Sarkozy Calls for Revamping of Capitalist System

After weeks of prodding, the Bush administration announced Wednesday that it was ready for an international financial conference. But it was unclear whether U.S. officials are as enthusiastic as their European counterparts about moving quickly in new directions.

Although the atmosphere has changed markedly in Washington in recent weeks, with government funds being freely poured into shaky banks, the United States traditionally has been a free-market champion, stripping away controls in its own banking system and demanding that other nations do the same. In contrast, since the financial disruption broke out on Wall Street last month, many European leaders have been calling for a return to more regulation.

British Prime Minister Gordon Brown called for increased supervision of international financial exchanges and suggested the Washington-based IMF should be reorganized to play this role.

"The IMF has got to be rebuilt as fit for purpose in the modern world," he told reporters here Wednesday. "We need an early warning system for the world economy that can involve the supervisors in different countries. Where international or multinational companies work in a whole series of different countries, they themselves are agreeing that instead of having 15 different supervisors meeting separately, that you have a college of supervisors to deal with this issues.

"And there is no doubt," Brown added, "that round the world there is insufficient transparency, too much opacity, too little information about what are the problems that if known about early on can be dealt with."

In an e-mail, U.S. Treasury spokesman Robert Saliterman said that "our top priority right now is restoring stability to our financial system so lending flows again to the consumers and businesses that are the engines of our economy, and we also need to take steps -- working with our colleagues abroad -- to prevent a future recurrence of the current turmoil."

". . . The international community has a very active agenda underway through the Financial Stability Forum and other international bodies," he noted in the e-mail. "We are working together to strengthen practices on -- valuation and disclosure; credit rating agencies, risk management and prudential oversight."

He declined to comment on most of the ideas being floated but did appear to respond directly to Brown's proposal for a college of supervisors, writing that "ultimately regulation is undertaken at a national level, though it must take the global context into account. In this respect, a global regulator is not a realistic approach."

Asked about the conference agenda, Sarkozy threw out a list of ideas similar to Brown's. He also said that some international supervisory body should be set up, associated with the IMF, and that tax havens should be ended. Highly speculative hedge funds should be more closely regulated, he suggested, rating agencies should be made more independent of the financial institutions they monitor, and traders' compensation schemes should no longer encourage risk-taking.

Albrecht Ritschl, an economic history professor at the London School of Economics and Political Science, said that despite talk of a new Bretton Woods, no one yet knows what a new financial exchange framework might look like. "One thing is clear," he added. "Everyone feels a need for regulation of the financial markets."

Sarkozy, Brown and German Chancellor Angela Merkel will be in close touch in coming days to push the conference to fruition, Sarkozy said. But it should also include some others in the 27-nation European Union and countries whose economies have recently grown to international proportions, such as China and India, he added.

"A new, acceptable architecture of the financial markets can only be drafted together," Merkel told reporters. She said China, India, Brazil, Mexico and South Africa should be included.

Mark Duckenfield, a lecturer at the London School of Economics, said China and rich Middle East countries in particular would have a natural place in such a gathering because the enormous amount of money they have in reserves makes them players in the international system. "They are the only ones with any money left," he added. "They certainly have the dollars, but what they want in exchange . . . could be the problem."

Christian Dreger, chief economist at the German Institute for Economic Research in Berlin, cautioned that there will be no quick changes. "Different countries will have different interests," he said. "Their banks are affected differently by this. It will be a long-run process."

The E.U. summit that ended Thursday also pledged to proceed with costly anti-global-warming programs despite the crisis, and to extend a bank bailout plan to all of the bloc's 27 member countries.

Staff writer Peter Whoriskey in Washington, correspondent Kevin Sullivan and special correspondent Karla Adam in London, correspondent Mary Jordan and special correspondent Shannon Smiley in Berlin, and correspondent Blaine Harden in Tokyo contributed to this report.