so it does take a certain degree of coordination. And I commend the British for having done a very good job of managing the preparatory process.
MS. PSAKI: Go ahead.
Q Just a question coming back to the communiqué once more. I mean, you said before that no number was sacrosanct, but since you also said restoring growth is so important and so, I guess it’s not irrelevant what numbers these are at the end of the day. And so I was wondering if you could tell us what you’re hoping for? And also to follow up on the tax havens once more, what would you say to suggestions to publically name the tax havens?
MR. FROMAN: I think on the — the question was about restoring growth, and the second was on tax havens. On the restoring growth, what’s important is that there is agreement to do whatever is necessary until growth is restored; there’s agreement to take sustained effort until growth is restored; and there’s agreement to ask the IMF to monitor both what’s necessary and what’s being done by the G20, and to report back on a regular basis.
To us, those are the three key elements of the commitments around the fiscal stimulus. And when I said no number was sacrosanct, it’s because every country has adopted stimulus. They’re in the process of implementing it. Every country is different and has more or less capacity to adopt stimulus. And at this level, what’s important is that just everybody commits to do whatever it takes until growth is restored.
On tax havens, I think it will — this will get worked out over the next couple of days — exactly how those incentives are created, including how countries are referred to.
Q One European argument is that they already have the welfare state the United States tried to become with the help of its stimulus package. So the Europeans don’t need this large welfare — stimulus package. What do you think about this argument?
MR. FROMAN: Many European countries have automatic stabilizers that kick in times of downturn that help cushion the blow of an economic downturn, as do we in the U.S. Some of the ones in Europe are more generous than they are in the U.S. And when the IMF looks at the totality of what’s been done, they look at both discretionary spending like a stimulus package and they look at it with automatic stabilizers.
So one can look at it in both ways and see what’s been done to help stimulate demand and what further — what might be done if growth is not restored.
MS. PSAKI: Do you have any other questions?
MR. FROMAN: Right back there.
MS. PSAKI: Oh, sorry, didn’t see you — go ahead.
Q What can IMF do if they find out the stimulus wasn’t enough? What can IMF do if they find out the stimulus of each country weren’t enough?
MR. FROMAN: The IMF is providing an independent assessment of what’s necessary to restore growth and what each country has done to stimulate their economy, and they will report back to the countries on a regular basis. It’s up to the countries, each country, to decide from there what makes the most sense for itself to do.
Q Would the IMF be making recommendations on these —
MR. FROMAN: I think you’d have to ask the IMF exactly how they’ll reflect that in their report.
MS. PSAKI: Anybody have any last questions while Mike is still with us?
Q When is the next G20 meeting? (Laughter.)
MR. FROMAN: There’s been no decision as to whether there will be another leaders meeting, and if so when or where.
Q Just on that point, though, I mean, do you regard it as important? I mean, obviously you regard it as important that the process carries on — is your official position that it might be helpful to have another leaders meeting in a year —
MR. FROMAN: I think the G20 at the leaders level has proven very helpful in terms of addressing particular elements of this economic and financial crisis. Whether or not it has a continuing role in that regard I think is up for the leaders to decide.
Q Could I just follow up on the discussion about fiscal stimulus? You said you take comfort in the fact that the agreement will say that everyone agrees to do whatever is necessary — but if you have countries like France and Germany that actually don’t believe right now more stimulus is necessary because of the other problems it may cause, how does that give you comfort? In other words, isn’t it all in the definition of “whatever is necessary”?
MR. FROMAN: No, because I think nobody — and this — despite the back-and-forth in the press, nobody at any point had any expectation that countries would come to this meeting tomorrow and say, I’m going to do another point of stimulus or I’m going to do another two points of stimulus. That’s not what these summits are about. This isn’t a pledging conference. This is —
Q I’m talking about going forward.
MR. FROMAN: But that — and that’s my point, is that right now you’re absolutely right, there is vigorous debate in Europe as to whether more stimulus is necessary or prudent. And in our point of view, countries have done stimulus. Those stimulus plans are still being implemented. And all that’s necessary from our perspective is, down the road, if growth is not restored, how will countries react in that instance.
MS. PSAKI: Okay, well, thank you, Mike, for joining us. We’ll get around the transcript to everybody as soon as we have that ready as well.
END 3:42 P.M. (Local)