The European Union’s position on the Washington financial summit differs from that adopted by emerging economies and Washington under George Bush.
On November 7, French President Nicolas Sarkozy said at an informal European summit specifically called to prepare for the G-2O meeting that the European Union “should adopt a common position” on reforming the world’s financial system. Brave words. For even as Europe tried hard to work out a joint proposal to take to Washington this week-end, fresh frictions emerged between the two giants of the Euro zone – France and Germany, on whether a joint Eu ropean recovery plan is desirable, feasible or possible.
European solidarity also appeared brittle over exactly how far European nations should and could go to coordinate their efforts to reverse the current situation; and this with the backdrop of Germany, Europe’s powerhouse, officially slipping into recession. For the moment at least, European solidarity and commitment to unity appears to be paper thin.
Ever since the crisis broke this summer, Mr. Sarkozy has been striding up and down the world stage at his hyper-active best, calling meeting after meeting to meet the worst financial and economic challenge the world has faced since 1929. It was at his insistence that President Bush agreed to hold this week-end’s G-20 meeting. In scores of inflamed speeches, Mr. Sarkozy has spoken of a “great opportunity” to abandon the “hateful practices” of the past. “We cannot continue along the same lines because the same problems will trigger the same disasters … we must reform capitalism so that the most efficient system ever created doesn’t destroy its own foundations,” he said recently.
Speaking on behalf of the European Union, President Sarkozy who holds the organisation’s rotating six-month presidency, has led calls for a broad overhaul of global finance, prescribing a stiff dose of tougher regulation to fix the system’s ills. European leaders would like to see the International Monetary Fund turned into the lead agency for spotting emerging financial problems, and taking action to stop them spreading.
They also want big emerging economies such as China and Saudi Arabia brought into the system and encouraged to spend their vast cash reserves to help alleviate the crisis. Europe’s leaders want to see more regulation of the financial services industry. No sector is to be left unregulated or without supervision and that includes offshore financial havens. Another key objective is a code of conduct to control pay and bonuses in the financial sector. Governments want to shift reward away from short-term fast profit operations, towards long-term, real value creation
French President Nicolas Sarkozy said EU leaders had reached a ‘pretty detailed common position’ which they will be taking to Washington.
However, several countries in Europe expressed their displeasure at what they see as a hijacking of the situation by the EU’s big three, Britain, France and Germany. Swedish Prime Minister Fredrik Reinfeldt said Stockholm for one had “a number of objections” to a series of proposals France is touting as Europe’s contribution to the Washington summit, arguing in particular that “there is too much regulation.”
“It is very easy to be in such a rush to show leadership that one forgets to correctly and thoroughly analyse” the situation, Reinfeldt said. “These are very complex questions regarding how to globally work with different kinds of regulation.”
Eager for the Washington summit to be more than just a talking shop, the EU’s French presidency also wants it to be followed up with concrete proposals in the ensuing 100 days.
France and Italy are, generally speaking, far more positively inclined toward state intervention in the economy than England or even Germany. Thus, while some EU states may see the financial crisis as an occasion for governments to rein in unbridled market capitalism, others are more likely to view it as a problem to be overcome while preserving the basics of the current system.
In addition to the differing positions adopted by individual states, societies themselves, whether in Britain, the Netherlands, France, Spain Germany or Italy are sharply divided on the best course of action to follow. Left wing economists like Frenchman Alain Fitoussi feel that the response to the financial crisis should go far beyond emergency cash infusions. “There are opportunities for the left to iron out some of the social differences that plague our societies, to put it on a more egalitarian footing. This moment should be seized to change that.”
His words find echo in controversial Swiss polemicist Jean Zeigler who has sharply criticised the West with “playing with the lives” of the very poor in the developing world while enriching themselves.
But others see this as a power grabbing move by governments in the market place where they should not be present at all. “Some governments are actually quite keen to exploit the precedent that has been set to re-establish a more … interventionist industrial or economic policy,” Simon Tilford, chief economist at the London-based think tank, Centre for European Reform, said in an interview.
The Europeans’ gung-ho attitude contrasts sharply with that of Washington and the cautious, wait-and-see approach adopted by emerging nations. Many observers feel the summit will achieve little or nothing and end up being yet another talk shop essentially because President Bush has been reluctant to examine any new reform proposals and because President-elect Barak Obama has chosen not to attend.
White House press secretary Dana Perino said no concrete solutions or decisions should be expected from the summit. The goal was “to start identifying ... the underlying causes of the financial crisis,” she said.
White House spokesman Tony Fratto minimised the odds that G-20 leaders could agree, for instance, on new regulations on complex securities, such as the mortgage-backed instruments that have unhinged global credit markets. Instead, the leaders are expected to name working groups that, over the coming months, are to make recommendations on overhauling various areas of the financial system.
“It’s inconceivable that leaders...could sit down and deal with those in a weekend summit,” Mr. Fratto said. “What they can do, which is really important, is set the principles that will guide those discussions that we want to speed up.” Mr. Fratto said it will take time to develop solutions. “The last thing you want are rash decisions that lead to unintended consequences that the world isn’t prepared for,” he said.
China and the oil-rich OPEC states have reacted cautiously to European calls that their foreign exchange reserves be used to bolster the International Monetary Fund’s (IMF) core financial structure. However, no EU leader has suggested power sharing reforms to go with such largesse and this has several emerging economies bristling. The IMF chief is and will continue to be European and the World Bank chief will be an American unless emerging economies can successfully bargain for change with a weakened West.
The big emerging countries that have become the main pillars of world economic growth will certainly seek to push their way into positions of power at the rich nations’ club. Brazil, Russia, India and China — the so-called BRIC countries — are determined to have their new heavyweight status recognised by the Group of Seven advanced countries, and win a say in directing the planet’s economic affairs.
The demand by the BRICs was partially conceded by the main industrialised countries at a preparatory G20 meeting of finance ministers and central bankers in Sao Paulo last week. The group agreed that the IMF and other institutions formed from the 1944 Bretton Woods accord “must be comprehensively reformed so that they can more adequately reflect changing economic weights in the world economy.” The U.S. representative at that meeting, David McCormick, Treasury undersecretary for international affairs, said Washington has long backed giving emerging countries more say in the IMF and the World Bank.
The summit, he said, “will be an opportunity for a very focused discussion among the world leaders on the global financial market crisis, and it will lay the groundwork toward making important regulatory changes.” But so far no concrete moves for change have been made or even envisaged by the West.
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