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22 July 2024

Europe’s main economies gather to talk crisis

German chancellor Angela Merkel. (AFP)


The heads of Europe's main economies gathered Sunday to try to find a common approach to the deepening global financial crisis amid behind-the-scenes disagreements over the way forward.

The British, French, Italian, Spanish and Dutch leaders met in Berlin to coordinate a European stance to take to a summit of the Group of 20 (G20) developed and major developing countries in London on April 2.

The world's major economic powers are under pressure to build on pledges made at the G20 summit in Washington in November, where they formulated an action plan for fighting the crisis.

But the global recession has deepened since then, leading governments to hastily push through massive economic stimulus packages and overshadowing efforts to reform the global financial system.

The national stimulus plans have sparked fears of protectionism which could hinder efforts to present a united European front.

The Berlin meeting hosted by German Chancellor Angela Merkel comes at the end of a week in which the economic crisis focused on central and eastern Europe, raising fears over potential fallout among highly exposed banks in western Europe.

French President Nicolas Sarkozy stressed he would not accept "a weak compromise, a cheap fix" in establishing the European position.

"The violence of the [economic] crisis, its depth, call for really profound changes. We have to start capitalism again from scratch, make it more moral[...] that is why I want to see a real response [in Berlin]," Sarkozy said.

Merkel too turned up the heat ahead of the meeting, calling for stronger regulation and oversight of financial markets.

"There should be no more gaps" in international controls of financial products, the head of Europe's biggest economy said in her weekly video message Saturday.

Germany's finance minister said Saturday in a briefing that it would push to reinforce rules for hedge funds and better rating systems to avoid more meltdowns in the future.

German officials have also signalled they want to have “exit strategies" ready for when the crisis begins to abate.

European officials suspect Britain's resolve to tighten the regulation of markets may be waning, with London concerned that its position as Europe's pre-eminent financial centre could be undermined.

But British Prime Minister Gordon Brown pledged this week that the world would see "unprecedented cooperation" over the next few months in grappling with the financial crisis.

He has already called for world leaders to strike a "grand bargain" to help the recession-struck global economy.

British priorities for the April summit include kick-starting lending, renouncing protectionism, reforming global financial regulation and cracking down on tax havens, according to a preparatory report.

In a comment piece in the Observer newspaper on Sunday, Brown called for a "reformed and more responsible banking system" in the wake of a huge British bailout of troubled banks.

"Banks must act in the long-term interests of their shareholders and therefore of the economy as a whole, not in the short-term interests of bankers," Brown wrote.

"That has to be the foundation on which a new system must be based."

The European Union - also a member of the G20 - will be represented at the meeting by European Commission President Jose Manuel Barroso.

European Central Bank President Jean-Claude Trichet and Mirek Topolanek, prime minister of the Czech Republic, which currently holds the rotating EU presidency, will also attend.

Troubled eastern European currencies are likely to feature in discussions.

They have plunged against the euro while industrial output has withered and once-buoyant economies in which western Europe had placed high hopes are sliding towards recession.

In a particularly gloomy assessment for the region, French bank BNP Paribas warned in a research note on Friday that "several CEE (Central and East European) countries seem to be on the verge of collapse."