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Europe's leaders call for overhaul of the global financial system

Latest update : 2008-10-16

At the opening of a two-day summit in Brussels, EU leaders expressed concern that the world's economic institutions might be outdated, with French President Nicolas Sarkozy calling for a new Bretton Woods agreement.

 
Britain and Germany joined a French call on Wednesday for an international summit this year to overhaul the world's financial order aimed at preventing a repeat of the worst credit crisis since the Great Depression.

 

European leaders meeting in Brussels feared that spill-over from the U.S. subprime debacle could still plunge the global economy into recession, despite unprecedented rescues of banking giants this week that slowed a free-fall on world markets.

 

Concern about a deepening slowdown wiped away optimism earlier this week that the worst of the crisis might be over, with global stock prices falling sharply anew 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 at an EU summit.

 

British Prime Minister Gordon Brown called for a rebuilding of the International Monetary Fund (IMF) as the keystone of global market regulation and said an early warning system was needed to detect potential future shocks to the global economy.

 

"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 just before the two-day summit began.

 

He said he expected the Group of Eight industrialised nations -- the United States, Japan, Germany, France, Britain, Italy, Canada and Russia -- plus key emerging nations such as China, India, Brazil and South Africa to hold a summit on financial reform in November or December.

 

Germany's Angela Merkel also firmly backed the idea, which French President Nicolas Sarkozy has pushed as the fastest way of revamping international financial structures set up over 60 years ago at the 1944 Bretton Woods conference.

 

"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," she told reporters on arrival.

 

Dutch Finance Minister Wouter Bos said a stronger role for the IMF was needed "in the absence of American leadership at the moment" and that the financial institution should help develop a structure of supervision for global markets.

 

 

 

RECESSION COMING

 

Leaders of the euro zone agreed last Sunday on a concerted 2.2-trillion-euro ($3,023 billion) rescue of European banking giants hit by a credit crunch that began in the United States when house prices started to weaken.

 

Yet 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 the Financial Stability Forum, which have no powers of enforcement.

 

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 unpopular assets such as subprime securities fell.

 

In a separate gesture of support for one of the countries worst hit by the crisis, Belgium said its prime minister would visit Iceland on Friday to see how he could help its Kaupthing Bank, where thousands of Belgians fear for their savings.

 

Aside from the financial crisis, leaders will discuss issues normally weighty enough to dominate the meeting themselves.

 

At stake is an EU goal of leading global efforts to tackle climate change by agreeing in December a plan to cut greenhouse gas emissions, save energy and boost renewable sources -- but which industry and some governments fear could be too costly.

 

The future of a stalled partnership pact with Russia, the bloc's main energy supplier, will 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.

 

Irish Prime Minister Brian Cowen is also due to explain to fellow leaders why his country voted "No" to the Lisbon Treaty this year, throwing into doubt the future of institutional reforms which supporters argue the EU desperately needs.

Date created : 2008-10-15

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