Obama Pushes Banking Overhaul as G8 Opens

Last Updated 2:35 p.m. ET

World leaders gathered Friday to deal with the aftermath of the global financial crisis, with U.S. President Barack Obama citing his country's progress toward overhauling its banking system as he called for coordinating reforms throughout the world.

The main focus of this weekend's summits, said CBS News' chief White House correspondent Chip Reid, will be mending the world economy.

An agreement reached by U.S. lawmakers Friday to overhaul the country's financial system was certain to be a major discussion point over three days of talks in Canada.

Pictures: The G8 Summit
Obama Heading North to Talk Security, Economy

Leaders of the Group of Eight major industrial nations - the United States, Japan, Germany, France, Britain, Italy, Canada and Russia - were meeting Friday at a resort north of Toronto in the Muskoka lakes region.

Those discussions were to move back to Toronto on Saturday and Sunday for talks with the larger Group of 20 major economies, which includes the rich countries and major developing nations such as China, Brazil and India.

The G-20 group represents 85 percent of the global economy. The United States wants it to endorse the outlines for global financial reform to eliminate the threat that banks facing tougher regulations in one jurisdiction will move their operations to countries with more lax rules.

The G-20 countries have been trying for months to overcome differences on financial overhaul centered around setting tougher global standards for the amount of capital the major international banks must have to cushion against losses. Massive losses that began with subprime mortgages in the United States triggered a global meltdown in 2008.

Mr. Obama's push for international financial reform was bolstered by the agreement by U.S. lawmakers reconciling separate bills passed by the two chambers of Congress affecting a wide range of financial transactions. The agreement makes it likely the measure will become law within weeks.

"We need to act in concert for a simple reason: This crisis proved and events continue to affirm that our national economies are inextricably linked," President Obama said on the White House lawn before leaving for Canada.

Mr. Obama, whom Reid notes has taken a very strong leadership role at international economic summits in the past and is expected to do so again, was not getting a lot of support for his cautionary warnings that countries should not pull back their stimulus efforts too quickly.

Britain, Germany, France and Japan have all unveiled deficit-cutting plans.

The G-20 leaders' summits began in the fall of 2008 in response to the global economic crisis that struck with fury after the collapse of Lehman Brothers, a major U.S. investment bank. At that time, the leaders joined to assemble multibillion-dollar support packages to restart economic growth and financial rescue efforts to rescue a froze global banking system.

But now that the banks are back from the brink and the world's economies are growing again, unity is proving more elusive.

Mr. Obama sent a letter last week warning that removing the massive government stimulus spending too quickly could represent a repeat of the disastrous mistakes of the 1930s that prolonged the Great Depression. But Harper sent out his own letter urging establishment of firm deficit reduction goals.

Some leaders didn't appreciate being lectured by President Obama on the need for countries running trade surpluses (which would include China, Germany and Japan)to do more to boost domestic spending to help the global economy, while U.S. consumers, long the driver of global growth, begin to save more.

"German export successes reflect the high competitiveness and innovation strength of our companies," German Chancellor Angela Merkel said in an interview published in The Wall Street Journal. "Artificially reducing Germany's competitiveness would be of no use to anyone."

Canadian Prime Minister Stephen Harper, the host for the summit meetings, was urging the countries to agree to concrete deficit-reduction goals as a way of restoring investor confidence, following the turmoil caused by the Greek debt crisis.

Asked about the disputes over stimulus spending versus deficit reductions, Canadian Finance Minister Jim Flaherty said, "One size doesn't fit all."

The countries were also struggling to resolve major differences over reform of the financial system, including setting tougher standards for bank capital, the cushion banks must hold to cover losses, and over whether countries should impose taxes on banks to reimburse taxpayers for the bank bailouts and to build up funds to cover future bailouts.

The G-8 was also holding an outreach session with leaders of seven African nations. Nigerian President Goodluck Jonathan said the G-20 should be expanded to include more African nations. At present, only South Africa is a member.

"If African nations have challenges, the West also pays for it," Jonathan said in an interview in Toronto's The Globe and Mail. Nigeria, Africa's most populous country, would be a likely candidate for inclusion if the G-20 is expanded.

Summit Debuts

The meeting of the Group of Eight - the U.S., Canada, Britain, Germany, France, Italy, Japan and Russia - will be held on Friday and Saturday at a lakeside resort about 140 miles north of Toronto. They will discuss proposals to increase support for maternal and child health care in poor nations, and hold an outreach meeting with leaders of seven African nations.

The G-8 will also spend time exchanging views on hot-button issues, such as Iran's nuclear program and possible sanctions on North Korea following the sinking of a South Korean warship.

The larger group of 20 nations, including such major developing powers as China, Brazil and India, will meet at the Metro Toronto Convention Centre on Saturday and Sunday.

It will be the first appearance at international forums for British Prime Minister David Cameron and Japanese Prime Minister Naoto Kan. And both were bearing messages that Mr. Obama might rather not hear.

Cameron comes after his government unveiled an emergency budget that contained higher taxes and the toughest cuts in public spending in decades. Kan said this week that deficit reduction would be his top agenda item at the Canadian meetings and that Japan would soon start debating a possible sales tax increase to rein in the nation's bulging deficits.

Both are trying to avoid Greece-style government debt crises.

By contrast, the U.S. has generally said that governments worldwide should not pull back stimulus programs too quickly and risk choking growth.

President Obama in a letter to other leaders cautioned against slamming on the brakes too hard, but encouraged trade "surplus" countries - unmentioned by name but clearly alluding to China, Germany and Japan - to do more to promote domestic spending.

Despite U.S. appeals to refrain from removing stimulus measures too quickly, country after country is rushing to slash spending and raise taxes, including austerity moves in Germany and France.

German Chancellor Angela Merkel on Thursday defended her government's moves, saying in an interview with German public broadcaster ARD that "Germany has done much more to revive the global economy than most other nations."

"The stakes for the United States this weekend are to ensure that all of the major economies in the world are still aligned in terms of how they are trying to respond to what still remains a very difficult economic circumstance," said Stewart Patrick, senior fellow at the Council on Foreign Relations, said on CBS' "The Early Show."

Speaking to reporters aboard his plane, British Prime Minister Cameron said, "This weekend isn't about a row over fiscal policy. We all agree about the need for fiscal consolidation. For me, this G-20 is about putting the world economy on an irreversible path to recovery."

The summit offers Cameron his first chance to meet as prime minister with President Obama since the BP oil spill, which has frayed relations between the two close allies.

Cameron also said his country was paying a "heavy price" for its involvement in Afghanistan and sent condolences to the families of four soldiers killed in a vehicle accident there on Wednesday.

Divisions also persist on proposals for a global bank tax and over how much multinational banks should be required to keep on reserve as a cushion against loan losses.

"The most pressing issue is sustainable economic growth," said Canada's finance minister, Jim Flaherty. But he told a news conference before a speech to the Toronto Board of Trade that this means different things in different parts of the world.

"There are clearly some countries, particularly some European countries, that need to fiscally consolidate on an urgent basis," he said.

He noted that Canada's economy is fundamentally strong and that its banks weathered the financial crisis without failures or government bailouts. "We are the envy of the world," he said in voicing opposition to a global bank tax.

Early Arrivals

One of the first to arrive in Canada was Chinese President Hu Jintao, who met separately on Thursday in Ottawa with Canadian Prime Minister Harper, the summit host.

Harper and Hu signed an agreement that would allow for more Chinese to visit Canada. Hu also agreed to clear the way for Canadian beef to be exported to China. "In the views ranging from developing our own economies, to sustaining the recovery momentum in the global economy ... there is a need and also a possibility for Canada and China to further scale up their co-operation," said Hu.

A move by China to let its currency appreciate against the dollar has also appeared to lessen trade frictions. Hu's government began Monday to allow the Chinese yuan to rise after having fixed the yuan-dollar exchange rate for the past two years.

A more flexible yuan was seen as a critical development by the Obama administration to fulfill one of the G-20 pledges to address dangerous imbalances, such as China's massive trade surpluses and the United States' huge trade and budget deficits. A stronger yuan, which is also called the renminbi, should provide relief for American, European and Japanese manufacturers which have struggled to compete with low-price exports from China.

Critics in Congress are still threatening China with sanctions unless the yuan moves significantly.

The G-20 final statement expected to be issued on Sunday notes that "while growth is returning in many countries, the recovery is uneven and fragile, and unemployment remains at unacceptable levels," according to an early draft that the environmental group Greenpeace said it obtained.

"We recognize the important progress made since our last meeting in Pittsburgh, but we also agree that much work remains," said the draft, posted on Greenpeace's website.

Bracing for Protests

Security was tight as foreign leaders arrived during the day and their motorcades tied traffic into knots near the airport and on roads into town. Barricades turned Toronto's downtown core into a virtual fortress, with a big steel and concrete fence erected over several blocks to protect the summit site.

Canadian police patrolled the Lake Ontario waterfront from boats and jet skis. The number of security forces protecting the summit meetings was estimated to total 19,000, drawn from all over Canada.

A major demonstration was scheduled to begin at 2:30 p.m. local time.

Toronto police defended a law passed by the Ontario government giving police special arrest powers during the summits. It gives police the power to arrest anyone coming within five yards of the security fences erected around the summit site if they refuse to identify themselves.

Police were also allowed to use "sound cannons" agains protesters, albeit at lower decibel levels, a judge ruled.

Although heavier protests were expected later in the week, demonstrations on Thursday were tame and non-confrontational.

Police with bicycles moved in tandem with several hundred First Nations protesters - descendants of Canada's aboriginal residents. They marched through downtown streets, waving upside-down Canadian flags, pounding on drums and shouting, "No G-20 on stolen native land."

Police said they took a man into custody Thursday after searching a car and finding containers of gasoline and implements that could be used as weapons, including a cross bow, a chain saw a baseball bat and sledge hammers; a large makeshift container was strapped to the roof. The car was stopped near a hotel where the French delegation is staying for the summit. Workers at the hotel had walked off the job Thursday as part of a labor dispute.

Constable Hugh Smith said the man was being questioned on why he had so many of the items and why he was in the area. He said charges are pending. The vehicle was seized. Constable Tony Vella said there's no reason to believe the incident was summit-related.