THE EU’s big economic powers have agreed on the need for tighter regulation for financial markets and products ahead of April’s G20 meeting in London.
Leaders from Germany, France, Britain, Italy, Spain and the Netherlands, at a preparatory meeting in Berlin yesterday, called for “a toolbox of sanctions” to use against countries that serve as tax havens.
They also called for funding for the International Monetary Fund (IMF) to be doubled.
“All financial markets, products and participants including hedge funds and other private pools of capital which may pose a systematic risk must be subjected to appropriate oversight or regulation,” said Dr Merkel, calling for an end to “blind spots” in global regulation.
Her finance minister Peer Steinbrück added after the meeting that future regulation would stretch “even to hedge funds based on islands we only know from tourist brochures”.
Increasing pressure on tax havens could increase tensions with Switzerland. Other European tax havens, according to the OECD, include Andorra, Monaco and Liechtenstein.
German officials viewed yesterday’s preparatory meeting as a policy success.
Two years after their calls for greater hedge fund regulation were blocked, in part by London, German officials said yesterday there was “no longer any dispute” among attendees of the need for hedge fund regulation.
“I found that a remarkable rapprochement from London,” said Mr Steinbrück. Berlin said there was also general approval, too, for its plan for a “charter of sustainable economic activity” to stabilise financial markets, reduce economic imbalances and excess and “lead to the establishment of a global governance structure”.
Leaders in Berlin acknowledged yesterday that the financial market situation was “fraught” with time running out to deliver on pledges at November’s first meeting of the G20 – which in addition to European nations includes the US, China, Japan and developing nations such as India and Brazil.
At the November meeting, leaders agreed a 47-point “action plan” which, if implemented, would represent the greatest overhaul of the global financial markets in 60 years.
French president Nicolas Sarkozy insisted yesterday that the April 2nd meeting, the first international summit attended by US president Barack Obama, could not be satisfied with “transitory, superficial measures, a cheap fix”.
He said the summit represented the last chance to lay “a new foundation of the world financial system”.
“We have to succeed and we cannot accept that anything or anyone gets in the way of that summit which will bear a historical responsibility . . . if we fail there will be no safety net,” said Mr Sarkozy.
British prime minister Gordon Brown welcomed the call to double IMF funding, saying it would help the organisation “not only to deal with crises when they happen but to prevent crises”.
“We need international action to help, for example, in central and eastern Europe where a number of foreign banks have withdrawn to their home banking territories,” said Mr Brown.
“And where it is difficult to recapitalise the rest of the banking system and restructure it without the support of the international financial institutions,” said the British leader.
The leaders proposed asking the IMF and the Financial Stability Forum (FSF) to monitor implementation of the “action plan” of recommendations from last November’s meeting for greater financial market regulation.
Other measures proposed yesterday included full regulation of rating agencies and new principles for manager pay “to prevent bonus payments that contribute to excessive risk-taking”.
Banks should be forced to build up greater financial buffers to protect them in lean times, the leaders agreed.
It remains to be seen how well yesterday’s proposals, to be discussed at March’s EU summit, will go down with other G20 summit attendees in April.
As the global recession deepens, the economic temptation of protectionism will be hanging over the meeting, after talk in Washington of a “buy American” campaign, the “British jobs for British workers” protests and Mr Sarkozy’s suggesting of making state funding for the French car industry dependent on companies using French parts.
Yesterday’s meeting findings appeared to take a watered down view of protectionism, saying that EU countries would “take measures that keep distortions to competition to an absolute minimum, and we expect the other G20 states to behave likewise”.
Czech prime minister Mirek Topolanek, holder of the EU presidency, and European Commission President José Manuel Barrosso – both in attendance yesterday – have spoken out against efforts by France, Italy or Spain to cushion their car industries from the downturn.
Also attending yesterday were the current Euro-Group president Jean-Claude Juncker, the Luxembourg president and the heads of the Bank of England and the European Central Bank.
Outside the Chancellery, members of the environmental organisation Greenpeace stood for hours in the chilly drizzle holding a banner reading: “If the world was a bank, you’d have long saved it by now.”