FINANCIAL PACKAGE:EU LEADERS have backed British and French calls for a radical reform of the global financial system amid concerns about how the banking crisis will affect the economy, writes Jamie Smythin Brussels.
At an EU summit in Brussels last night they also agreed to endorse the main points of a comprehensive rescue plan agreed by leaders of countries using the euro on Sunday.
"The EU must work with its international partners on a genuine, all-encompassing reform of the international financial system based on the principles of transparency, sound banking, responsibility, integrity and world governance," said a draft copy of the official conclusions to the European Council meeting expected to be agreed today.
British prime minister Gordon Brown proposed a radical five-point plan over dinner last night to reshape the global regulatory framework of the world's financial system. His "Bretton Woods II" proposal envisages setting up "colleges of supervisors" that would regulate financial institutions that operate in different countries and continents. Mr Brown said he had already held talks with 30 of the largest financial institutions, which had shown a willingness to sign up to the idea.
He said global leaders should hold a meeting before the end of the year to establish the colleges of supervisors, which would replace the existing regime where national financial supervisors regulate banks on their territory.
The other elements of Mr Brown's plan include: reform of the International Monetary Fund (IMF) and the World Bank; the creation of an early warning system to detect potential financial problems; and the early conclusion of a world trade deal.
"As we rebuild our global financial institutions, we also ought to seize the opportunity of a trade deal," he said in a briefing at the start of the summit. He said it was important that all nations send out a message that protectionism was not the right way. "The message must go out that this beggar-thy-neighbour approach of the past is of no use," he said.
The IMF was born of the first Bretton Woods agreement, which set out international economic co-operation intended to avoid repetition of the 1930s Great Depression. Its purpose is to ensure stability of the world monetary system, provide advice to its 184 member states and extend financial help where necessary. But since the IMF was founded in 1944, the world economic landscape has changed dramatically.
Mr Brown said the IMF had to be "rebuilt as fit for purpose [in] the modern world" and urged it to come to the aid of Iceland and any states in central Europe that needed help.
European commission president José Manuel Barroso and French president Nicolas Sarkozy, who chairs the two-day summit as holder of the EU presidency, will travel to the US this weekend for talks with President George Bush to try to get wider global support to hold an international meeting to help reshape the global financial system.
German chancellor Angela Merkel also backed the plan. "I explicitly support the idea that we should have a meeting this year, preferably in November, of the heads of state and government of the G8 countries and the emerging markets, to rethink the world's financial system and prevent any repetition of such things," she said.
The first priority for all 27 EU leaders yesterday was to agree to sign up to the financial rescue plan announced at the meeting of 15 euro zone leaders on Sunday, which Mr Brown also attended. Only the Czech Republic openly expressed concerns about the plan, which includes measures to recapitalise banks, guarantee inter-bank lending and extend deposit guarantees. Prague, which is due to take over the EU presidency in January, accused its EU partners of writing a blank cheque to their banks. But the flexible nature of the euro zone plan, which does not mandate action by any member state, should enable leaders to sign up to its broad outline.
The draft summit conclusions said: "Faced with the financial crisis, the European Council reaffirms that it is determined to take coordinated and thorough action to restore the smooth running of the financial system, thus ensuring the normal and effective financing of the economy."