By David Cho, Dan Eggen and Zachary A. Goldfarb
Washington Post Staff Writers
Sunday, October 19, 2008
President Bush announced plans yesterday to host an emergency summit of leaders from the world's top economies to map out a response to the global financial crisis, urging a renewed effort to secure the basis of "democratic capitalism."
The objectives set for the summit are every bit as far-reaching as those of the 1944 landmark meeting in Bretton Woods, N.H., attended by 44 Allied nations to remake the global financial system after the Great Depression. But while that earlier gathering was devoted to coordinating monetary policy and setting up an international currency exchange system, the summit announced yesterday at Camp David would aim to overhaul the regulatory framework for global finance.
The agenda would address a wide range of challenges such as increasing the transparency of markets, revising the rules that govern the flow of investment around the world and improving oversight of big banks, ratings agencies and hedge funds, a senior White House official said. Bush warned, however, that these reforms should not come at the expense of free markets.
Any initiatives that come out of the summit would do little to ease the immediate situation as the meltdown in financial markets takes its increasing toll on livelihoods and living conditions. But the conclave could give Bush a chance to put his stamp on the global financial system before his term runs out.
A joint statement issued after a meeting of Bush, French President Nicolas Sarkozy and European Commission President José Manuel Barroso at Camp David said the European Union, France and the United States had agreed to hold "a series of summits on addressing the challenges facing the global economy," starting with one in the United States "soon after the U.S. elections."
The aim of the first summit would be to "review progress" in the current crisis and "to seek agreement on principles of reform needed to avoid a repetition and assure global prosperity in the future," the statement said. Later summits would be held to implement whatever agreements were made at the first, according to the statement.
The meetings would involve emerging economic powers previously excluded from similar talks as well as those that have dominated the global financial system over the last half century, White House officials said. They would be open to the major industrial states that comprise the Group of Eight -- the United States, Canada, Britain, France, Italy, Germany, Russia and Japan -- as well as leading developing nations such as China, India, and Brazil. Other countries that could be invited include Saudi Arabia, South Korea and Australia.
"As we make the regulatory institutional changes necessary to avoid a repeat of this crisis, it is essential that we preserve the foundations of democratic capitalism -- commitment to free markets, free enterprise and free trade," Bush said, flanked by Sarkozy and Barroso.
"We must resist the dangerous temptation of economic isolationism and continue the policies of open markets that have lifted standards of living and helped millions of people escape poverty around the world," Bush added. His announcement means that Bush, who has already presided over the largest U.S. intervention into the financial markets in 75 years, may also leave a lasting imprint on the structure of the world economy. But many of the key decisions are likely to be left for his successor.
Sarkozy welcomed Bush's announcement of a summit and said it could be held by the end of November. "Since the crisis started in New York, maybe we can find the solution in New York," the French president said.
Barroso, speaking at Camp David, agreed that a "new global financial order" was needed.
But while there is active support within the Bush administration for coordinating with other governments on the response to banking crises, the United States and Europeans could find themselves in conflict over several issues. Leaders from the United States, European countries and other economic powers gathered in Geneva this summer but couldn't agree on a range of issues, including strengthening the global regulatory framework and agricultural tariffs.
The Bush administration, in earlier statements and policy initiatives, has signaled that it is skeptical of the kind of strong medicine that European leaders are prescribing.
Sarkozy, for instance, has said that regulation should apply to every financial firm and institution and called for heightened restrictions on how executives are paid -- positions that go well beyond those of administration officials.
The French leader's remarks also suggested that tensions are likely between the United States and Europe, where countries have a tradition of deeper government involvement in financial markets.
"The president of the United States is right in saying that protectionism and closing one's borders is a catastrophe," Sarkozy said. "He is right to say that it would be wrong, catastrophic, to challenge the foundations of market economics. But we cannot continue along the same lines because the same problems will trigger the same disasters."
Even among European leaders, there is disagreement over how to respond to the financial crisis. Policymakers are debating whether to implement a continent-wide stimulus package to boost Europe's flailing economy. While Sarkozy has floated the idea of such a plan, British Prime Minister Gordon Brown had opposed it.
Europeans, with the exception of the British, also want to increase regulation of hedge funds, the speculative investment funds backed by wealthy investors. European leaders are also looking to revamp the International Monetary Fund, which was set up at Bretton Woods to help struggling economies and to bridge temporary imbalances of payments by poor nations.
So far, Sarkozy has been more explicit than Bush or other European leaders about aspirations for the summits.
Some of the steps envisioned by Sarkozy and Barroso include a global early-warning system to detect economic distress, IMF reform and stiffer regulation for international banks, hedge funds and credit-rating companies. World leaders may also reconsider the rules governing tax havens such as the Cayman Islands, Sarkozy said.
"This is a worldwide crisis, and therefore we must find a worldwide solution," said Sarkozy, adding later: "We must not give way to fatalism."
Yesterday, U.N. Secretary General Ban Ki-moon offered to host a G-8 summit at the United Nations in New York to discuss the financial crisis.
"I strongly believe that holding the summit at the United Nations, the symbol of multilateralism, will lend universal legitimacy to this endeavor and demonstrate a collective will to face this serious global challenge," he said.
But a White House official said while the president appreciated Ban's comments, the administration has committed to hosting the first summit on U.S. soil.