E.U. Wants Financial Reforms Soon
Saturday, November 8, 2008
BRUSSELS, Nov. 7 -- The 27 nations of the European Union demanded Friday that the Bush administration join them in devising and putting into practice "strong, ambitious and operational" measures within 100 days to regulate international bankers more tightly and prevent repetition of the world financial crisis.
The appeal, at a summit of European leaders in Brussels, seemed designed to discourage the Bush administration in its waning days from trying to hand off difficult decisions on new international banking rules and other financial reforms to the administration of President-elect Barack Obama.
Rather, European leaders said, specific decisions should be made at a summit scheduled for next Saturday in Washington, in which Obama's financial advisers should be involved even though the president-elect himself is unlikely to be present. These decisions should be followed up with a second summit 100 days later -- when Obama is in office -- to review how the measures are working and decide on broader reforms aimed at changing the way the entire world financial system works, they added.
Running through the leaders' declaration was a desire that Europe's voice be heard more clearly in Washington as President Bush and his economic team prepare for the summit. The leaders emphasized that delay or soft-pedaling the need to act are unacceptable responses to the banking and market turmoil that rippled from Wall Street into Europe's most trusted financial institutions this fall and contributed to what is expected to be a severe and long-running economic recession across the continent.
"We demand to be heard, and quickly," said French President Nicolas Sarkozy, who holds the rotating E.U. presidency through Dec. 31 and who persuaded Bush to hold the upcoming gathering. He added: "I am not going to be participating in a summit of polite conversation."
Sarkozy said he had explained Europe's position Thursday in telephone conversations with Bush and Obama.
Without detailing his conversation with Bush, he suggested that some U.S. officials are trying to play down the need for immediate and drastic reforms. That would be a tragic mistake, he said, and pointedly noted that a Bush administration decision to allow the Lehman Brothers investment bank to collapse in mid-September triggered a crisis that has brought distress around the world.
"The crisis is worldwide, but we know where it started," he said.
Since the turmoil hit at the end of September, Sarkozy has pushed hard for a common European response and forceful government intervention to prevent bank failures on this side of the Atlantic. At the risk of irritating fellow European leaders, he has used his six-month presidency of the bloc as a bully pulpit to push them toward decisive measures and, beyond Europe, to call for an end to the "folly" of unregulated international banking and investment.
The financial crisis calls out for such decisive leadership, he has told associates, and decisiveness has been a trait of his political career -- to a degree that some qualify as pushy and rash. The satirical French newspaper Le Canard Enchaine, which mercilessly mocks the country's leaders, this week portrayed his wife, former model Carla Bruni, as calling him "my husband the master of the world."
In explaining the strongly worded European appeal, Sarkozy said Chancellor Angela Merkel of Germany and Prime Minister Gordon Brown of Britain -- both of whom have called for caution -- enthusiastically supported the call to Washington for swift and concrete action next Saturday.
"We do not want to go from no regulation to too much regulation," he said, "but we need to change the rules of the game in the financial domain."
Chief among the demands agreed on by the E.U. heads of state and government was tighter regulation of banking and investment markets. "No financial institution, no market segment and no jurisdiction must escape proportionate and adequate regulation or at least oversight," they said in a statement. The regulations must also cover rating agencies and speculative hedge funds, they added.
In addition, the leaders said international financial exchanges must be more transparent, thus more subject to government controls, and pay systems that encourage excessive risk-taking by traders must be changed. Colleges of supervisors should be set up to monitor international financial groups and the way they are regulated by national authorities, and the International Monetary Fund should get more authority to establish an early warning system, they said.
The declaration also called for attention to long-term economic concerns, such as ending hunger, fighting poverty and slowing climate change. But Sarkozy and the European Commission president, José Manuel Barroso, said the ultimate goal of a series of summits beginning next Saturday is to build a new financial system to replace the dollar-based pattern of exchanges inherited from the Bretton Woods conference of 1944.
At that time, as World War II was coming to a close, the U.S. dollar was the world's only currency of reference, Sarkozy said. But times have changed, he said, and now the euro and other currencies have a place in world financial exchanges, a new reality that he said should be reflected in the rules.
Unsaid but clearly present in his remarks was a touch of long-standing European resentment at the United States' ability to run large budget deficits on the strength of the dollar's role as an international investment standard, a privilege European governments do not enjoy even though their currency, the euro, has become one of the world's strongest.