European Union finance ministers backed on Tuesday proposals to reform the world's top financial fora and end market self-regulation that critics say caused the worst financial crisis since the 1930s Great Depression.
The proposals, drafted by current EU president France, signal a reversal of the Anglo-Saxon light-touch regulatory approach that has dominated financial markets since their "Big Bang" liberalisation in the 1980s.
The list of 11 proposals will be submitted for the approval of EU leaders on Friday and then become the 27-nation bloc's position for the G20 leaders summit on Nov. 15 in Washington devoted to an overhaul of global institutions.
"It is a checklist … that clearly we are trying to push at the global level and on which there was massive support within the group this morning," French Economy Minister Christine Lagarde told a news conference after the ministers' meeting.
She said the ministers supported all but one point, which encouraged an internationally coordinated response to future economic challenges.
This was vetoed by Germany, which does not want a reference to anything that could be interpreted as a European economic government called for by French President Nicolas Sarkozy.
"It's very important to us that the suspicion does not arise … that a European economic government is being established," German Finance Minister Peer Steinbrueck told reporters, adding he backed the general thrust of the French proposals.
TRANSPARENCY, RESPONSIBILITY, ACCOUNTBILITY
Their main aim is to curb "short-termism" in financial markets, improve accountability and responsibility, anticipate risk better and increase transparency.
"We have in mind … the fact that we should not over-regulate, not overshoot, but clearly we also want to make sure that we do not leave loopholes or dark holes in the regulations where either products, players or territory would be left completely without such regulation," Lagarde said.
The proposals give emerging countries more say in global financial fora and raise the accountability of credit rating agencies, accounting rule-setters, banks and their top management.
"Our policies have to go beyond simply stabilising the financial markets," Luxembourg Prime Minister Jean-Claude Juncker told the European Parliament.
Hedge funds and private equity face relatively little direct regulation and Lagarde said it was crucial that the proposals be backed globally to avoid giving countries outside the EU a competitive advantage by not applying them.
The European Commission has the sole right to initiate pan-EU financial regulation and has made a mantra of better regulation, meaning rules whose benefits outweigh the burdens.
"We do want to apply this principle also to financial institutions, but for certain sectors and institutions, what we need to do first of all is regulate," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said.
"You can't have better regulation without having regulation in the first place," Almunia said.
A NEW BRETTON WOODS
European leaders such as British Prime Minister Gordon Brown and French President Nicolas Sarkozy want a "Bretton Woods"-style reworking of supervision of global capital markets.
The Bretton Woods institutions are the World Bank and the International Monetary Fund, set up after World War Two.
The two are dominated by G8 members — the United States, Russia, Japan, Canada, Britain, France, Germany and Italy — even though a country such as China now has a bigger economy than many of them.
U.S. officials have been more circumspect than the Europeans about how they see possible reforms, but Germany's Steinbrueck said Washington had an interest too.
"There is a very favourable opportunity to draw up a new financial market architecture with the Americans … (who) have a great interest in regaining the integrity of their financial markets," Steinbrueck said.
Reformers say it is essential for developing countries to take a bigger role in the global system, including the IMF.
"Any new architecture that comes out of the Washington meeting, we need to have proper representatives including emerging countries on the one hand and of course Europe on the other," Almunia said.
Lagarde said: "The IMF should be given a key platform role. They should be doing the analytical work, they should be sounding the alarm."
Britain's Brown, on a visit to Gulf states, called on Saudi Arabia, China and other relatively wealthy countries to help raise hundreds of billions of dollars for a new IMF facility to stabilise struggling economies.
Europe will also call for the expansion of the Financial Stability Forum, a body consisting of regulators, central bankers and finance ministry officials from the G7 and other major economies, as well as international financial institutions and supervisory groupings.
Other proposals touch on oversight of big banks that straddle many national markets and on the internal workings of banks, where procedures to limit risk have been found wanting.
Europe also wants a code of conduct to curb financial incentives that lead to excessive risk taking.
