Brussels, 16/10/2008 (Agence Europe) - Having agreed on a European approach to the current financial crisis, the EU is now planning to ensure a full overhaul of the world's financial set-up. This will be required in order to ensure at global level that a similar crisis will not re-occur in the future, to prevent the same causes leading to the same effects.
'Without exception, all the European Union has endorsed the measures in the action plan' agreed in Paris last Sunday by the eurozone countries (see EUROPE 9760), said French President Nicolas Sarkozy in the evening of Wednesday 15 October. 'The EU is united - it has a plan and it has a doctrine,' added the President of the European Commission, José Manuel Barroso, at a press conference, hailing the fact that EU heads of state had agreed to act together in a coordinated manner. Paying tribute to the work of the European Commission and the decisive role played by Barroso, Sarkozy listed the recently agreed measures and future measures for tackling the current crisis. The conclusions document for the summit endorsed on Thursday 16 October also lists recent and future measures for tackling the crisis (see EUROPE Documents at the end of this newsletter), also hailing the action taken by the European Central Bank (ECB) and confirming that a European crisis management unit will be set up to boost and ensure smooth operation of information exchange mechanisms in the current crisis. An informal information crisis management unit will be set up in the next few days, explained Sarkozy, adding that it would comprise the acting president of the European Council and the presidents of the European Commission, the ECB and Eurogroup.
Determined to step up surveillance of the financial industry, the Council wants to improve the way national supervisors currently cooperate, but the French President explained that some countries had called for a more ambitious approach. Some countries, however, are hostile to the idea of a European regulator. In the conclusions document, the heads of state noted the need to tighten supervision of the financial sector, particularly multinational companies, in Europe and to urgently implement the ECOFIN Council's roadmap in order to improve the coordination of supervision at EU level. A small change was made at the summit, where national supervisors were invited to meet to exchange information on at least a monthly basis.
The document says that the EU has to work with its international partners on real, total reform of the international financial system based on transparency, solid banks, responsibility, integrity and global governance, with the aim of being capable of taking rapid decisions in areas like cross-border supervision. The man who chaired the summit, Nicolas Sarkozy, explained that the European Council had agreed unanimously that it was necessary to move beyond emergency measures and call for an overhaul of the global financial system. Sarkozy warned that people should be aware that Europe would not come out of this crisis unscathed. In the future, for example, no financial institution will be able to wriggle out of regulations and surveillance. Executive pay systems have to be fundamentally re-designed so that they no longer encourage blind risk taking and executives and managers have to be brought to book for their decisions, said Sarkozy.
The French President added that everyone agreed on the need for a global summit on this issue in the very near future, which would no doubt deal with other questions as well. On a roll, he explained that Europe would not agree to the people around the world who got us into this mess being able to find a way round the crisis and simply carry on as before. He said that Europe was unanimous in its desire to prepare a new Bretton Woods before the end of the year (Sarkozy said November would be the best month). This European message will be argued by Sarkozy and Barroso in their meeting with George W. Bush at Camp David on Saturday 18 October, convened to talk about the agenda and invite list for a new Bretton Woods. They will make the same argument in China next week at the ASEM summit on 24-25 October. Barroso said that a response from Europe alone was not enough because the crisis was also being felt by emerging economies. Hence the call for an extended G8 summit also attended by the G13 group of big emerging economies (Brazil, India, China, South Africa and Mexico) and maybe others too (like the G20). Sarkozy said that the crisis was so far-reaching that the summit should cover all parts of the world and nobody must feel left out. The next day, Spanish prime minister José Luis Rodriguez Zapatero said that Spain should be part of the summit.
To illustrate the likely discussions at this big global summit, Nicolas Sarkozy set out some of the questions the summit would address. Is it acceptable for a bank whose loans have been guaranteed to continue to work with tax havens? (He said the answer was no.) What should be done about hedge funds ? What is the difference between a hedge fund and a sovereign wealth fund? What role should international institution play> What should be done with the IMF in the future? What about rating agencies? Should they be kept ? What should replace them ? What about remuneration for operators ? What role should hard currencies play ? The crisis is no doubt crystallising thought on these issues that will lead to a fundamental review. (A.B.)