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Published: Thursday September 24, 2009 MYT 8:30:00 AM

G20 leaders facing lingering economic trouble


PITTSBURGH (AP): Bolstering a global economy still wobbly from the worst recession in seven decades, restraining greedy bankers and plotting a future course for sustainable growth - the leaders of the world's major economies have no shortage of items on their to-do list when they meet Thursday and Friday.

The problem is that with the global economy on the mend, they could encounter waning enthusiasm to launch bold initiatives, especially if those efforts would limit the leaders' political maneuvering room back home.

President Barack Obama is already facing the likelihood that one of his major goals will be watered down. He wants the G-20 to agree to a new global compact to avoid the dangerous imbalances that many believe played a major contributing role in pushing the world into a severe and prolonged recession that has cost millions of lost jobs and wiped out trillions of dollars in wealth.

If the economy poses some tough challenges at the conference, so does security.

Thousands of police were busy erecting security barriers along the streets around the convention center, the site of the gathering, on the Allegheny River. Many buildings and shops were closed. Police helicopters buzzed overhead. Most of downtown was to be closed to traffic on Thursday and Friday, as were the city's three rivers.

As some leaders began arriving, police said 14 members of the environmental group Greenpeace were arrested on two bridges.

They faced various charges, including possession of an instrument of a crime, disorderly conduct, conspiracy and obstruction.

First, four environmental protesters rappelled off the West End Bridge over the Ohio River, dangling perilously over the water while steadying a large banner warning of "climate destruction" if world leaders don't act to control carbon dioxide emissions. After about two hours, the protesters climbed safely back up to the bridge deck.

Police said they arrested nine in that episode. Police spokeswoman Diane Richard said five others wearing harnesses and preparing to rappel off another span, the Fort Pitt Bridge, also were arrested.

With world economies now improving, some analysts and leaders suggested the urgency for acting together may have dissipated.

Dominique Strauss-Kahn, head of the International Monetary Fund, warned that the earlier "cooperation took place because everybody was scared and understood it was not time to fight one against the other one, but to work together.

"Will it last beyond the crisis?" the IMF chief asked in an interview with PBS' "News Hour with Jim Lehrer." "That's the big question. It has to for the sake of the global economy. Is it absolutely sure? I won't say."

It is likely that the G-20 will endorse the U.S. call for a new "framework for sustainable and balanced growth" but without any major way to enforce commitments made to restrain imbalances such as China's massive trade surpluses and the United States' surging budget deficits.

The G-20 is expected to agree to a "peer" review supervised by the International Monetary Fund. However, a similar pilot project launched with fanfare by the IMF in 2006 went nowhere.

Many believe that the huge imbalances earlier this decade, including a global credit glut fueled by China's trade surpluses, played a major role in the subprime mortgage boom in the United States. The boom ended in a disastrous housing bust that led to the worst financial crisis in the United States since the 1930s.

But even without a credible enforcement mechanism, supporters of the approach contend it can serve a useful purpose as a warning mechanism for countries pursuing inappropriate policies.

"This new framework is the key to resolving issues where different continents can better work together to achieve the growth level we need," British Prime Minister Gordon Brown told reporters.

The G-20 leaders are also vowing to adopt tougher rules of the road to keep banks from engaging in the kind of risky behavior that brought on the current crisis, but they are pushing different approaches.

German Chancellor Angela Merkel, who will face German voters on Sunday, and French President Nicolas Sarkozy have sought caps on excessive bonuses paid to bankers, which they contend end up rewarding risk-taking.

Sarkozy has even threatened to walk out if the language on the bonus issue isn't tough enough.

But the French president has softened his initial demands, conceding after a summit of European Union nations last week that getting agreement on mandatory caps could be a problem.

In the run-up to the summit, Merkel has expressed concerns that with the global economy showing signs of improvement and financial institutions starting to stabilize, momentum for reform could be lost.

"The window of opportunity is closing," she said, arguing that "by 2010 we must have a clear overview of what we have accomplished."

The United States is pushing a proposal to require banks to hold larger amounts of capital, the reserves they use to guard against losses. The G-20 is expected to broadly endorse this goal but leave it to financial regulators to try to hammer out the pesky details, a goal that has not proven easy in past attempts to set global capital rules.

U.S. Treasury Secretary Timothy Geithner cautioned against complacency on the eve of the summit, arguing that signs of an economic revival are not grounds for abandoning a significant overhaul of the world's financial system.

"We simply cannot walk away from the worst financial crisis since the Great Depression and not do everything in our power to reform the system that contributed to this breakdown," Geithner told members of a congressional committee Wednesday at hearings on the Obama administration's sweeping overhaul of the U.S. financial system.

"Time is the enemy of reform," Geithner said. "As some normalcy returns to our financial system and our economy, we cannot let it be cause for complacency."

China has been resisting the rebalancing plan, fearing that it could be used as a club against China's huge trade surpluses.

The United States has been pushing China to focus less on export-led growth and instead promote more domestic demand, saying this will be critical as U.S. households start saving more to repair their cracked investment nest eggs.

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