Editor’s Note: Prime Minister Gordon Brown of the UK visits Washington this week, making him the first European leader to visit President Obama at the White House. Eswar Prasad, an expert on global economics, discusses the issues Prime Minister Brown will likely address with the Obama administration during his visit and for Brown’s speech to a joint session of Congress on Wednesday.
Q. What do you think the primary economic agenda items are for Prime Minister Brown’s visit, particularly in advance of the G-20 Summit in London in early April?
Prime Minister Brown will want to focus President Obama’s attention on the international economic arena rather than on just the enormous domestic challenges that President Obama faces. The Prime Minister is likely to emphasize the following as areas where the U.S. and the U.K. need to provide joint leadership to the rest of the world:
- Follow through quickly on planned macroeconomic stimulus measures and be ready to take further measures if necessary to prevent the economies from slipping deeper into recession
- Get financial systems back on their feet, with creative and unconventional steps if required to revive the flow of credit to firms and households
- Improve regulation of the financial sector to enhance financial stability
- Reform the international financial architecture—provide more resources to the IMF and reform its governance structure
- Reinvigorate the trade liberalization agenda—preserve the core principles of free trade to fend off rising protectionist pressures around the world
- Generate momentum for environmentally sustainable growth policies
Q. Prime Minister Brown has called for a “new global deal” to help move the global economy out of recession. What might this entail and can the U.S. commit to new measures at this point?
The U.S. and U.K. are among the hardest hit large economies, with their financial systems on their knees and their economies contracting. But these are also the economies that have responded most aggressively with monetary and fiscal policies and steps to limit the damage to their financial sectors. Unfortunately, all of this firepower has still not revived these two countries’ financial systems or economic activity.
These two countries should lead by example—taking further forceful measures to prevent further economic declines and avoiding politically popular but economically counterproductive steps such as protectionist policies.
They should also use the G-20 platform to push for globally coordinated policy measures, which would increase the bang for the buck of individual countries’ policies. There would be considerable positive symbolism in having the leaders of the major G-20 economies commit to concrete coordinated steps to increase various forms of macroeconomic stimulus. Good intentions must, however, be backed up by concrete policies.
Q. Prime Minister Brown has specifically noted the need for common principles for financial regulation, which would be coordinated internationally. What might this entail and how would policymakers tackle this issue at the G-20 meetings and beyond?
At the last G-20 meetings, the leaders discussed the possibility of a “college of supervisors” from countries where a particular financial institution had significant operations. The exchange of information among national regulators is certainly a good idea. However, while is sounds logical to undertake supra-national regulation of financial institutions that have extensive cross-border operations, the practical implementation would be difficult across countries with different levels of institutional development and regulatory capacity.
Prime Minister Brown has espoused a more nuanced view–he has argued for common principles of regulation rather than common standards across countries. Indeed, the primary challenge now is to get the principles of effective regulation right, which is no easy task in itself. The U.S. and the U.K. could pull together the lessons they have learnt from the unraveling of their financial systems and work towards designing more effective regulatory mechanisms. It is indeed encouraging that both President Obama and Prime Minister Brown have shown the ability to respond pragmatically and decisively, without any ideological chips-on-their-shoulders, in dealing with the monumental crises that they both face.