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The inauguration of Barack Obama has been greeted by seemingly universal words of welcome and great expectations. German Chancellor Angela Merkel called it "a special day for billions of people all over the world" while French President Nicolas Sarkozy announced "we are eager for him to get to work so that with him we can change the world." In most quarters of the globe, there appears to be a common belief that President Obama will preside over an American government that is ready, willing and able to engage the rest of the world and re-assert its leadership on the most important issues facing the world today and in years to come. Unilateral actions are out, we are told, and multi-lateral cooperation is back on the table.

The first real test of this more global approach is likely to be on display in April, when leaders of the world's twenty largest economies come together in London to discuss possible solutions to the global financial crisis. This will be the first G-20 meeting at which the Obama administration will be a full-fledged participant, but it will be the second such summit since the onset of the global financial crisis. The first took place less than two weeks after Obama's historic election, when finance ministers and central bank governors convened in Washington at the apex of global financial panic.

One of the unexpected consequences of the financial crisis has been the emergence of the Group of 20 as the new forum at which the world's most pressing economic problems will be addressed. This is important because the G-20, unlike the G-7, G-8 or the UN Security Council, represents 85 percent of the world's gross domestic product, including many of the world's largest emerging market economies, like India, China, Brazil and Saudi Arabia. Perhaps more important, in this new, more inclusive forum, neither the U.S., the EU nor anyone else has a veto.

That means that the G-20 is likely to be a more competitive platform for diplomacy, ideas and intellectual leadership.

As that November 2008 meeting approached, many world leaders loudly pleaded for definitive and dramatic action on a global scale. Several declared the meeting should accomplish in several days an outcome akin to that of the Bretton Woods conference in 1944, where new rules and institutions that governed international postwar monetary and financial relations were established. That process took years to negotiate and several weeks to finalize, but this time, as the crisis reached a new peak, expectations were high that significant results could be achieved in a drastically shorter time frame. Chancellor Merkel summed up many people's hopes by declaring that the summit was "about no less and no more than the creation of a new financial constitution" for the world.

In the event - due in large part to U.S. reluctance to take a leadership role in proposing dramatic measures - the November summit ended with a whimper and not a bang. The G-20 issued a lengthy declaration virtually devoid of the kind of aggressive steps that many participants and observers had hoped for. Even taking into account the constraints of limited preparation time and the lame-duck status of the Bush administration, the inability or unwillingness of the U.S. to assert vigorous leadership at that closely-watched moment was striking.

It remains an open question whether the Obama administration can re-establish an effective U.S. leadership role in the run-up to the next G-20 summit in London in April or whether others will see the global financial crisis as providing an opportunity to step into the apparent vacuum. Over the years, there have been many calls for alternatives to U.S. power and leadership, but no "successor" has ever displaced the U.S. from its financial leadership position. This time things may be different. Despite the great hopes being placed upon President Obama, the U.S. administration will have to grapple with some new facts, namely that the world sees the current global financial crisis as: a) America's fault, b) a very big deal, and c) worthy of a reconsideration of the basic assumptions of US-style capitalism that has formed the basis for how much of the world's financial system has operated - at least since the collapse of the Soviet Union.

Failure by the U.S. to understand the depth and gravity of the global impact of this crisis could be very dangerous. As noted by Professors Bruce Jentleson and Steven Weber, "the rules have changed, and the biggest and most basic questions of world politics are open for debate once again." Their article in Foreign Policy magazine (Nov-Dec 2008 issue) raised the question about whether the U.S. is ready to accept that basic assumptions of the past century can no longer be taken for granted. We are likely to see our first indication of how the Obama administration will answer this question by its grasp of the international ramifications of the financial crisis.

Given the political constraints under which the new administration takes office, there are reasons to fear that the U.S. may solely focus on the domestic impact of the crisis and leave global strategic issues until a later day. To do so would be a mistake. In January, a French cabinet minister cautioned that the U.S. should not assume that the period of relative market calm that followed November's G-20 meeting was evidence that the "financial crisis was a ‘little car accident' caused by a few specific U.S. problems and that it would soon be ‘back to business as usual.'" Rather, he argued, what is required is an "intellectual opening-up" where nothing is off the table.

Certainly, no one can accuse the new U.S. administration of underestimating the impact of the financial crisis at home. But it remains uncertain whether the leadership team recognizes just how fundamentally the world's faith in "American-style capitalism" has been shaken. While officials in Washington grapple with the need for a domestic stimulus package, other countries are grappling with far more existential issues. For example, a poll taken in December 2008 in the former-East Germany found that, as a result of this crisis, 52 percent had lost all confidence in the free market economy and 43 percent would support a return to socialism.

The ability of the U.S. to recognize the depth of the anger and blame being cast in its direction is directly related to whether it can lead a global cooperative effort to address the fundamental concerns the crisis has raised. American failure to do so at the November G-20 meeting has already left a big opening for others to step up and try their hands at shaping the future of global finance. In particular, Europe seems poised to exert increasing influence over the next generation of global financial supervision and architecture.

While the new U.S. administration remains relatively silent on the need for global financial reform, Jean-Claude Trichet, the governor of the European Central Bank, recently declared that Europe was addressing issues of financial reform "in a comprehensive and coordinated manner, both globally and at the European level." As he put it: "We need to reform everything; leave no stone un-turned."

Similarly, in January 2009, President Sarkozy, Chancellor Merkel and former British Prime Minister Tony Blair met in Paris to address the difficult but fundamental issue of the appropriate role of the state in a market-based economy. This European-led discussion addressed core issues including which institutions and values should regulate and govern capitalist systems. The message of the meeting was perhaps most succinctly delivered by President Sarkozy, who questioned the morality and logic of "American-style capitalism" and went on to observe that "in the 21st century, there is no longer only one country that says what we should do and think. We will not accept any return to a single way of thought."

With so many basic questions back on the world's table, the impact of European ideas and proposals will likely be more significant and global than it has been for decades. While the scope of past efforts by Europe to create an integrated financial regulatory system has been limited to the euro-zone, or perhaps the broader European Union, it is now likely that European proposals will have far greater reach and impact than might have earlier been the case.

In part this is because the EU, given its complex structure requiring balance between the collective and national interests and authorities of its 27 member states, could prove to be a testing ground for proposals seeking to balance the need to regulate and supervise cross-border financial flows with the need to recognize the interests, culture and governance systems of each individual country.

In particular, the proposals expected this coming spring by the EU high level commission on financial supervision are likely to serve as a template for a much broader constituency of regions, countries and markets around the world. Led by Jacques de Larosiere, this group has a mandate to make proposals for the overhaul and modernization of the overall European financial system. As explained by Commission President Jose Manuel Barroso in setting up the Commission last November, "there is an obvious mismatch between European and global financial markets and supervision which remains largely national. There is wide agreement that we need to bridge that gap but different ideas on how to go about it. So the Group's role is to bring forward concrete proposals which will contribute to greater financial stability and help maximize protection for depositors, policy-holders and investors."

With Europe already hard at work on the monumental task of striking this balance, clues as to the willingness of the new U.S. administration to participate in , much less lead, multilateral solutions, remain elusive.

One cause for optimism about U.S. engagement came in January, however, when the Financial Services Working Group of the "Group of 30" financial experts issued a report with specific recommendations for global financial reforms. This is an informal group comprised of leading economists from both the U.S. and Europe. But it is noteworthy that this team was chaired by Paul Volcker, the Chairman of the U.S. Presidential Economic Recovery Advisory Board and a close economic advisor to President Obama. Its report, "Financial Reform: A Framework for Financial Stability," contained concrete proposals that the Economist hailed as "muscular," even radical. Besides Chairman Volcker, the G-30 includes the EU's Larosiere and the ECB's Trichet together with new U.S. Treasury Secretary Tim Geithner and his White House counterpart, Larry Summers, the director of the National Economic Council. Although these serving officials recused themselves from direct participation in the report, they are believed to support the bulk of the findings. "Everyone stands behind the report in spirit. No one disowned it," an insider told the Economist.

While the G-30 report does not specifically delve into the value-driven existential discussion about the future of global capitalism, it does propose a significant overhaul of the global financial system in ways that are far closer to the ideas emanating from Europe than we have seen from the U.S. thus far. Its 18 specific recommendations in four core areas of review would bring into being a dramatic expansion of government control over banking and investment activities. The report argues for increased oversight of the overall financial system, strict limitations of the size of banks, regulation of hedge funds and greater scrutiny of rating agencies. The report also provides an intellectual contribution to the policy debate that has thus far been largely lacking from Washington.

Perhaps most important, the report contains an overt recognition that the U.S. financial system was a central cause of the global financial crisis and that the steps necessary to prevent financial catastrophes in the future will require global coordination on a scale far greater than what the U.S. had appeared willing to accept in the past. An entire section of the report is dedicated to international coordination, with specific and detailed proposals for how to achieve such coordination. The G-30 report itself goes so far as to tacitly recognize that there are lessons to be learned from the EU experience, noting that "to the extent new international regulatory organizations are ultimately needed, the initial focus should be on developing more formal regional mechanisms, such as in the European Union, but with continued attentiveness to the global dimension of most significant financial markets."

It remains to be seen whether these Volcker-led G-30 recommendations signal a willingness of the new team in Washington to shape a U.S. vision for a new global financial architecture and take on a leading role in international discussions about its vision - or whether the report ends up like so many other academic essays gathering dust on a shelf. The answer will likely be determined in the context of the G-20 when it meets again in a few short months in London.

This upcoming April meeting represents a prime opportunity for the incoming Obama administration to demonstrate that the tone and substance of the G-30 report are indeed reflective of a new U.S. approach to the world - one in which the U.S. is willing to take a realistic approach to global issues, to work cooperatively with others in tackling those issues and to simultaneously re-assert leadership in crafting solutions.

But the April meeting could just as easily result in a further shift of global intellectual and ideological direction away from the U.S. and towards the EU - or elsewhere.

In either case, it is clear that significant structural changes to the global financial system will be proposed, discussed and debated. The major question is whether the Obama administration will recognize just how fragile the U.S. seat at the head of that table has become and re-assert U.S. leadership on the way forward. If not, the next G-20 meeting could deteriorate into a "G-19 plus one."

Douglas Rediker is Director of the Global Strategic Finance Initiative at the New America Foundation in Washington. Portions of this article appeared in an earlier version in the on-line publication, The Globalist. http://www.theglobalist.com/StoryId.aspx?StoryId=7456

1 The members of the G-20 are Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the United States. The European Union is also a member, represented by the rotating council presidency and the European Central Bank.