Brussels: The Group of Eight major industrial nations announced on Wednesday they will hold a global summit perhaps as early as November in New York to forge common action to prevent another economic meltdown.
French President Nicolas Sarkozy said all European Union nations now backed radical restructuring of international institutions like the International Monetary Fund and World Bank. He demanded that the summit take place in November “preferably in New York, where everything started” and lead toward “a new capitalism.”
EU leaders meeting in Brussels “all agreed that we don’t want the same causes to produce the same effects in future,” he said. “Europe will not let this crisis pass without taking action.”
British Prime Minister Gordon Brown said the meeting would require vision similar to the creation of the UN and the Bretton Woods conference that laid out an international financial and monetary system in the 1940s. Emerging economies such as China and India and European economies outside the G-8 should also participate, he said.
The G-8 leaders said in a joint statement released by the White House that they were united in their commitment to change the regulation of the world’s financial sector to “remedy deficiencies exposed by the current crisis.”
“We are confident that, working together, we will meet the present challenges and return our economies to stability and prosperity,” they said.
Brown, a longtime former Treasury chief widely seen as a leader in crafting policies to combat the financial crisis, said he wants a group of supervisors from major nations to monitor the world’s 30 largest financial institutions.
“I believe there is scope for agreement in the next few days that we will have an international meeting to take common action ... for very large and very radical changes,” Brown told reporters before meeting for talks on the financial crisis with other European Union leaders, who endorsed a euro1.7 trillion ($2.3 trillion) continentwide emergency bailout for the banking sector.
“We now have global financial markets but what we do not have is anything other than national and regional regulation and supervision,” Brown said. “The IMF has got to be rebuilt as fit for purpose for the modern world. We need an early warning system for the world economy.”
Sarkozy said a string of government bailout plans had “treated the immediate symptoms of the crisis without attacking the roots of the disease.”
“We need to found a new capitalism based on values that put finance at the service of companies and citizens and not the reverse,” he told EU leaders.
“This fundamental reform can’t stop at Europe. The economy is global; no country can protect itself alone,” he said. He demanded that new global rules cover all financial institutions including hedge funds.
In a document given to EU leaders at a Wednesday summit and obtained by the AP, Brown said he wants banks to rethink how they deal with risk, and called for rules that make banks hold enough funds to cover potential losses, improve transparency in the system and eliminate conflicts of interest. Brown also wants executives to take more responsibility and end a system that encouraged reckless risk-taking.
The current financial crisis began more than a year ago with heavy losses sustained by financial institutions in the United States on their investments in subprime mortgages.
“Urgent work is needed to prepare proposals that address executive compensation structures that encourage excessive and irresponsible risk-taking by financial institutions,” Brown wrote.
He also said governments need to try to close gaps in the “emerging shadow banking system.”
The financial boom saw many banks jump into largely unregulated areas such as complex securitized investments while high-risk investors like hedge funds operated in near-secrecy.
Brown’s paper urges “globally accepted standards of supervision and regulation applied equally and consistently in all countries.”
German Chancellor Angela Merkel said the G-8 the United States, Japan, Germany, France, Britain, Italy, Canada and Russia and emerging economies had to make decisions “so that something like this can never happen again.”
The G-8 leaders praised the actions taken by finance ministers and central bank governors of the G-7 countries last Friday when they adopted a five-point action plan to deal the current financial troubles. That plan pledged efforts to keep major financial institutions from failing and to unfreeze credit markets. The G-7 includes all the countries in the G-8 except Russia.
President Bush met with the G-7 officials on Saturday and then later in the day attended a session of the Group of 20 nations which includes the G-7 countries and major emerging markets such as China, India and Brazil.
Founded in the aftermath of World War II, the 185-nation International Monetary Fund became the international economy’s firefighter in the 1990s, providing loans to countries in financial trouble from Thailand to Turkey, while requiring dire belt-tightening measures in return.
It has faced an identity crisis in recent years because it has lent less to developing nations. The past week has changed that, with Iceland, Hungary and Ukraine now considering IMF bailouts.