Obama Must Win Over Europeans on Bank Pay Limits at G-20 Summit

By Catherine Dodge and Hans Nichols

Sept. 23 (Bloomberg) -- President Barack Obama will seek to prove his leadership abilities as host of his first world summit by persuading European leaders who want caps on bankers’ bonuses to accept something short of specific limits on what an executive can earn.

At the Group of 20 meeting in Pittsburgh that begins tomorrow, Obama also will seek a consensus on setting higher capital requirements for lenders and forging a common approach to combating global warming.

Meeting these challenges will be a test of whether Obama can leverage his global appeal to influence other world leaders, who will arrive at the summit with their own ideas on how to avert another global financial meltdown and lay the groundwork for a sustained recovery.

“Abroad, Obama remains a rock star, but doubts are beginning to emerge about his ability to turn popularity into policy,” said Charles Kupchan, a senior fellow at the Council on Foreign Relations in Washington.

The appeal of the leader of the world’s biggest economy doesn’t mean other governments “necessarily agree with the U.S. on how to fix the international financial architecture,” Kupchan said.

Resurgent Image

A survey by the Pew Research Center’s Global Attitudes Project released in July found that confidence in Obama on world affairs was behind a resurgent U.S. image abroad.

For example, 91 percent of the French expressed confidence in Obama on world affairs, up from 13 percent in 2008 under President George W. Bush. In Germany, 93 percent said they were confident with Obama, compared with 14 percent for Bush. In China, Obama is approved by 62 percent, up from 30 percent under Bush.

European countries are becoming increasingly impatient at the pace of action on climate change and financial regulation in the U.S. Congress and by the Obama administration, said Heather Conley, who specializes in European affairs at the Washington- based Center for Strategic and International Studies.

In the five months since the last G-20 summit in London, “there is a growing disquiet in Europe that the Obama administration is unable to take action on many of these fronts, and certainly, on two issues that the Europeans are most significantly seized with: climate change and really seriously restructuring the global financial regulatory system,” she said in a briefing with reporters ahead of the summit.

Reining in Risk-Taking

In addition to discussing bank bonus limits and capital requirements, Obama and other leaders will seek accord on reining in what they call excessive risk-taking by financial firms and narrowing global imbalances in trade and savings to ensure against a repeat of the worst crisis since the Great Depression. Another priority is making sure the economic recovery is followed by growth in jobs.

Michael Froman, the White House liaison to the G-20, said in a Sept. 16 briefing with reporters the U.S. expects “progress, including commitments to particular deadlines for dealing with some of the unfinished business of the regulatory agenda.”

One area of potential disagreement among the G-20 nations, which account for 85 percent of the world economy, centers on compensation for bankers, though leaders are moving toward a compromise.

Avoiding Limits?

Pay caps, once pushed by French President Nicolas Sarkozy, were excluded from recommendations made by finance officials this month. European leaders now may be willing to endorse linking bonuses to a bank’s capital level, such as not limiting bonuses if certain capital requirements are met, moving closer to a U.S. position that avoids specific limits.

Froman also said the U.S. would emphasize “the need to remain vigilant to avoid premature withdrawal of stimulus.”

Igor Shuvalov, Russia’s first deputy prime minister, said leaders should be coordinating on how to wind down stimulus spending.

“The worst time is behind,” he said in a Sept. 21 interview. “We are thinking about a time when we can develop a new model of global economy.”

Since the leaders’ last gathering in April in London, markets are recovering and nations’ economies are showing signs of emerging from recession. The Standard and Poor’s 500 Index is up 32 percent from early April.

The International Monetary Fund expects G-20 countries to grow 3.2 percent next year after contracting 1.1 percent in 2009, according to estimates circulating among the G-20 ahead of the IMF’s annual meeting next month.

Climate Change

On climate change, Obama will press his counterparts to eliminate subsidies for fossil fuels and electricity, Froman said.

At the United Nations yesterday, Obama said efforts to reach an international agreement on climate change will face “doubts and difficulties” in a world economy struggling to come out of recession.

“There should be no illusions that the hardest part of our journey is in front of us,” Obama said.

That may be true for Obama as well. He faces increased pressure because he is hosting the summit, said Steven Schrage, an international business expert at the Center for Strategic and International Studies in Washington.

“He’s got an enormous reservoir of goodwill, but he’s got to show ability to manage and lead,” Schrage said. “We’ve seen a growing impatience or perception that for all the pomp and circumstance of these summits, they are issuing the same statements about the urgent need to act.”

In the U.S., issues such as financial regulation and climate change have faded to the background as Congress and Obama work to pass legislation overhauling the health-care system.

Obama’s success on health care, nonetheless, is also something world leaders will be watching, Kupchan said.

“His ability to lead at home is an indicator of his leadership abroad,” he said.

To contact the reporters on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net; Hans Nichols in Washington at Hnichols2@bloomberg.net