JAPAN, CURRENTLY the chair of the G8, will consider a proposal by French president Nicolas Sarkozy for a leaders' summit to overhaul the world's financial system in the wake of the economic crisis, a government spokesman said.

Mr Sarkozy made the proposal at the United Nations General Assembly in New York on Tuesday, saying leaders of major nations should meet in November to work on regulating the "crazy" financial system.

"The most important thing to do right now is to restore the markets' confidence in the financial system," said a spokesman for Taro Aso, who took up his post as Japan's new prime minister yesterday. "As far as President Sarkozy's proposal is concerned, we will consider it from this point of view and co-ordinate with the countries concerned."

Mr Sarkozy said the summit of heads of state and government should be based on the Group of Eight (G8) industrialised nations, but also be open to some emerging economies.

Newly appointed Japanese finance minister Shoichi Nakagawa was cautious about France's proposal. "I would not rule out what Sarkozy is saying from the beginning, but we need to watch the situation carefully," he said. "In any case, we need to tackle these issues in a speedy, flexible and effective manner."

Separately, EU Economic and Monetary Affairs Commissioner Joaquin Almunia told the European Parliament that the crisis in the US banking sector was affecting the real economy in Europe, and could depress growth next year and increase inflation.

Mr Almunia said US treasury secretary Henry Paulson's plan to take subprime mortgage debt and other distressed assets off banks' balance sheets was "a good initiative" that should be fleshed out in detail and adopted swiftly to be effective.

"The situation we face here in Europe is less acute, and member states do not at this point consider that a US-style plan is needed," Mr Almunia told EU lawmakers. - (Reuters)