(07/11/08) EU agrees joint line on global financial reform

• 2008-11-08

The 27 EU member states hammered out a common position ahead of a global summit in Washington next week that will launch a major overhaul of the world financial system in the aftermath of the credit crunch.

Background:

French President and EU presidency holder Nicolas Sarkozy called the extraordinary EU summit after announcing his intention to launch a debate on "the refoundation of capitalism" following the collapse of major banks in the US and Europe (EurActiv 22/10/08).

Investors are hoping the G20 will fix the global financial system as the economy moves into a recession, hitting small businesses most severely (EurActiv 15/10/08).

After meeting outgoing US President George W. Bush at Camp David in October, Sarkozy and Commission President José Manuel Barroso unveiled plans for a series of global summits to address the financial meltdown.

The idea had already received the backing of EU heads of state and government at their regular 15 October summit (EurActiv 16/10/08).

Meeting at an informal summit in Brussels on 6 November, the 27 EU heads of state agreed on “common principles […] to build a new international financial system”, insisting that the Washington summit on 15 November “delivers real decisions swiftly”.

Measures agreed in Washington should be implemented within “100 days starting on 15 November”, the leaders said, leaving just over one month to the new US President-elect Barack Obama, to make his input.

In a joint statement , the 27 leaders agreed to bring the following to Washington:

"Submitting rating agencies to registration [and] surveillance".
Adopt principles to ensure the "convergence of accounting standards".
"Decide that no market segment, no territory ,and no financial institution should escape […] regulation or at least oversight".
"Establish codes of conduct to avoid excessive risk-taking in the financial sector", including on the "remuneration" of executives.
"Give the IMF the initial responsibility" and "necessary resources" for "recommending the measures to restore confidence and stability" in the international financial system.

EU leaders also agreed on the necessity to "look beyond the financial crisis" and take measures to address the worsening economic situation. The European Commission was mandated to submit proposal in that direction, ahead of the next EU summit in December.

"The unity of the EU must also be reflected in effective consultation on each Member state's economic policy response to the present situation," reads a key paragraph of the joint statement.

Division have emerged in the past days over what measures the EU should take to tackle a possible recession in Europe. Meeting on Tuesday (4 November), finance ministers failed to reach agreement on the issue, delaying a decision until later (EurActiv 5/11/08).

Spain to attend G20 summit in Washington

In another step forward, EU leaders found a solution to Spain's bid to be represented at the G20 meeting in Washington, where only four EU countries - the UK, France, Germany and Italy - were invited. France was in fact holding two seats at the G20 meeting, one as holder of the rotating EU Presidency and the other in its capacity as a large industrial nation. In a gesture to the Spanish Prime Minister, Sarkozy ceded the first seat to Spain.

Positions:

A bullish and visibly satisfied Nicolas Sarkozy presented the results calling them "strong" and "ambitious". The French President and current EU Presidency holder admitted that discussions had not been easy, with several countries insisting on "one or another" aspect of the document, unusually titled "Terms of reference – agreed language". He called the discussion "rich, long, intense, unusual, informal, free".

Sweden for one has been reported as having objections to the language of the final text. Diplomats told EurActiv that the Scandinavian country, which is not in the eurozone, has in fact been using the opportunity to gain a "droit de regard", which was eventually denied.

Commission President José Manuel Barroso paid tribute to Sarkozy for successfully building consensus around a common EU position. He said the Washington summit "cannot fail" and expressed hopes that it will be a "genuine historic meeting".

"Europe will convey a common clear, strong message at the Washington summit [...] I look forward to work with President Sarkozy and then with the Czech Presidency, to build on what's been achieved. The Washington meeting cannot fail, it has to be a real historic meeting, not just about general principles, but with concrete decisions.[..] We have agreed that these reforms of the international financial system must now integrate in the larger series of the 21st century challenges that we are determined to tackle: food security, fight against poverty, fight against climate change and a promotion of free trade through a rapid conclusion of the Doha round".

British Prime Minister Gordon Brown spoke of a "decisive moment for the world economy”. "The decisions we make now will affect the world for a decade or more to come. People realize now that this is a global crisis that requires a global solution," he told journalists in Brussels.

German Chancellor Angela Merkel said after the summit: "We need more transparence for the financial markets and we need stronger institutions that can act globally". "There may not be any unregulated markets or instruments," she added in reference to rating agencies.

Next steps:

15 Nov. 2008 : G-20 summit in Washington
11-12 Dec. 2008 : EU summit in Brussels

Links

EU official documents

French EU Presidency: Summit statement (7 Nov. 2008)