EU finance ministers debate new financial order

Ministers were eager to find an agreement on what should be done to reverse the turmoil that has driven growth down sharply in Europe.

By
November 4, 2008 09:27
2 minute read.
EU finance ministers debate new financial order

EU finance ministers 88 248. (photo credit: )

 
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EU finance ministers on Monday opened two days of talks aimed at crafting proposals for a new global financial order as the gloom in world markets hung over the euro-zone economy's outlook. As the ministers arrived, forecasts published by the European Commission painted a bleak portrait of the region's future. They predicted the economy of the 15 countries using the euro was probably already in recession and would expand by just 0.1 percent in 2009. The euro-zone's largest members - Germany, France and Italy - will come to a standstill or shrink, it said, warning of a deeper credit crunch that would brake the economy, strain government finances and put a near-freeze on household spending. With that dire situation to grapple with, ministers were eager to find an agreement on what should be done to reverse - or at least contain - the turmoil that has driven growth down sharply in Europe. EU officials said European governments were beginning to rally around a consensus to boost the role and powers of the International Monetary Fund to support faltering economies - an issue that will top the agenda of a November 15-16 summit in Washington of G-20 countries, which includes the G-7 industrialized democracies as well as developing powers such as Brazil, India, Russia and China. The IMF has already dipped into its $250 billion reserves to provide emergency loans to Iceland, Hungary and Ukraine totaling $30b. Pakistan has said it may call on the international body for another $5b. British Prime Minister Gordon Brown was in the Middle East over the weekend to push Arab nations into providing hundreds of billions of extra dollars to the IMF, saying the current fund was not enough. European governments have taken the lead in stabilizing the financial system by injecting scores of billions of dollars into failing banks and mortgage lenders. They called on the financial sector to do its share and end behavior that encouraged reckless risk-taking. The finance ministers will debate ways to make global financial markets more transparent and accountable ahead of a meeting of the 27 EU leaders on Friday. The G-20 Washington summit will debate an update of financial rules created in 1944 at Bretton Woods, New Hampshire, that helped nations cope with economic problems following World War II. That conference led to the creation of the IMF and the World Bank. France is pushing for the Washington summit to make concrete reforms, saying they could agree to coordinate regulation for multinational finance groups, to supervise credit rating agencies more closely and tackle risk-taking in the financial sector. German Finance Minister Peer Steinbrueck said he broadly agreed with the French suggestions. But Britain is cooler, saying it thinks it is too soon to sign up to specific rules when global talks are just beginning. The financial crisis and the economic downturn that has followed it have led governments to inject huge sums of money to prop up faltering financial institutions. European carmakers are seeking a similar bailout of €40b. ($50b.) in soft loans to help them create greener vehicles. France wants EU governments to create state-run investment funds to defend companies against unwanted foreign takeovers. Neither proposal is likely to be supported. Germany and several other countries, diplomats said, see both as politically undoable. France, officials said, will again push for reduced value-added (sales) taxes, especially restaurant bills, to stimulate economic growth. Germany, Denmark and Baltic EU states oppose this for fear of losing revenue that, in turn, means less public spending.

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