London: Leaders of the world’s rich and major developing countries began talks aimed at agreeing a new deal on the global economy at a crisis summit in London on Thursday, hoping to clear up divisions over how far to go with tougher financial regulation.
US President Barack Obama and British Prime Minister Brown have expressed confidence that world leaders will come up with a strong agreement to address financial regulation, growth, and troubled banks. But French President Nicolas Sarkozy and German Chancellor Angela Merkel have refused calls for more government spending, and said the meeting must take concrete steps on tougher financial regulation.
Sarkozy has toned down his earlier threat to walk out of the conference, and Obama could be seen chatting informally with Merkel at a leaders’ dinner Wednesday evening.
British Business Minister Peter Mandelson said the Group of 20 countries were in broad agreement to put more resources into the international economy through the International Monetary Fund and other international financial institutions.
“I’m not saying that everything is sewn up. It isn’t,” Mandelson told BBC radio. “I mean there are arguments, or some tensions over precisely what resources we’re talking about.”
Obama has acknowledged that US regulatory failures contributed to the crisis in the financial system, but urged a focus on solutions, saying “We can only meet this challenge together.”
European leaders have balked at moving beyond spending measures already announced, arguing that their more generous welfare systems mean their spending level will rise as more people get benefits such as unemployment insurance.
Sarkozy and Merkel have tried to push regulation to the fore, calling for new scrutiny of ratings agencies and lightly regulated hedge funds. The summit will also examine ways to get so-called toxic assets unsellable securities such as mortgage-backed bonds off banks’ balance sheet where they are impeding lending to consumers and businesses.
World leaders will also come up with more funds for the International Monetary Fund (IMF) to temper the worst economic crisis since the 1930s.
A communique drafted for the meeting, obtained by Reuters, said leaders would submit large hedge funds to supervision for the first time and enhance regulation through a new agency and a beefed-up International Monetary Fund.
However, there was still debate over enhanced funding for the IMF to tackle crises in emerging economies, precisely how to police tax havens and the amount of money to boost trade.
G-20 leaders were preparing a major expansion in resources available through the IMF, possibly including a tripling of its war chest to $750 billion, officials familiar with negotiation of the issue said.
The draft included a pledge to deliver “the scale of sustained effort necessary to restore growth” without making any commitments beyond the trillions being spent to stabilise banks, shore up demand and limit job losses.
Keen to secure a confidence-boosting message as the world succumbs to recession, Obama said there were no substantive differences with Europe, despite a hardball stance taken by the French and German leaders over new financial rules.
Summit hopes boost stocks
World stock prices, battered by the crisis for months, have recovered some lost ground in the last month and shot higher on Thursday on hopes for a strong agreement by the G-20 leaders.
The index of top European shares jumped 3% after Japan’s Nikkei gained 4.4%.
“A good rally is coming through, particularly from Asian markets overnight on hopes for a decent stimulus package from the G-20 to lift confidence, especially with regards to emerging economies and a boost to the International Monetary Fund,” said Henk Potts, strategist at Barclays Wealth.
Those gains will vanish if the summit does not deliver.
The global economy is expected to shrink more in 2009 than any year since World War Two, dropping between 0.5 and 1.0% according to the IMF, whose head, Dominique Strauss-Kahn, is calling it a “Great Recession”.
“They are not yet moving quickly enough in doing the cleaning up of the financial system,” the Financial Times’ front page quoted Strauss-Kahn as saying on Thursday.
The draft communique contained a pledge by the G-20 nations to allow “candid, even-handed and independent” surveillance of their economies and financial sectors by the IMF, which will take an increasingly central role in global oversight.
It also unveiled a new Financial Stability Board to work with the IMF to identify economic and financial risks and measures needed to address them, revamping an existing body called the Financial Stability Forum.
As leaders met in the Docklands, a former shiploading area on the Thames that was redeveloped for business use by the government in the 1980s and 1990s, protesters began a second day of demonstrations. Dozens were arrested in clashes on Wednesday.
Security was tight at the summit venue; hundreds of police manned barriers and checkpoints around the security perimeter.
About a hundred more police officers guarded the London Stock Exchange near St. Paul’s Cathedral in the financial district, watching a group of protesters playing a giant Monopoly game.
Some 4,000 anarchists, anti-capitalists, environmentalists and others clogged the area near the Bank of England on Wednesday for what demonstrators had called “Financial Fool’s Day.” In sometimes violent clashes, one man collapsed and died and police made 86 arrests.