A Rare Triumph of Substance at the Summit

But yesterday's G-20 meeting in London was an exception. While President Obama may have overstated things a bit when he declared it a "turning point" for the now-shrinking global economy, the meeting did manage to boost the confidence of financial markets, inject another trillion dollars into the financial system and provide needed political cover for world leaders to take unpopular actions back home.

Ever since this round of G-20 consultations was launched last year by an insistent President Nicolas Sarkozy, there's been a distinctly French accent to the process. Implicit in the agenda has been a critique of the Anglo-American economic model that, in the European imagination, was the root cause of the current economic crisis. Sarkozy's aim was nothing less than a rewrite of the rules for global capitalism to conform to the more civilized norms of the continental European model.

At the same time, British Prime Minister Gordon Brown was keen on creating a new global financial architecture to replace the creaky Bretton Woods financial institutions that failed to prevent a series of international financial crises and now seem oddly out of sync with the global economy.

To the American ear, much of this sounded overdone and overly ambitious.

While the financial crisis revealed an urgent need to better coordinate regulation of global institutions and capital flows, nobody seriously thought that any country -- not the United States, and certainly not France -- would cede its sovereign powers to an international bureaucracy.

After all, the most recent attempt at international regulatory coordination -- the Basel II standards on bank capital -- wound up leaving European banks woefully undercapitalized when the current crisis hit, requiring bank bailouts that in many cases were much larger, in relation to the size of the countries' economies, than in the United States. U.S. banks, by comparison, had relatively more capital, thanks to those worrywarts at the FDIC, who had fought the looser Basel II standards despite their strong support from the banks and their always-accommodating regulators at the Federal Reserve.

The push for broader, tighter cross-border financial regulation, in fact, came largely in response to the light-touch approach of the Bush administration. But whatever transatlantic tension once existed over that issue pretty much melted away last week when Tim Geithner outlined the new administration's regulatory reform proposal, which could just as easily have been written at the French Finance Ministry as at the U.S. Treasury.

In the end, yesterday's communique, with its promise of a global regulatory crackdown, was an easy win for all concerned. Sarkozy and German Chancellor Angela Merkel could declare victory over unfettered Anglo-American capitalism, while Obama now has added political ammunition for taking on the banks, hedge funds, rating agencies and private-equity firms that will try to water down his proposals. While that may constitute a turning point for Anglo-American capitalism, it is hardly the death knell.

Gordon Brown, meanwhile, emerged from yesterday's talks to declare an end to "the old Washington consensus," the now-derogatory description for the policy prescription of open borders, floating exchange rates and fiscal prudence long favored by the World Bank and the International Monetary Fund.

What emerged yesterday from the G-20, however, amounts more to reform than to revolution. Member countries committed themselves to adding $850 billion to the resources available to the IMF and regional development banks to mount rescues of countries in financial distress, with instructions that the money be used not only for traditional purposes such as debt rollover, bank recapitalization and balance-of-payments support, but also for more "flexible" goals such as stimulus spending, infrastructure investment, trade finance and social support.

And just as the old G-7 has given way to the enlarged G-20, the governance structure of the fund and the bank will be revised to give the bigger developing countries the authority they now deserve.

It may suit the politics of Europe to portray all this as a blow to Washington's power and prestige, but the reality may be quite different. In fact, the shift is perfectly in keeping with the new emphasis on the developing world that Obama brings to international economic policy. And if any countries are likely to lose out in the restructuring, they are those of "old Europe" that, by dint of history, now wield power far in excess of their importance in the global economy.

Indeed, while European leaders were crowing that they had successfully beat back calls to step up efforts to stimulate their economies, that's not exactly true. Yesterday's big boost in funding for the IMF could well translate into hundreds of billions of dollars in fresh financing for Eastern European countries that, for political reasons, leaders of Western Europe have been unwilling to offer directly. Yesterday's communique also contains a carefully worded commitment for all countries (read: France and Germany) to increase stimulus spending if the IMF finds that current policies prove insufficient to get their economies growing again.

All in all, a pretty successful opening-night performance for President Obama on the international economic stage. He achieved most of what he wanted while allowing others to claim victory and allowing the United States to shed its Bush-era reputation for inflexibility and heavy-handedness. And by the standards of past summits, this one was full of accomplishment.

By the way, in case you're wondering -- yes, they agreed to meet again in September, this time in New York.

Steven Pearlstein can be reached at pearlsteins@washpost.com.