[Translated from Le Monde (Paris)]
The financial crisis
SARKOZY WANTS TO CONVINCE BUSH OF THE NEED FOR A NEW BRETTON WOODS
By Arnaud Leparmentier
Le Monde (Paris)
October 17, 2008
Nicolas Sarkozy is to meet George W. Bush on Sat., Oct. 18, at Camp David, the American presidents' residence in Maryland. For the French president, who is coming as president of the European Union, it's a matter of getting Americans to accept roughing out an international response to the financial crisis.
At stake in the meeting is setting an agenda to reform the global financial system and arrive at a new Bretton Woods, which took its name from the U.S. city where it was decided to establish the dollar as reserve currency and a system of fixed exchange rates.
The convocation of a big meeting on refounding financial capitalism, however, requires agreeing on who should participate. The French want an enlarged G-8, bringing together the richest countries in the world along with Russia, China, and India. Agreement is also needed on the date of the summit: the Europeans would like it to take place after the American election so that the president-elect can be present. But they also want it to be organized rapidly enough, as early as November, without waiting for the American president to take office in January.
The E.U. also wants the future summit to conclude with decisions, not just broad principles or promises. Their fear is that once calm returns to the financial markets Americans will say to themselves the the market didn't work so badly after all and there's no need to reform everything.
Nevertheless, agreement will be needed on what to reform. The British prime minister, Gordon Brown, has made many proposals to Europeans, from strengthening the IMF to oversight of international banking institutions. These are extremely techinical matters that will require a lot of time to be resolved.
The subject of "hedge funds," speculative funds based in tax havens, will also be crucial. If the fiscal paradises continue to act independently, this could cause the world financial system to leak. To deal with this, the British and the Americans need to adopt a firm position, so that these tax havens, which function as Wall Street subsidiaries, are finally brought under control.
On Friday, George W. Bush said that the modernization of financial regulation should be one of the very first priorities of his successor, even as he warned against the undesirable effects of new regulations.
Translated by Mark K. Jensen
Associate Professor of French
Chair, Department of Languages and Literatures
Pacific Lutheran University
Tacoma, WA 98447-0003
Home page: http://www.plu.edu/~jensenmk/
SARKOZY CALLS FOR REVAMPING OF CAPITALIST SYSTEM
By Edward Cody
** French Leader to Meet With Bush Tomorrow On Financial Summit **
October 17, 2008
BRUSSELS -- European leaders on Thursday urged that a pending international summit carry out an urgent overhaul of the world's financial architecture and impose new controls on freewheeling bankers and traders. U.S. officials pledged that all good ideas would get an airing but hinted of opposition to giving new authority to international regulators.
French President Nicolas Sarkozy, who holds the European Union's rotating presidency, said here that he will meet President Bush on Saturday in Washington to lay the groundwork for the conference, which the Group of Eight industrialized countries is convening. It should "re-found the capitalist system" that has governed international financial exchanges since World War II, Sarkozy said.
E.U. leaders, who on Thursday completed a two-day meeting in Brussels, have called for globally coordinated regulation of the financial industry, elimination of tax havens and a compensation system in which traders are not rewarded for dangerous risk-taking.
The current international financial system grew out of a U.S.-dominated meeting of 44 allied nations in 1944 at a genteel resort in Bretton Woods, N.H., as victory in World War II was coming into sight. In addition to establishing the World Bank and International Monetary Fund, the conference laid down a philosophy of lowering trade barriers and easing the movement of money across borders.
Launching a remake of this old model -- particularly in such a short time, with so many new participants -- would represent a daunting challenge at any time, but particularly during the twilight of the Bush presidency and the crisis that is still jolting banks and stock markets around the world.
Japan's Nikkei stock index fell by more than 11 percent Thursday, and European markets sank across the board on fears that the financial crisis was leading to a sharp economic slowdown despite efforts by government leaders to shore up the system with massive injections of funds. London's FTSE 100 was down 2.9 percent, Frankfurt's DAX dropped by 2.3 percent, and the CAC 40 in Paris was off by 3.6 percent.
Sarkozy said Thursday that continued nervousness in the markets showed all the more clearly that speed and audacity by the world's leaders are precisely what is required. "We do not have the right to let the luck and the opportunity to create the financial system of the 21st century get away from us," he told reporters after the conference.
The bloc's decision to advocate new financial rules and dispatch Sarkozy to carry the torch to Washington was seen here as an affirmation of European confidence and aspiration to leadership at a moment of reduced U.S. influence in world affairs. "Europe wants the summit before the end of the year," he declared. "Europe wants it. Europe demands it. Europe will get it."
White House deputy spokesman Tony Fratto said Thursday that "every good idea" would be considered at the still unscheduled meeting, which was called by the G-8 countries -- the United States, Canada, Britain, France, Germany, Italy, Russia, and Japan. G-8 leaders have urged that leaders from nonmember countries be included as well.
Earlier, Fratto said that anything the gathering did must not restrict the flow of trade and investment. President Bush appeared to echo that concern Thursday when he said at a bill-signing ceremony that "in the long run, one of the best ways to restore confidence in the global economy is by keeping markets open to trade and investment."
José Manuel Barroso, head of the European Union's executive body here in Brussels, cautioned that the United States must be brought aboard for the conference to succeed: "There can't be a solution to the international financial crisis without the active participation of the United States."
Where the summit will take place is also unsettled. Sarkozy has proposed New York. Prime Minister Taro Aso of Japan, which chairs the G-8 this year, wants it to be in his country. He told parliament Thursday that he would prefer that no summit were necessary: "Holding such a meeting would mean we are just one step away from a worst-case scenario," Aso said.
After weeks of prodding, the Bush administration announced Wednesday that it was ready for an international financial conference. But it was unclear whether U.S. officials are as enthusiastic as their European counterparts about moving quickly in new directions.
Although the atmosphere has changed markedly in Washington in recent weeks, with government funds being freely poured into shaky banks, the United States traditionally has been a free-market champion, stripping away controls in its own banking system and demanding that other nations do the same. In contrast, since the financial disruption broke out on Wall Street last month, many European leaders have been calling for a return to more regulation.
British Prime Minister Gordon Brown called for increased supervision of international financial exchanges and suggested the Washington-based IMF should be reorganized to play this role.
"The IMF has got to be rebuilt as fit for purpose in the modern world," he told reporters here Wednesday. "We need an early warning system for the world economy that can involve the supervisors in different countries. Where international or multinational companies work in a whole series of different countries, they themselves are agreeing that instead of having 15 different supervisors meeting separately, that you have a college of supervisors to deal with this issues.
"And there is no doubt," Brown added, "that round the world there is insufficient transparency, too much opacity, too little information about what are the problems that if known about early on can be dealt with."
In an e-mail, U.S. Treasury spokesman Robert Saliterman said that "our top priority right now is restoring stability to our financial system so lending flows again to the consumers and businesses that are the engines of our economy, and we also need to take steps -- working with our colleagues abroad -- to prevent a future recurrence of the current turmoil."
". . . The international community has a very active agenda underway through the Financial Stability Forum and other international bodies," he noted in the e-mail. "We are working together to strengthen practices on -- valuation and disclosure; credit rating agencies, risk management and prudential oversight."
He declined to comment on most of the ideas being floated but did appear to respond directly to Brown's proposal for a college of supervisors, writing that "ultimately regulation is undertaken at a national level, though it must take the global context into account. In this respect, a global regulator is not a realistic approach."
Asked about the conference agenda, Sarkozy threw out a list of ideas similar to Brown's. He also said that some international supervisory body should be set up, associated with the IMF, and that tax havens should be ended. Highly speculative hedge funds should be more closely regulated, he suggested, rating agencies should be made more independent of the financial institutions they monitor, and traders' compensation schemes should no longer encourage risk-taking.
Albrecht Ritschl, an economic history professor at the London School of Economics and Political Science, said that despite talk of a new Bretton Woods, no one yet knows what a new financial exchange framework might look like. "One thing is clear," he added. "Everyone feels a need for regulation of the financial markets."
Sarkozy, Brown, and German Chancellor Angela Merkel will be in close touch in coming days to push the conference to fruition, Sarkozy said. But it should also include some others in the 27-nation European Union and countries whose economies have recently grown to international proportions, such as China and India, he added.
"A new, acceptable architecture of the financial markets can only be drafted together," Merkel told reporters. She said China, India, Brazil, Mexico, and South Africa should be included.
Mark Duckenfield, a lecturer at the London School of Economics, said China and rich Middle East countries in particular would have a natural place in such a gathering because the enormous amount of money they have in reserves makes them players in the international system. "They are the only ones with any money left," he added. "They certainly have the dollars, but what they want in exchange . . . could be the problem."
Christian Dreger, chief economist at the German Institute for Economic Research in Berlin, cautioned that there will be no quick changes. "Different countries will have different interests," he said. "Their banks are affected differently by this. It will be a long-run process."
The E.U. summit that ended Thursday also pledged to proceed with costly anti-global-warming programs despite the crisis, and to extend a bank bailout plan to all of the bloc's 27 member countries.
--Staff writer Peter Whoriskey in Washington, correspondent Kevin Sullivan and special correspondent Karla Adam in London, correspondent Mary Jordan and special correspondent Shannon Smiley in Berlin, and correspondent Blaine Harden in Tokyo contributed to this report.
[Translated from Le Figaro (Paris)]
SARKOZY WANTS A "BRETTON WOODS' BEFORE THE END OF NOVEMBER
By Alain Barluet
** The head of state thinks he can get from his American counterpart, with whom he's meeting Saturday at Camp David, a green light to convene as early as next month a G-7 enlarged to include emerging countries **
Le Figaro (Paris)
October 18, 2008
[PHOTO CAPTION: Nicolas Sarkozy, accompanied by José Manuel Barroso, was greeted Friday at noon at Québec's Citadel by Stephen Harper, the prime minister of Canada, and Michaelle Jean, the governor general of Canada.]
QUÉBEC -- On the strength of the dynamic created by the Europeans, Nicolas Sarkozy arrives today in the United States in order to obtain from George W. Bush his approval for the organization of a great meeting to refound the global financial system. The meeting, which will take place at Camp David, the American presidents' residence in Maryland, will be extremely brief.
The French president will make a brief stop-over at Andrews Air Force Base early in the afternoon, after leaving Québec as soon as the group photo of the Francophone summit has been taken. The meetings with George Bush, in which José Manuel Barroso, the president of the European Commission, will also participate, will last about an hour, followed by a "social" dinner where they will be joined by Laura Bush.
During the meeting, Nicolas Sarkozy and George W. Bush will confront the latest initiatives taken on both sides of the Atlantic to try to stop the collapse of the stock exchanges. The French president will try above all to make progress on the preparation of a G-7 summit enlarged to include emerging countries, above all China, in order to recast the rules of financial capitalism. A new "Bretton Woods," named after the agreements signed in 1944 that have shaped the financial system after the the Second World War. "We cannot continue to manage the 21st-century economy with 20th-century economic instruments," Nicolas Sarkozy argued Friday in Québec's La Presse.
It was Sarkozy who asked to meet with George W. Bush, invoking his visit to Canada. A meeting was quickly accepted by the American president. His successor will be elected in about two weeks, but the White House leader thought it wise to seize the occasion: after having been slow to take the lead, he now has little choice but to restore his grip, given difficulties with the Paulson plan and the persistent reverberations of the crisis.
AGREEMENT IN PRINCIPLE ON HOLDING A FINANCIAL SUMMIT
On Tuesday, Washington announced its decision to become a stockholder in nine of the largest American banks, an unprecedented measure since the 1930s. In the same pragmatic vein, George W. Bush changed his position and approved in principle holding a great financial summit, something the Europeans have been calling for. But there remains the task of setting its parameters and "working on the details," said a diplomatic source.
When he meets with Nicolas Sarkozy, the American president will plead for some delay, to see if the situation clears somewhat. The Americans would be in favor of a summit that would be held in the second half of November, in Washington or New York. Nicolas Sarkozy is arguing for a meeting from Nov. 21 to Nov. 23.
Revising basic agreements on equity capital and bank debt (the Basel II norms, to use technical language) will be on the agenda. How are financial markets to be regulated? Should the IMF be given more power? These are questions that Nicolas Sarkozy wishes to see placed on the table. Along with, as the keystone, stakes that involve everyting except the "details," but that maintain Europeans' and Americans' vision of how financial capitalism should work. Thus at Camp David, Nicolas Sarkozy's priority will be to bring to the fore the need for real regulation of the system, an idea toward which a fringe of the Bush adminsitraiton remains, in principle, viscerally hostile.
-- Translated by Mark K. Jensen
Associate Professor of French
Chair, Department of Languages and Literatures
Pacific Lutheran University
Tacoma, WA 98447-0003
Home page: http://www.plu.edu/~jensenmk/
GLOBAL BANK RULES DRAW RESISTANCE
By John D. McKinnon (Washington), Alistair MacDonald (London), and Alessandra Galloni (Paris)
** U.S., Japan and Business Groups Not Signed On to U.K.'s Cross-Border Proposals **
Wall Street Journal
October 18, 2008
The U.S. and leading business groups are resisting some calls from European leaders to rework the rules of global finance.
European leaders are pressing for changes including global standards for regulation and banking, an early warning system within the International Monetary Fund for the world economy, and a supervisory body for at least the world's 30 biggest banks.
Possible specific measures include liquidity requirements for banks and reducing conflicts of interests at credit-rating firms.
President George W. Bush will have dinner Saturday at Camp David with French President Nicolas Sarkozy and European Commission President José Manuel Barroso to plan a meeting on global financial reforms. Amid repeated calls by European leaders, the U.S. agreed this week to hold a Group of Eight meeting "at an appropriate time in the near future" to begin considering such an agenda.
White House officials are playing down the significance of Saturday's get-together and are raising hurdles to some of the ideas, in particular those pushed by British Prime Minister Gordon Brown. Mr. Brown has talked about holding a second Bretton Woods, a reference to the 1944 conference that set up the post-World War II global financial architecture and created the International Monetary Fund. He has been arguing a similar case since the late 1990s and believes the credit crisis has strengthened his hand.
"We understand the Europeans have strong ideas. They do not have the only ideas," said White House spokesman Tony Fratto.
Particular points of controversy include establishing some sort of international oversight of the world's biggest banks, limits on executive compensation, and more standardization and transparency for derivatives, all suggested by Mr. Brown.
The U.S. is particularly queasy about international oversight of big banks. A senior Bush administration official said "ideas like that are probably political nonstarters in the United States, and in a number of other nations." Administration officials say new international restrictions could limit capital flows around the world, hurting emerging economies as well as developed ones.
Japanese leaders echoed the U.S. hesitation, worried about what signals such a conference would send to markets. "Our honest feeling is that we want to prevent a situation where we need to hold such a summit meeting," Japanese Prime Minister Taro Aso said in parliament. During a meeting in Paris, business leaders from the U.S., U.K., Germany, France, and Italy welcomed actions taken over the past few weeks to stabilize world markets. But they said further intervention would stifle the chances of recovery for the broader economy.
"It was good, necessary and useful that states intervened," Laurence Parisot, president of French business lobby Medef said at a news conference after the meeting. "Now that this has been done, it's up to companies, not states, to create wealth."
"Government must be only a temporary participant," added Emma Marcegaglia, head of Confindustria, the Italian business lobby.
It's likely that a global summit will occur by the end of the year, although the location and timing remain up in the air. One wild card is the ambitions of Asian and other emerging economic powers who have been arguing for a seat at the table where global financial decisions are made.
European leaders have political momentum, having played a lead role in finding a workable solution to the crisis, and some believe that the lame-duck Bush administration would have trouble resisting their proposals. But that could also suggest any big decisions will be kicked to the next U.S. administration.
Many issues under discussion have been endorsed already by both Europe and the U.S. Some come from a set of recommendations worked out by the Financial Stability Forum, a cooperative international body set up in 1999 in the wake of the Asian crisis. A separate international body that sets global banking standards, known as Basel II for the Swiss city where they were crafted, could be another forum for revamping the rules.
Last weekend, finance ministers from around the world ordered the IMF to take the lead "in drawing the necessary policy lessons from the current crisis and recommending effective actions to restore confidence and stability." An IMF official said a preliminary report would likely be ready by year end.