French President Nicolas Sarkozy has called for a complete overhaul of the global financial system and an extension of regulation to all financial institutions, including hedge funds, as a response to the current crisis.
Speaking at the start of the EU leaders' summit in Brussels on Wednesday, Sarkozy said the current financial-markets crisis was “one too many”. “The system must be completely overhauled”, he said, leading to a “new form of capitalism” that “puts finance at the service of business and citizens”.
Sarkozy said “no financial institution should escape regulation and supervision”, highlighting the need to regulate hedge funds. His comments are a direct contradiction of the position of the European commissioner for the internal market, Charlie McCreevy, who has refused to propose specific regulation for hedge funds, saying that the current financial market crisis originated in banks, the most highly regulated part of the financial sector.
The French president said that the first priority of the current crisis had been dealt with. The EU now has to ensure that “mistakes made in earlier crises ... do not recur”. Referring to the crash that emerging markets experienced in 1998 and the internet bubble in 2001, he said governments had “dealt with the malady's symptoms but did not strike at its root causes”.
Sarkozy said that the crisis had shown that the economy was global and that “no country could protect itself alone”. The French president said the overhaul of the system should involve all financial and economic powers, including emerging countries. At the same time, international authorities should eliminate “off-shore centres”, which he described as “grey areas that undermine our efforts at co-ordination”.
Sarkozy said that world economic governance was “too fragmented”. There should be a “new mode of co-ordination between all the players involved”.
The president said there should be an international summit before the end of the year as a “starting point” for “the great reform”.
A ‘new Bretton Woods'
UK Prime Minister Gordon Brown said earlier on Wednesday there should be an international summit to agree what he called “a new Bretton Woods”, a reference to the 1944 meeting which agreed the post-war international financial institutions.
Sarkozy said in his speech to the other EU leaders that he had proposed a new Bretton Woods in September when he addressed the United Nations General Assembly in New York. The new system, he said, would have to have “all the necessary political legitimacy” and to show it could deal with the new global challenges.
EU leaders are set to approve a common approach to tackling the financial-markets crisis, including the use of public funds to recapitalise ailing banks, guarantees for bank deposits and new capital for interbank lending.
On Wednesday afternoon, the European Commission proposed increasing the level of deposit guarantees to €100,000 within a year. But that suggestion has met with resistance from the Polish and Czech governments, who argue that the sums are too high given the size of their economies and the average savings of their citizens.
Leaders will also discuss measures to share the burden of meeting ambitious targets to cut greenhouse-gas emissions by 2020. Eight countries, led by Poland and Hungary, have warned that they should not be expected to shoulder too great a share of the burden given the lower levels of prosperity in their countries and the effects of the financial-markets crisis.
