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EU takes different approach to financial crisis

(Xinhua)
Updated: 2009-03-22 09:24

British Prime Minister Gordon Brown (L) and Foreign Secretary David Miliband attend a press conference held after the close of the two-day European Union spring summit in Brussels, capital of Belgium, March 20, 2009. [Xinhua]

Instead of increasing economic incentives, the EU is clearly more interested in strengthening the international financial supervision and reform of the international financial institutions, in order to better guard against a repeat of the financial crisis.

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On the eve of the EU summit, Merkel and French President Nicolas Sarkozy wrote a letter to the Czech EU presidency and European Commission President Jose Manuel Barros, emphasizing that the EU common position at the London summit should focus on building a new international financial system. Their position has been taken by all EU leaders.

In a long list of the EU common position, the leaders devoted much space to the strengthening of international financial regulation and reform of international financial institutions.

As a general principle, the EU wants supervision and regulation of all sectors and products that may lead to risks in the financial markets -- hedge funds, credit rating agencies, credit derivatives, tax havens, executive pay, corporate capital requirements and accounting standards.

The EU supports reform of the IMF to adapt it to the current global economic pattern. Given the growing weight of emerging economies in the global economy, the EU favors the redistribution of IMF voting rights to give emerging economies more say. The EU leaders also agreed to provide the IMF with 75 billion euros to increase its capacity.

Despite the common position, how far the EU can go in terms of international financial institution reform remains unclear. First of all, a threat comes from the United States. Analysts have pointed out that the United States, by giving emphasis to economic stimulus, was trying to distract the attention of EU on supervision and regulation of international financial institutions.

As the prime source of the financial crisis, the laisser-faire approach of the United States has been under fire. Washington also wants supervision and oversight, but it may not be in complete agreement with the EU as to what extent regulation shall be strengthened.

Secondly, there is doubt about how seriously the EU is considering giving more powers to emerging economies and developing countries in key international financial institutions.

At a G20 finance ministers' and central bankers' meeting on March 14, Brazil, Russia, India and China -- known as "BRIC" countries -- called for immediate measures to expand the four nations' powers in the IMF. There seemed to be disagreements even within the EU's big three -- Britain, France and Germany. Germany and France now also worry that Britain might be leaning toward the United States at the London summit, thus undermining the common EU position.

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