EU ‘Big Three’ urge global finance shake-up
Written by Writer on Thursday, October 16th, 2008
EU ‘Big Three’ urge global finance shake-up
Published Date: October 16, 2008
Kuwait Times Newspaper
BRUSSELS: France, Britain and Germany led calls yesterday for an overhaul of the world’s financial system aimed at preventing a repeat of the worst credit crisis since the Great Depression while markets slumped again. French President Nicolas Sarkozy told an EU summit that a “new form of capitalism” was needed, as European fears grew that the US subprime debacle could plunge the global economy into recession despite unprecedented rescues of banking giants.
His proposal for talks on reforms to financial architecture won acceptance from the United States, Japan and Russia, which put their name to a Group of Eight statement saying a meeting could be held “at an appropriate time in the near future”. Concern about a deepening slowdown wiped away optimism earlier this week that the worst of the crisis was over, with global stock prices falling sharply once again on recession fears and investors scurrying into safe havens such as gold.
We are not at the end of the crisis. We are still living in dangerous times,” Luxembourg Prime Minister Jean-Claude Juncker, chairman of 15 euro zone finance ministers said on arrival. The 27 EU leaders broadly endorsed a concerted 2.2-trillion euro ($3,023 billion) rescue plan for banks agreed on Sunday by the 15 countries that share the euro single currency, Spanish Finance Minister Pedro Solbes said.
Sarkozy said the credit crunch was “one crisis too many” after the bubble of enthusiasm about a new Internet-driven economy burst in 2001. “The system must be completely overhauled, an overhaul that must be global,” Sarkozy told other EU leaders, repeating his call for an international summit before the end ond of the year, “preferably in New York where everything began”. “A new form of capitalism is needed, based on values which put finance at the service of business and citizens, and not vice versa,” he said, according to a copy of his speech.
British Prime Minister Gordon Brown joined his call for a summit and urged a rebuilding of the International Monetary Fund (IMF) as the keystone of global market regulation. “I believe a forum to decide on big changes in the international economy can be held in the next few months,” he told a news conference, adding he expected the Group of Eight top economies and key emerging nations such as China, India, Brazil and South Africa to gather in November or December.
Germany also backed the idea, which Sarkozy has pushed as the fastest way of revamping international financial structures set up over 60 years ago at the 1944 Bretton Woods conference. “While our focus now is on the immediate task of stabilizing markets and restoring confidence, changes to the regulatory and institutional regimes for the world’s financial sectors are needed to remedy deficiencies exposed by the current crisis,” G8 leaders said in a statement released by the White House.
The G8 includes the United States, Japan, Canada, Russia, Great Britain, France, Germany and Italy. Sarkozy also said a clamp-down was needed on speculative hedge funds and the offshore financial centres that he called “grey zones”. Britain, with links to such centres, has in the past blocked attempts in the EU to target their activities.
Brown insisted that global problems required global solutions, and said the key role in supervision should go to the International Monetary Fund and the Financial Stability Forum (FSF), which have no binding powers of enforcement. Poland’s finance minister said the European Commission circulated a paper at the summit calling for a pan-European supervisory body.
In the latest sign that global recession could follow hard on the heels of the credit crisis, new British figures showed unemployment shooting up to 5.7 percent at its fastest pace since a 1991 slump, with experts predicting worse to come. “We are not out of the tunnel yet,” said Swedish Prime Minister Fredrik Reinfeldt, urging other EU members to back the measures taken by Britain and the 15 euro zone countries. “Then we have the tools to get out of the tunnel.
The summit will give the executive European Commission a green light to come up with regulation of some areas of the financial sector. Commission President Jose Manuel Barroso called on Tuesday for a rethink of supervisory rules on markets, banks, hedge funds and private equity. But a paper that Brown presented to summit leaders, seen by Reuters, omitted any mention of such European regulation, concentrating on a bigger oversight role for the IMF and FSF.
The Commission proposed on Wednesday higher minimum guarantees for bank deposits of 100,000 euros by 2009 and is due to produce guidelines on executive pay.
EU accounting regulators also voted to ease an accounting rule blamed by EU leaders for exacerbating the impact of the credit crunch on the continent’s banks. Critics blame the so-called fair value rule for forcing banks to take unnecessarily big writedowns after market prices on assets such as subprime securities fell.
Aside from the financial crisis, leaders will discuss EU efforts to tackle climate change by agreeing in December a plan to cut greenhouse gas emissions, save energy and boost renewable sources-which industry fears could be too costly. Russian ties will also come up after Moscow pulled its troops out of buffer zones around the rebel Georgian regions of South Ossetia and Abkhazia following August’s conflict. - Reuters
