France and Germany said the top priority for April's G20 summit should be to draw up a new global financial architecture, stressing the need for regulation rather than more stimulus measures, as sought by Washington.
In a joint letter to the EU presidency released today, the leaders of the two countries said the EU should propose all hedge funds and other private investment firms that could pose a systemic risk should be registered, regulated and supervised.
"The top priority is the putting in place of a new global financial architecture," French President Nicolas Sarkozy and German Chancellor Angela Merkel wrote in the letter, released in Berlin and also addressed to European Commission President Jose Manuel Barroso.
Divisions between key players have opened up in the run-up to the April 2nd summit in London of G20 leaders, with France and Germany rejecting US demands to spend more to fight recession. They want the G20 meeting to focus on tighter regulation.
Finance ministers from the G20 last weekend put on a united front and vowed to rescue troubled emerging market economies. They also said they would use their full fiscal and monetary firepower to combat the worst downturn since the 1930s.
But France and Germany made clear in their letter where their priorities were. The two leaders said EU stimulus packages showed Europe was leading the battle against the global downturn.
The EU should also look at drawing up a sanctions mechanism for countries that are uncooperative on regulation and transparency, said Ms Merkel and Mr Sarkozy.
They said they welcomed signals from the European Union that it would be ready to help any member that needed support, saying solidarity and responsibility were key principles for the EU.
"In accordance with these principles, France and Germany welcome (the fact) that the EU has shown itself to be prepared and capable of helping those member states which need support."
"They emphasise the euro zone is not a 'closed society'."
In their letter to Czech prime minister Mirek Topolanek, whose country holds the rotating EU presidency, Ms Merkel and Mr Sarkozy did not elaborate on those comments.
Speculation has grown that EU members might have to help those in a weaker financial situation, such as Ireland or Greece. One option mentioned has been the issuance of a joint euro zone bond, although there has been little support for this idea from countries like Germany.
Reuters