Image: Sarkozy
Herbert Knosowski  /  AP
The president of France, Nicolas Sarkozy, adresses reporters Sunday. He is flanked by, on the left, British Prime Minister Gordon Brown and German Chancellor Angela Merkel, and on the right by the Prime Minister of Italy, Silvio Berlusconi.
updated 2/22/2009 5:44:43 PM ET 2009-02-22T22:44:43

European leaders mounted a united front against the global financial crisis Sunday, proposing sweeping new market regulations, but it remained unclear whether economic giants like the United States and China would go along.

Heads of government and finance ministers from Europe’s largest economies joined German Chancellor Angela Merkel in Berlin to lay the groundwork for a common European position on economic reforms before an April 2 summit of the Group of 20 nations in London.

“Europe will own up to its responsibility in the world,” Merkel told reporters following the talks.

Leaders from Britain, France, Germany, Italy, Luxembourg, Spain, the Netherlands and the Czech Republic agreed to press for sanctions on tax havens, caps for managers’ bonus payments and a stronger role and increased funding for the International Monetary Fund.

While the plans were based on an agenda adopted by the G-20 in November, the measures announced Sunday were more far-reaching and concrete, particularly on long-disputed issues such as hedge fund regulation.

However, analysts say other G-20 members, including the U.S., China, Japan and developing nations like India and Brazil, might not share Europe’s zeal for blanket global regulations.

During Germany’s turn at the presidency of the Group of Eight two years ago, Merkel pushed hard for more transparency on global financial markets and, especially, hedge fund regulation. But her efforts ran into against stiff resistance from Washington and London.

Even the global crisis and a change of administration may not be enough to convince the U.S. to hand over its autonomy.

“I see the U.S. as wary of giving away powers of oversight and regulation,” said Robert Brusca of New York-based Fact And Opinion Economics.

Financial industry leaders, on the other hand, may have lost too much credibility in the current crisis to fight off heavy restrictions on their practices.

“What the industry thinks is irrelevant,” Brusca said.” It has squandered any good will it had by being given a leash of self regulation — then running amok.”

French President Nicolas Sarkozy said that “Europe wants the system to be refounded,” and stressed the importance of the April meeting.

“We all want London to be a success and we are all aware that it’s (our) last chance,” Sarkozy said. “We cannot afford a failure in London.”

European leaders also backed Merkel’s call for a “charter of sustainable economic activity” that would subject all financial market activities around the globe to regulation, including credit rating agencies.

Merkel’s proposal envisions giving increased powers to the IMF, which the leaders agreed needed to receive double its current funding in order to help members respond “swiftly and flexibly” to a crisis.

British Prime Minister Gordon Brown called for a “global New Deal” to be adopted to help right the world economy, saying international financial institutions need some $500 billion to do the job.

That could prove complicated unless the U.S. agrees to cede the needed authority to the IMF to make it effective, analysts say.

“The IMF is a policeman without a whistle, let alone a gun,” Brusca said. “I see more international cooperation as essential but still difficult.”

Other key points agreed to Sunday included adopting a “sanctions mechanism” to penalize tax havens and urging banks to keep larger reserves of capital.

“A new system of regulation without sanctions would not have any meaning,” said Sarkozy.

He said European countries should jointly draw up a list of tax havens, as well as sanctions they might face for continuing reckless financial activity.

Merkel also warned the United States to avoid protectionism in its automobile market.

“When I look at the restructuring plans of some American companies, there are a lot of state funds flowing into them,” Merkel said, swiftly adding that “this is not an accusation.”

She said the European Commission would be asked to examine whether the U.S. was violating global trade laws.

In Washington, the Obama administration did not comment specifically on the measures being advanced by Europe but said the United States was ready to work with other countries to improve financial market regulation.

“We look forward to continuing to work through the G-20 process with our colleagues in Europe and the world to put in place sound regulatory regimes so such a financial crisis does not occur again,” said U.S. Treasury Department spokeswoman Heather Wong.

She said that the administration had worked “at unprecedented speed” to gain congressional passage of a $787 billion economic stimulus plan as well as unveiling new programs to stabilize the U.S. financial system and stem the housing foreclosure crisis.

Officials said a final copy of the summit agreement would not be circulated Sunday, in order to allow European Union members not present to view it first. All 27 EU members are to debate the document next week, and it is to be taken up by the European Council on March 19-20, then presented to the G-20.

That summit will be President Barack Obama’s first and a test of just how much regulation the U.S., and other world leaders, is willing to accept in an effort to prevent another meltdown.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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